On December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021 (“COVID-19 Stimulus Act”), authorizing assistance to businesses and individuals impacted by COVID-19, including but not limited to: 1) aid to businesses through the reopening of the Paycheck Protection Plan; 2) expanded unemployment benefits; and 3) direct payments to eligible individuals. Notably, the “COVID-19 Stimulus Act does not include an extension of mandatory Paid Sick Leave and Paid Family Medical Leave previously required by the federal Families First Coronavirus Response Act (“FFCRA”), which expired on December 31, 2020.
At the end of December 2020, Michigan Governor Gretchen Whitmer signed a series of bills designed to assist Michigan businesses and individuals economically impacted on account of COVID-19. Additional COVID-19 assistance includes: 1) grants for businesses and venues partially or fully shut down on account of the pandemic; 2) extension of unemployment benefits; and 3) a moratorium on public water supplies shutting off water services to occupied residences due to nonpayment until March 31, 2021.
Federal Aid for Businesses
The recent federal action includes an aid component for small businesses, nonprofits, and venues similar to the CARES Act, in that the COVID-19 Stimulus Act provides new loans under the Small Business Act’s Paycheck Protection Program (“PPP Loans”). This new federal action also addresses certain tax treatment and forgiveness of PPP Loans businesses may have received earlier this year under the CARES Act.
Who is Eligible to Receive a PPP Loan Under the COVID-19 Stimulus Act?
The COVID-19 Stimulus Act provides for “second draw loans” to businesses who have already received, and spent, PPP Loans under the CARES Act. Generally, a business is eligible to receive a second draw loan if it:
- Has 300 or fewer employees,
- Was in operation on February 15, 2020, and
- Can demonstrate a decline in gross receipts of at least 25% in 2020 using gross receipts from 2019 (or if they were not in business in 2019, then gross receipts from the first quarter of 2020).
Additionally, a business must have already received a PPP Loan under the CARES Act and either has used or will use the entire amount of that previous PPP Loan by the date its second draw PPP Loan is expected to be distributed. For businesses with multiple physical locations, the 300-employee limitation will apply per physical location.
Does The COVID-19 Stimulus Act Expand What Businesses Can Use Their PPP Loans for and Still Be Eligible for Loan Forgiveness?
Yes, The COVID-19 Stimulus Act adds several new categories of expenditures for which PPP Loan recipients may use their loan funds and still be eligible to have the loans forgiven. Namely, new expenditures as 1) covered operations expenditures, 2) covered property damages costs, 3) covered supplier costs, and 4) covered worker protection expenditures.
A Covered Operations Expenditure is “a payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.”
“Covered Property Damage Costs are costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.
“Covered Supplier Costs,” on the other hand, are expenditures made by an entity to a supplier of goods for the supply of goods that:
- are essential to operations at the time the expenditure is made; and
- made pursuant to a contract, order, or purchase order either
- in effect at any time before the before the origination of the applicable loan; or
- with respect to perishable goods, in effect before the origination of the applicable loan or at any time during the “covered period” selected by the PPP Loan recipient.
A “Covered Worker Protection Expenditure” is a cost or expense of implementing new workplace policies or procedures, or purchasing fixtures or equipment, to comply with either federal or state safety-related procedures or requirements relating to COVID-19. This may include such things as installing a drive-through window facility, a new ventilation or filtration system, glass or plastic sneeze guards, expanding a hallway or room to accommodate social distancing, or purchasing equipment for onsite or offsite health screening. Purchasing certain personal protection equipment may also qualify. Notably, The COVID-19 Stimulus Act excludes residential real property and intangible property from covered worker protection expenditures.
And there is good news: loan forgiveness for these new expenditures is available to any business that was in operation on February 15, 2020, and used PPP Loans to fund these newly forgivable expenditures. But remember: no business can seek forgiveness under this new federal aid for the same thing already forgiven by the CARES Act.
Will I be able to Deduct Expenses if I used my PPP Loans to Pay for them?
Yes! This Act clarifies the tax treatment of expenditures using PPP Loans received under either form of federal COVID-19 relief action we’ve discussed. Under the new law, the PPP Loan is not included in the gross income of the business. Moreover, use of a PPP Loan for any cost or expense that would otherwise be eligible for a deduction can also still be deducted as if it was not purchased or expended using PPP funds. This tax treatment applies to PPP Loans received under the CARES Act in all tax years ending after the CARES Act was enacted. This means that businesses may deduct expenses that would otherwise be eligible for deductions if paid for by PPP Loans received under the CARES Act for tax year 2020, and any year thereafter.
Federal Expansion of Unemployment Benefits and Halt on Residential Evictions
The COVID-19 Stimulus Act again included a weekly enhancement of federal benefits to the unemployed. Between December 26, 2020, and ending March 21, 2021, eligible unemployed individuals will receive an additional $300 in federal pandemic unemployment compensation per week. (Recall that this federal expansion had previously been $600 in weekly benefits.) Other expanded unemployment benefits include an extension of the FFCRA’s Pandemic Unemployment Assistance program that issued unemployment benefits to gig workers, freelancers, independent contractors and other newly eligible individuals. That program will close to new applicants on March 14, 2020, but payments will still be issued to eligible individuals through April 5, 2020.
The Act also extends the CDC’s moratorium on certain residential evictions (identified in the “Temporary Halt in Residential Evictions To Prevent the Further Spread of COVID-19”) until January 31, 2020.
Federal Stimulus Payments to Eligible Individuals
Like its predecessor, the FFCRA, the COVID-19 Stimulus Act also provides for direct payments to eligible individuals. Eligible individuals earning $75,000 or less annually will receive $600 in direct payment, while eligible couples earning less than $150,000 combined who also filed a joint return will receive $1,200. In addition, eligible individuals with child dependents will receive $600 per qualifying child. To date, some individuals may have received the COVID-19 Stimulus Act direct payment if they utilized direct deposit on their tax returns. For individuals receiving tax returns via a check, the IRS has until January 15, 2021, to issue those direct payments.
No Extension or Renewal of Federal Paid Leave Mandate—But Mind Your Mandatory Quarantines!
We all certainly learned well in 2020 that the federal FFCRA compelled employers to provide eligible employees with new categories of paid leave: 1) FFCRA Paid Sick Leave and 2) FFCRA Emergency Family Medical Leave (collectively “FFCRA Paid Leave”). Full-time employees qualifying for FFCRA Paid Sick Leave were entitled to up to 80 hours of paid sick leave, while qualifying part-time employees were entitled to as many hours of leave as they would normally receive in a two-week period. In addition, FFCRA Emergency Family Medical Leave provided eligible employees who were unable to work (or telework) because of COVID-19 related childcare obligations up to 12 weeks of paid Emergency Family Medical Leave. But the FFCRA expired on December 31, 2020.
The COVID-19 Stimulus Act did not renew or extend employer obligations to provide FFCRA Paid Leave. With this development, Michigan employers must still remain mindful of the state requirements to provide their employees paid sick leave as required by the Paid Medical Leave Act (PA 338 of 2018), as agreed upon in a collective bargaining agreement or employment agreement, or as outlined in the employer’s employee handbook or other policy.
The COVID-19 Stimulus Act did, however, extend the timeline for claiming tax credits on FFCRA Paid Leave used by employees. Now, employers that voluntarily continue to provide both types of FFCRA Paid Leave to their employees are also eligible to receive a tax credit for FFCRA compliant leave used by employees from January 1, 2021, to March 31, 2021. Given that state and local government employers are not eligible to receive the tax credit, its extension has little to no weight in their decision to continue offering FFCRA leave.
Even without mandates for paid leave, it remains critical to know the current state of the law on the issue of employee quarantine. First, and perhaps understandably, Michigan employers are still prohibited by law from discharging, disciplining or otherwise retaliating against employees who miss work because of quarantine for COVID-19 related reasons. Public Act 238 of 2020 (just amended last week by Senate Bill 1258) requires employees to stay home from work and quarantine when they:
- test positive for COVID-19 or
- display the principal symptoms of COVID-19 or
- have close contact with an individual displaying the principal symptoms of COVID-19 or
- have close contact with an individual diagnosed with COVID-19.
Michigan law now acknowledges and reflects changes to the Centers for Disease Control guidelines as to length of quarantine or isolation when exposed to, experiencing symptoms of, or diagnosed with COVID-19, resolving some fascinating discrepancies that existed between the law, MiOSHA Rule, and CDC guidelines.
Employees who test positive for COVID-19 cannot return to work until the health care provider or public health professional advises that the isolation period is completed and all of the following conditions are satisfied:
- If the employee has a fever, 24 hours have passed since the fever stopped without the use of fever reducing medications;
- The isolation period has passed since the principle symptoms of COVID-19 started;
- The employee’s principal symptoms of COVID-19 have improved; and
- If the employee has been advised by a health care provider or public health professional to remain isolated, the employee is no longer subject to such advisement.
Employees who display a principal symptom of COVID-19 but have not yet tested positive cannot return to work until one of the following conditions are met:
- A negative diagnostic test result is received; or
- All of the following:
- The isolation period has passed since the principal symptoms of COVID-19 started;
- The employee’s principle symptoms of COVID-19 have improved; and
- If the employee has a fever, 24 hours have passed since the fever stopped without the use of fever reducing medications.
Aside from certain exempt employees (see Section 4 of Senate Bill 1258), employees who had close contact with an individual who tests positive for COVID-19 cannot return to work until one of the following conditions are met:
- The quarantine period has passed since the employee last had close contact with the individual; or
- The employee is advised by a health care provider or public health professional that they have completed their period of quarantine.
Now, “isolation period” and “quarantine period” mean the number of days that an individual is required to isolate or quarantine per CDC COVID-19 guidelines. These definitions mean that how long an employee has to quarantine or isolate under Michigan law is determined, in part, by the most recent guidance from the CDC. Since CDC guidance for isolation and quarantine periods are subject to change, we will continue monitoring these guidelines for future updates.
State of Michigan COVID-19 Relief Measures
In the final weeks of 2020, the Michigan Legislature and Governor collaborated to pass multiple pieces of legislation to combat the economic fallout of COVID-19.
Senate Bill 748—Appropriations for COVID-19 Relief
Senate Bill 748 featured increased funding of survival grants for businesses, created a COVID-19 employee assistance fund, and increased funding for first responder hazard pay premiums amongst other items.
Senate Bill 748 includes $55,000,000 in grant funding for businesses impacted by the Michigan Department of Health and Human Services’ (“MDHHS”) Gathering and Face Mask Order. To be eligible for a grant, a business must 1) have 100 or fewer employees; and 2) have been fully closed or partially closed on account of the MDHHS’s Gathering and Face Mask Order. Businesses fully closed on account of that Order can receive up to $20,000 in grant funding, whereas businesses partially closed are eligible to receive up to $15,000. Grant funds can only be used for working capital to support payroll expenses, rent, mortgage payments, utility expenses and costs related to reopening a business. There is also now separate grant funding for live music and entertainment venues that have been closed, with those businesses being eligible to receive up to $40,000. Businesses interested in applying for a grant under this program are encouraged to monitor the Michigan Economic Development Corporation website for additional information.
This Bill also funds an employee assistance fund where the MDDHS Order has created an impact, based on severity of individual losses. A Michigan resident who can demonstrate the following may be eligible to receive a one-time grant of $1,650:
- The employee is currently or was furloughed or laid off, or received reduced hours of work due to the Order.
- The percentage of income lost due to the Order.
- The employee has, in good faith, been financially negatively impacted by the Order.
Other notable COVID-19 related expenditures in Senate Bill 748 include $40,000,000 for first responder hazard pay premiums and $51,334,700 for COVID-19 vaccine strategy.
Uncertainty Due to Line-Item Veto
We will continue to monitor the extension of unemployment benefits for Michigan employees who are laid off or furloughed. On December 29, 2020, Governor Whitmer signed Michigan Senate Bill 604 into law, which seemingly extends unemployment benefits from 20 weeks to 26 weeks through March 31, 2021. However, Senate Bill 604 tied that extension to the Governor’s approval of Senate Bill 748’s $220,000,000 appropriation to cover employers’ required contribution to the unemployment compensation fund. Governor Whitmer used a line-item veto to that portion of Senate Bill 748, casting doubt on whether the extension of unemployment benefits will go into effect. As of this writing, spokespersons from the Governor’s office have said the Governor’s rejection of the appropriation for the unemployment compensation will have no impact on unemployment eligibility.
Moratorium on Residential Water Shutoff
To ensure individuals financially impacted by COVID-19 still have access to essentials, the State of Michigan passed a moratorium on residential water shutoffs through Public Act 252 of 2020. A “public water supply” is prohibited from shutting off water service to any occupied residence due to nonpayment until March 31, 2020. Water service must also be restored to any occupied residence where water services were shut off due to nonpayment, as long as the public water service does not have reason to believe reconnection would cause a public health risk due to an improper cross connection.
While the law and employer obligations related to COVID-19 are rapidly evolving, Fahey Schultz Burzych Rhodes is committed to providing you with the most accurate information possible as quickly as we can.
This communication is not intended to constitute legal advice. Since COVID-19 laws and regulations continue to evolve and each of your circumstances are unique, we encourage you to reach out to us if you have questions about how this or other COVID-19 related government action may impact you.