Summary of Employment-Related COVID Relief Provisions

Division N – COVID-Related Tax Relief

Sec. 276. – Clarification of tax treatment of forgiveness of covered loans. The provision clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a Paycheck Protection Program (PPP) loan. This provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision.

Sec. 278. – Clarification of tax treatment of certain loan forgiveness and other business financial assistance under the coronavirus relief legislation. The provision clarifies that gross income does not include forgiveness of certain loans, emergency EIDL grants, and certain loan repayment assistance, each as provided by the CARES Act. The provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income by this section, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income. The provision is effective for tax years ending after date of enactment of the CARES Act. The provision provides similar treatment for Targeted EIDL advances and Grants for Shuttered Venue Operators, effective for tax years ending after the date of enactment of the provision.

Sec. 279 – Authority to waive certain information reporting requirements. The provision gives Treasury authority to waive information filing requirements for any amount excluded from income by reason of the exclusion of covered loan amount forgiveness from taxable income, the exclusion of emergency financial aid grants from taxable income or the exclusion of certain loan forgiveness and other business financial assistance under the CARES act from income.

Sec. 280 – Application of special rules to money purchase pension plans. The CARES Act temporarily allows individuals to make penalty-free withdrawals from certain retirement plans for coronavirus-related expenses, permits taxpayers to pay the associated tax over three years, allows taxpayers to recontribute withdrawn funds, and increases the allowed limits on retirement plan loans. This section clarifies that money purchase pension plans are included in the retirement plans qualifying for these temporary rules. The provision applies retroactively as if included in Section 2202 of the CARES Act.

Sec. 285 – Election to Terminate Transfer Period for Qualified Transfers from Pension Plan for Covering Future Retiree Costs. Section 420 of the Internal Revenue Code permits “qualified future transfers,” under which up to 10 years of retiree health and life costs may be transferred from a company’s pension plan to a retiree health benefits account and/or a retiree life insurance account within the pension plan. Such transfers must meet a number of requirements: the plan must be 120% funded at the outset, it must be 120% funded throughout the transfer period, all unused amounts must be transferred back, and the plan is subject to a maintenance of effort requirement. Applying the current-law requirements during the market volatility related to the coronavirus pandemic has caused plans that have been historically far over 120% funded to fall below 120% and face a requirement to immediately restore these large market losses in order to get back to 120% funded. This provision would allow employers to make a one-time election during 2020 and 2021 to end any existing transfer period for any taxable year beginning after the date of election, provided the maintenance of effort continues to apply as if the transfer period were not shortened, the employer ensures the plan stays at least 100% funded throughout the original transfer period, the plan has funding targets for the first five years after the original transfer period, and all amounts left in the retiree benefits account at the end of the shortened transfer period must be returned to the pension plan (without application of an excise tax to such amounts).

Division EE – Taxpayer Certainty and Disaster Tax Relief Act of 2020

Title I – Extension of Certain Provisions

Subtitle A – Certain Provisions Made Permanent

Sec. 103. – Benefits provided to volunteer firefighters and emergency medical responders. The provision makes permanent the exclusions for qualified state or local tax benefits and qualified reimbursement payments provided to members of qualified volunteer emergency response organizations and increases the exclusion for qualified reimbursement payments to $50 for each month during which a volunteer performs services. This provision was originally reinstated for 2020 in the SECURE Act.
Subtitle B- Certain Provisions Extended Through 2025

Sec. 119. – Employer tax credit for paid family and medical leave. The provision extends, through 2025, the employer credit for paid family and medical leave, which permits eligible employers to claim an elective general business credit based on eligible wages paid to qualifying employees with respect to family and medical leave. The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages, and is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per taxable year.

Sec. 120. – Exclusion for certain employer payments of student loans. The provision extends, through 2025, the allowance for employers to provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law. The provision applies to any student loan payments made by an employer on behalf of an employee through 2025.

Title II – Other Provisions

Sec 208. – Minimum age for distributions during working retirement. The provision amends the Internal Revenue Code to allow employees in the building and construction industry who have attained age 55 and are not separated from employment to make distributions from certain tax-exempt multiemployer pension plans if they were participants in such plan on or before April 30, 2013.

Sec 209. – Temporary rule preventing partial plan termination. This provision allows sponsors of defined contribution retirement plans to avoid the partial plan termination rules if the active participant count as of March 31, 2021 is 80% of the active participant count at the time the national emergency was declared. American Retirement Association pandemic relief proposal! 

Sec. 214. – Temporary Flexible Spending Account rule. 

• Allows plans to permit health and dependent care flexible spending arrangements (FSAs) to carryover unused benefits up to the full annual amount from 2020 to 2021 and 2021 to 2022;
• Allows plans to permit a 12-month grace period for unused benefits or contributions in health and dependent care FSAs for plan years ending in 2020 or 2021
• Allows plans to extend the maximum age of eligible dependents from 12 to 13 for dependent care FSAs for the 2020 plan year and unused amounts from the 2020 plan year carried over into the 2021 plan year; and 
• Allows plans to permit a prospective change in election amounts for health and dependent care FSAs for plan years ending in 2021.

Title III – Disaster Tax Relief

Sec. 302. – Special disaster related rules for use of retirement funds. These provisions provide disaster tax relief - including the special retirement plan distribution and loan rules that we have seen repeatedly now in past disaster tax relief bills – for individuals and business in Presidentially declared disaster areas - OTHER THAN COVID-19 - after December 2019 through 60 days after date of enactment.