Relief

Article Dean Dorton

On January 20, 2022, the U.S. Department of Education (the Department) announced $198 million in American Rescue Plan funds that will primarily support community colleges and other institutions to meet the basic needs of students – especially those exacerbated by the COVID-19 pandemic. The Supplemental Support under American Rescue Plan (SSARP) program will require institutions to submit applications to receive funding.  The Department plans to prioritize community colleges and rural institutions that serve a high percentage of low-income students and have continued to experience enrollment declines.  SSARP funds are to be used toward evidence-based practices to monitor and suppress Coronavirus, strategies for addressing students’ basic needs, supporting students in continued and re-enrollment, forgives of institutional debts, and expansion of programs that lead to in-demand jobs.

As part of the announcement, the Department also released additional guidance surrounding meeting students’ basic needs.  The guidance provides specific examples for areas of insecurity with housing, food, and childcare.  The guidance can be found here.

Additionally, the Department reminded institutions that they can now use the Free Application for Federal Student Aid (FASFA) data to communicate other federal programs for which they may qualify, like Supplemental Nutrition Assistance Program (SNAP) and the Affordable Connectivity Program at the Federal Communications Commission.  Find the letter from the Department here.

Dean Dorton’s Higher Education team is monitoring all updates from the U.S. Department of Education and will update you if there is new information released. Find additional information about the latest release below.

HEERF FAQGEN-22-02Read More

Megan Crane, CPA
Assurance Associate Director
mcrane@deandorton.com • 859.425.7643

Article Dean Dorton

Exactly nine months after signing the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law, on December 27, 2020, former President Trump signed the Consolidated Appropriations Act, 2021 (Appropriations Act). The CARES Act established the Paycheck Protection Program (PPP) and the potentially lucrative payroll tax credit known as the Employee Retention Credit (ERC). The Appropriations Act extended and modified the PPP and ERC. Both programs were further revised by the American Rescue Plan (Rescue Plan) signed by President Biden on March 11, 2021.

The information provided in the guide below is highly abbreviated as there are thousands of pages of statutes, regulations, and other materials related to the PPP and ERC. Thus, the information should not be relied upon as accounting, tax, or legal advice. Before acting, please consult an advisor about your specific situation.

A Guide to the 2021 Paycheck Protection Program and Employee Retention Credit

Download the Guide

covid19solutions@deandorton.com

Article Dean Dorton

We previously published an article highlighting key provisions in the American Rescue Plan Act of 2021 (ARP or Rescue Plan) for small businesses. The $1.9 trillion relief package was signed into law on March 11, and contains several tax changes.

Partial income tax exclusion for unemployment compensation received in 2020

Generally, an individual’s gross income includes unemployment compensation. For taxpayers whose adjusted gross income (AGI) is less than $150,000, the ARP excludes up to $10,200 of unemployment compensation received in 2020 from gross income. In the case of a joint return, the $10,200 exclusion applies to each spouse. The exclusion does not apply to taxpayers whose AGI is $150,000 or more; in this instance, all of the taxpayer’s unemployment compensation is taxable. The IRS has urged taxpayers who have already filed their 2020 tax return not to file an amended return or take any action because reductions in taxable income and refunds, if appropriate, will be processed automatically.

Another round of stimulus checks

The ARP authorizes a third round of stimulus checks. The stimulus payments are structured as refundable tax credits against 2021 income taxes, but the IRS has already started distributing advanced credits based on information from taxpayers’ 2020 income tax returns (or 2019 returns, if a taxpayer’s 2020 return has not been filed when the advanced credit is issued).

Payments are equal to $1,400 per eligible individual ($2,800 for married couples filing jointly) and $1,400 for each eligible dependent. For single taxpayers, the payment begins phasing out at an AGI of $75,000 and is completely phased out for individuals with an AGI of more than $80,000. The phase-out for married couples filing jointly begins at an AGI of $150,000 and ends at an AGI of $160,000. For heads of household, the payment begins phasing out at an AGI of $112,500 and is completely phased out at an AGI of $120,000.

Expansion of the child tax credit and child and dependent care credit

Child tax credit

For 2021, the ARP temporarily increases the amount of the child tax credit by modifying several provisions of existing law. The ARP makes the credit fully refundable and increases the maximum age for an eligible child to seventeen. It also increases the maximum amount of the credit from $2,000 to $3,000 per child ($3,600 for children under age six). The increased credit amount phases out for taxpayers with an AGI of more than $75,000 for single filers, $112,500 for heads of household, and $150,000 for married couples filing jointly.

The IRS is directed to issue half of a taxpayer’s expected 2021 credit in periodic payments from July through December of 2021. The remaining half of the 2021 credit will be claimed on the taxpayer’s 2021 income tax return (filed in 2022). The amount of the payments advanced during 2021 will be estimated by the IRS based on the taxpayer’s 2020 income tax return (or 2019 return if the taxpayer has not filed a 2020 return).

Child and dependent care credit

The ARP also makes several changes to the child and dependent care credit for 2021. This credit is available to taxpayers who pay expenses for the care of a child or other qualifying individual to enable the taxpayer (and the taxpayer’s spouse, if filing a joint return) to work or actively look for work. The amount of the credit is equal to a percentage of expenses paid to a provider for the care of the child or other qualifying individual. Notably, the ARP makes the child and dependent care credit refundable, allowing taxpayers with little to no income tax liability to benefit from the credit.

Generally, the total expenses that may be used to calculate the credit cannot exceed $3,000 (for one child or qualifying individual) or $6,000 (for two or more children or qualifying individuals). The ARP temporarily increases the cap on expenses to $8,000 and $16,000, respectively.

The ARP also increases the credit rate for certain taxpayers. For taxpayers with AGI of less than $125,000, the credit is equal to 50% of eligible expenses. The 50% credit rate phases down for taxpayers with AGI of $125,000 or more, until it reaches 20% for taxpayers with AGI of $185,000. The rate remains at 20% for taxpayers with AGI up to $400,000 and then phases down to 0% for taxpayers with AGI of more than $440,000.

The ARP also increases the maximum amount of employer-provided dependent care assistance that taxpayers can exclude from their income from $5,000 to $10,500. Like the changes to the child and dependent care credit, this change is effective for 2021 income tax returns only.

Extension of excess business loss limitation

The Tax Cuts and Jobs Act (TCJA), enacted at the end of 2017, introduced a limitation on business losses deductible by individuals and other non-corporate taxpayers (trusts and estates) against non-business income. Specifically, the TCJA disallowed 2018 net tax losses from active businesses in excess of $250,000 (for individual taxpayers) and $500,000 (for joint filers), adjusted annually for inflation. Under the TCJA, the excess business loss (EBL) limitation was effective for tax years 2018 through 2025. In March of 2020, the CARES Act retroactively postponed the effective date of the EBL limitation until tax years beginning in 2021, resulting in taxpayers filing amended returns to claim their full net tax loss.

On a less favorable note, the ARP extends the EBL limitation for one year, through 2026.

Miscellaneous tax provisions

The ARP contains a handful of miscellaneous tax provisions, including:

  • Providing for temporary, fully subsidized COBRA continuation coverage premiums for eligible individuals and reimbursing the taxpayer to whom the premiums are payable through a premium assistance credit, taken against the employer’s share of Medicare tax;
  • Specifying that gross income does not include any amount resulting from the discharge of any student loan occurring between 2021 and 2025;
  • Repealing the election to allocate interest expenses of members of a worldwide affiliated group on a worldwide basis, effective for tax years beginning after December 31, 2020; and
  • Broadening the provision that limits a publicly-held corporation’s deduction for compensation paid to certain employees by expanding the list of covered employees for years after 2026.

covid19solutions@deandorton.com

Related Articles

Article Dean Dorton

The Department of Education (ED) has released new guidance for all Higher Education Emergency Relief Fund (HEERF) allocations passed by Congress to date.

One of the biggest items in the new guidance is that the ED has now clearly formalized that all HEERF allocations (from all 3 rounds) are eligible to be used with the guidelines for all permitted uses dating back to March 13, 2020. See the notice below:

Department of Education Notice

In addition, the new guidance clarifies that the one-year spending period that has been applied to each individual HEERF allocation is being reset with the granting of each additional HEERF allocation. As such, schools have one year to spend its remaining HEERF funds (regardless of which round) from the date of its upcoming award notification from the American Rescue Plan.

The ED officially document that all HEERF funds can be used for grants to student, including those that are not Title-IV eligible, such as non-degree-seeking, non-credit, dual enrollment, and continuing education students, as well as students who have left school for any reason during the period of the national COVID-19 emergency that began on March 13, 2020. The updated guidance also allows for grants to qualified aliens.

The ED confirmed that institutions can pay these grants to students using their normal process for providing credit balance refunds to students without obtaining consent from the student. These funds must remain unencumbered by the school. If the school is applying the emergency grant directly to existing balances, the institution must obtain student consent first.

Finally, the Ed also released new Frequently Asked Questions that addresses many of the open questions regarding lost revenue as one of the allowable uses of all HEERF institutional funds. Lost revenue must be directly related to COVID-19 and the calculation can take in account all lost revenues dating back to March 13, 2020. Allowable lost revenues include tuition, room, board, fees, summer camps, bookstore, parking, and other institutional revenue sources that have been impacted. Lost revenue does not have to be associated with, or netted against, expenses and is considered an allowable use for quarterly and annual reporting to ED and on the Schedule of Expenditures of Federal Awards (SEFA).

Lance Mann, CPA, CFE, CGMA
Assurance Director
lmann@deandorton.com • 502.566.1005

Article Dean Dorton

Medicare Physician Fee Schedule Final Rule

The Medicare Physician Fee Schedule Final Rule for Calendar Year 2021 was published in the Federal Register on December 28, 2020. This Final Rule went into effect on January 1, 2021 and implemented the following changes:

  • Streamlined the reporting process for office and outpatient evaluation and management (E/M) services and increased the relative value units (RVU) for E/M services. The new Physician Fee Schedule provided significant increases in RVUs for common office and outpatient E/M services such as maternity care bundles, emergency room visits, end-stage renal disease capitated payment bundles and therapy evaluation services. The goal is to reduce billing and coding burdens on physicians and reimburse time spent evaluating and managing a patient’s care.
  • Expanded the list of covered telehealth services specific to the PHE and makes permanent certain codes that were only temporarily added since the onset of the PHE and created a new category (Category 3) of telehealth codes on a temporary basis to the approved list of Part B telehealth codes that will be covered for the duration of the PHE.
  • CMS acknowledged the importance of vaccinations to the public health and proposed increasing payment for vaccinations. On March 15, 2021, CMS increased the Medicare payment for COVID-19 vaccine from about $45 to $80 for a single dose of the vaccine and a payment rate of $80 for the vaccine requiring two doses.  The new and higher payment rate is designed to increase the number of vaccines providers can furnish each day. Vaccine providers are prohibited from charging patients any amount for this vaccine administration as a condition of receiving free COVID-19 vaccines.

Consolidated Appropriations Act

Signed by President Trump on December 27, 2020, this legislation includes the following provisions important to hospitals and health systems.

  • Provider Relief Funds – allows providers to calculate lost revenues using “any reasonable method” for the calculation that include the difference between budgeted and actual revenue if such budget had been established and approved prior to March 27, 2020.
  • Provides a 3.75% increase in payments un the Physician Fee Schedule for 2021.
  • Eliminated the Medicare sequester cuts for the first three months of 2021.
  • Lifts the cap on Medicare-funded physician residency positions in teaching hospitals by 1,000, effective in FY2023.
  • Includes $30 billion for the purchase and administration of COVID-10 vaccines and related therapeutics.
  • Protects patients from surprise medical billing that arise from out-of-network emergency care provided at in-network facilities without the patient’s informed consent (effective 1/1/2022).
  • RHC payments – increases the Medicare cap for independent rural health clinics to $100 beginning on 4/1/2021 and gradually increases the upper limit each year through 2028 until the cap reaches $190. Provider-based RHCs which are provider-based to hospitals with fewer than 50 beds and certified after 12/31/19 also will now be subject to a cap to their reimbursement.  For the provider-based clinics approved prior to 12/31/19, they will have a clinic-specific cap established based on their 2020 all-inclusive rate that will grow annually at the Medicare Economic Index.

Dan Schoenbaechler, CPA, FHFMA
Healthcare Consulting Manager
dschoen@ddafhealthcare.com • 502.566.1097

Article Dean Dorton

Written by Kaydee Ruppert, Accounting & Financial Outsourcing Manager at Dean Dorton

The Employee Retention Tax Credit (ERTC), often referenced to as just ERC, is confusing a lot of nonprofit employers. If it’s confusing to you, you’re not alone! There are many nuances to this credit, but the following outline will assist you in navigating and maximizing the opportunity presented by ERTC.

The version of ERTC applicable to 2020 is slightly different than the version adopted for 2021, so they are addressed separately below for greater clarity. Also note that receipt of a Paycheck Protection Program (PPP) loan in either round does NOT prohibit your organization from taking advantage of the ERTC if you otherwise qualify, although any wages used for the ERTC cannot be used for PPP loan forgiveness.

2020 ERTC

Organizations that qualify for ERTC in 2020 may still apply for a refund or tax abatement applicable to the credit.

Determine Qualified Time Period
There are two methods for determining your organization’s qualified time period for 2020 ERTC. If both apply, you should select the one that covers the greater number of days. If neither apply, your organization is not eligible for ERTC for 2020.

If applicable, your organization’s qualified time period matches the dates during which operations in 2020 were at least partially suspended because of government orders limiting commerce, travel or group meetings due to COVID-19. The government issuing the order(s) that suspended your operations may be local, state or federal, but it must be a government order and not self-imposed. The starting date for suspended operations cannot be before March 13, 2020. The start and end dates of your qualified time period using this method of calculation will likely not coincide with the start or end dates of any given quarter.

If applicable, gross receipts for your organization must have significantly declined for one or more quarters in 2020 as compared to 2019. To determine eligibility under this method, first determine total gross receipts by quarter for 2019 and 2020. Divide the 2020 quarter totals by the respective 2019 quarter totals. If the result is less than .5, note the first day of that quarter per the chart below. That is the start of your significant decline in gross receipts. Compare subsequent quarters until you reach a result that is greater than .8. Note the last day of that quarter per the chart below. That is the end date of your significant decline in gross receipts.

Start and End Date for ERTC Sample Periods: 2020 ÷ 2019
Q1 3/13/2020 – 3/31/2020

<.5

 >.5

>.5
Q2 4/1/2020 – 6/30/2020

<.8

 <.5

>.5
Q3 7/1/2020 – 9/30/2020

>.8

 >.8

<.5
Q4 10/1/2020 – 12/31/2020

>.8

 >.8

>.8
Sample Period of Significant Decline in Gross Receipts

3/13/2020 – 9/30/2020

 4/1/2020 – 9/30/2020 7/1/2020 – 12/31/2020

Calculate Qualified Wages by Employee
The following process applies only to nonprofits that averaged 100 or fewer full-time employees in 2019. If your organization averaged more than 100 full-time employees in 2019, be aware that your calculation of qualified wages is different.

Qualified Time Period in 2020 Complete individually for each employee.
Q1 Q2 Q3 Q4  
Calculate wages paid by employee for all employees paid during qualified time periods in each quarter of 2020. Wages eligible for the ERTC are wages for Social Security tax purposes determined without regard to the contribution and benefit base.
Add health care costs that are allocable to that same period, regardless of when they were actually paid. This includes the employer portion of medical insurance premiums as well as employer contributions to an HRA or health FSA. It also includes the portion of the cost paid by the employee with pre-tax salary reduction contributions.
Subtract any portion of the resulting total that is already being used in the calculation of another credit or relief program. Examples include, but are not limited to, use of PPP funding, the Work Opportunity Tax Credit, or paid sick and family leave under the Families First Coronavirus Response Act.
The remainder, by employee, is the employee’s qualified wages eligible for credit by quarter.

Calculate Credit and Request Refund or Abatement
Multiply each employee’s qualified wages, by quarter, by 50%. The result is the ERTC applicable to the employee for that quarter until the total year-to-date cumulative amount for the employee reaches $5,000. At that point, no additional credit can be claimed for the individual.

The maximum credit of $5,000 per employee may be realized in just one quarter for some employees, while other employees may not have sufficient qualified wages in the entire qualified time period to reach $5,000. Determine which quarters in 2020 are impacted by the credit for your organization. Then complete IRS Form 941-X (Adjusted Employer’s Quarterly Federal Tax Return or Claim for Refund) for those quarters to claim your refund or abatement.

2021 ERTC

The ERTC is available for qualifying organizations until December 31, 2021 and should be claimed on the quarterly 941 Forms for 2021. These forms are due in April, July, October, and January 2022 so there is still time to determine whether or not you are eligible to include the credit on your return. Once you are confident that your organization is eligible, you may also choose to reduce your employment tax deposits for anticipated credits or submit IRS Form 7200 to request advance payment of employer credits. For the 2021 ERTC, only employers that averaged 500 or fewer full-time employees during 2019 are eligible to request an advance payment of the credit.

Determine Qualified Time Period
There are three methods for determining your organization’s qualified time period that result in two possible time periods for the calculation of the 2021 ERTC. If more than one method applies, you should select the one that covers the greater number of days. If none apply, your organization is not eligible for ERTC for 2021.

If applicable, your organization’s qualified time period matches the dates during which operations in 2021 were at least partially suspended because of government orders limiting commerce, travel or group meetings due to COVID-19. The government issuing the order(s) that suspended your operations may be local, state or federal, but it must be a government order and not self-imposed. The start and end dates of your qualified time period using this method of calculation will likely not coincide with the start or end dates of any given quarter.

If applicable, your organization’s gross receipts for one or all of the quarters in 2021 must significantly decline as compared to the same quarters in 2019. To determine eligibility under this method of qualification, first determine total gross receipts for the quarters being considered for 2019 and 2021. Divide the 2021 quarter total by the respective 2019 quarter total. If the result is less than .8 for the quarter, that full quarter is a qualified time period due to a significant decline in gross receipts.

If applicable, your organization’s gross receipts for the quarters immediately preceding the quarters being considered in of 2021 must reflect a significant decline as compared to the same quarters in 2019. A qualified time period of 1/1/2021 – 3/31/2021 requires that gross receipts for the fourth quarter of 2020 significantly declined as compared to the same quarter in 2019. Divide the quarter ended 12/31/2020 by the same quarter in 2019. If the result is less than .8, the first quarter of 2021 is a qualified time period due to a significant decline in gross receipts.

Likewise, a qualified time period of 4/1/2021 – 6/30/2021 requires that gross receipts for the first quarter of 2021 significantly declined as compared to the same quarter in 2019. Divide the quarter ended 3/31/2021 by the same quarter in 2019. If the result is less than .8, the second quarter of 2021 is a qualified time period due to a significant decline in gross receipts. The same methodology then applies to quarters 3 and 4 of 2021.

If this method is used to determine eligibility for a time period, you must elect to do so. Although the method for election has not been clarified yet by the IRS, there is an assumption that Form 941 will be updated to reflect this requirement.

Calculate Qualified Wages by Employee
The following process applies only to nonprofits that averaged 500 or fewer full-time employees in 2019. If your organization averaged more than 500 full-time employees in 2019, be aware that your calculation of qualified wages will be different.

Qualified Time Period in 2021 Complete individually for each employee.
Q1 Q2 Q3 Q4  
Calculate wages paid by employee for all employees paid during qualified time periods in each quarter of 2021. Wages eligible for the ERTC are wages for Social Security tax purposes determined without regard to the contribution and benefit base.
Add health care costs that are allocable to that same period, regardless of when they were actually paid. This includes the employer portion of medical insurance premiums as well as employer contributions to an HRA or health FSA. It also includes the portion of the cost paid by the employee with pre-tax salary reduction contributions.
Subtract any portion of the resulting total that is already being used in the calculation of another credit or relief program. Examples include, but are not limited to, use of PPP funding, the Work Opportunity Tax Credit, or paid sick and family leave under the Families First Coronavirus Response Act.
The remainder, by employee, is the employee’s qualified wages eligible for credit by quarter.

Calculate and Report Credit
Multiply each employee’s qualified wages, by quarter, by 70%. The result is the ERTC applicable to the employee for that quarter. The credit is capped at $7,000 per quarter per employee and must be reported on Form 941 for the applicable quarter to receive the respective offset to employment taxes due.

Dean Dorton’s nonprofit team has been closely monitoring the changing relief opportunities available to nonprofit organizations in this time of crisis. We are here to provide consultation, collaboration, or confirmation as needed in your journey back to sustainability.

Click the button below to learn more about Kaydee Ruppert, the newest nonprofit expert to join the Dean Dorton team:

Meet Kaydee Ruppert

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page:

COVID-19 Resources

Do you have questions about House Bill 278? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com