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New Law Extends Relief with Unemployment Benefits, Direct Payments to Individuals

  • COVID-19
  • Article
  • 6 min. Read
  • Last Updated: 12/28/2020

A couple looks at their retirement account because under the new Consolidated Appropriations Act, 2021, they can avoid some of the penalties of taking a distribution against it.
Signed into law on December 27, 2020, the new COVID-19 fiscal relief package creates opportunities for U.S. businesses to gain access to needed funds. While government agencies work to provide guidance on how to implement the new law, Paychex has created four short videos, included in the article below, to provide insight into its key provisions. Please note that we are actively monitoring new legislation and will continue to provide information as it becomes available. While we are moving swiftly to analyze and share these updates with our customers and the general public in real-time, some aspects of this article may be dated as updates continue to be announced.

Table of Contents

Employee Retention

Unemployment Insurance Expansion

In an effort to help businesses, families and individuals who continue to be hit hardest during the COVID-19 pandemic, President Trump signed in to law on Dec. 27, 2020, the nearly $900 billion Consolidated Appropriations Act, 2021, to provide financial relief. In addition to replenishing funds in the Paycheck Protection Program (PPP) and extending and/or enhancing several tax credits, the law addresses unemployment insurance benefits, retirement plans, health care and direct payments to people.

Read an article for more details on extension of PPP and tax credits, including the employee retention credit.

Listen to a Paychex Business Series podcast featuring Sen. Chris Coons of Delaware, who was instrumental in building the stimulus bill, discussing details of the small business provisions of the law.

Paychex continues to monitor the situation, including the guidance being developed by government agencies that determines how the law will be implemented. We have familiarized ourselves with the law’s language and will share what is available to help answer your questions.

How Much Will My Rebate Check Be from the Government?

Similar to the Coronavirus, Aid, Relief, and Economic Security (CARES) Act enacted on March 27, 2020, this current relief bill offers direct payments in the form of checks to eligible individuals. The amounts are tiered and will phase down for higher-income taxpayers.

  • A payment of $600, with an additional $600 for each dependent child under the age of 17, is expected to be issued.

However, not every eligible individual will get $600 because the payment is based on one’s 2019 tax return filed and takes into account adjusted gross income. So, anyone whose adjusted gross income (AGI) was $75,000 or less ($150,000 for married filing jointly, $112,500 for head of household) will receive $600 ($1,200 for married filing jointly. Individuals whose AGI exceeds those thresholds will have their rebate reduced $5 for every $100 over the limit, and once AGI reaches $87,000 ($174,000 married filing jointly) the rebate no longer applies.

This provision also allows access to the rebates for mixed-status families, which is retroactive to the CARES Act rebates

How Will This Impact Unemployment Insurance Benefits?

For many individuals, especially those working in service industries such as restaurants and hotels, business openings and closures wreaked havoc on employment. Under the CARES Act, Federal Pandemic Unemployment Compensation (FPUC) provided an additional $600 per week, but that expired in July 2020 and was briefly extended to $300 per week.

This new law provides an additional $300 per week from Dec. 26, 2020 through March 14, 2021, for all workers receiving unemployment benefits.

Additionally, under the Federal Pandemic Unemployment Assistance (FPUA) provision, the number of weeks an individual can receive unemployment insurance (UI) benefits is extended to 50 weeks (it had been 39 and these federally funded benefits were set to expire at the end of 2020).

There are several other factors that determine what is available, including:

  • Limits retroactive benefits to weeks of unemployment after Dec. 1, 2020
  • Extends benefits through March 14, 2021, which allows individuals receiving benefits as of March 14 to continue through to April 5

The bill also extends the following:

  • Pandemic Emergency Unemployment Compensation (PEUC), which increases the number of weeks to 24 (up from 13) that an individual may claim and because benefits could be extended through March 14, 2021, any individuals receiving benefits as of that date can continue through to April 5.
  • Short-Time Compensation (STC) will be extended on the temporary 100 percent federal financing for established state workshare programs and an extension of the temporary 50% federal financing for temporary state workshare programs to March 14, 2021.
  • Federal funding to March 14, 2021 for states without a wait week
  • Relief from interest of federal loans to March 14, 2021 for states that borrow when their state unemployment trust funds are depleted

The bill also provides an extra $100 per week benefit for certain workers who have both wage and self-employment income, but whose base UI benefit includes their self-employment income.

What Changes Happened to Retirement Plans?

As with any crisis, sometimes business and individuals need to boost their short-term cash flow. Sometimes those funds might be available in their retirement accounts. This provision of the bill addresses retirement plans, S125 and HSA relief.

While the COVID-19 pandemic was inhibiting the U.S. economy, other natural disasters such as hurricanes and wildfires also impacted financial stability. This bill provides disaster tax relief to individuals and businesses in presidentially declared disaster areas (for reasons other than COVID-19) for disasters that occurred after Dec. 31, 2019 through 60 days after the enactment of this bill into law.

Qualified retirement plan participants in such disaster areas would be allowed to take a distribution of up to $100,000 from a retirement plan or IRA account without penalty. However, the amount withdrawn would be included, for tax purposes, as income over three years but may be recontributed to avoid taxes. In addition, retirement plan loans of up to $100,000 (or 100% of the participant’s vested account balance) may be taken between Dec. 22, 2020 and 180 days following enactment of the law (Dec. 27, 2020), with the repayment period extended for one year for new and outstanding loans from retirement plans for non-COVID-19 disaster impacted participants.

Businesses also would be given more time to restore their workforce to at least 80% to avoid partial plan termination rules relating to their retirement plan. The partial retirement plan termination rule would be relaxed during any plan year that includes the period of March 13, 2020 and ending March 31, 2021, deferring assessments until March 2021.

Employees gain some relief as they would be allowed to roll over unused balances for health and dependent care flexible spending arrangements from 2020 to 2021 and 2021 to 2022. Employers would be permitted to allow employees to make a 2021 mid-year prospective change in contribution amounts.

What is the Impact to Healthcare Plans?

A provision of this bill is the No Surprises Act, which includes protection for individual and group health plan members from unexpected out-of-network medical costs for some services. The provision applies to:

  • Emergency services, air ambulance services, and some non-emergency services received at a participating facility
  • Insurance companies, who will be required to cover these services at in-network cost-sharing rates, which will be applied to the member's in-network deductible and out-of-pocket maximum

The bill also directs regulations that include further details to be published by July 1, 2021.

For health insurance carriers/group plans, the bill calls for new transparency requirements, including:

  • Reviewing mental health benefits with non-quantitative treatment limits to ensure parity with other health coverage
  • Annual prescription drug use reporting requirements that include analysis of frequently used and high-cost pharmacy benefits
  • Disclosure of broker compensation

How Paychex can help

We have 500-plus experienced HR Professionals, more than 7,000 customer service staff, and more than 200 in-house compliance analysts monitoring changes to regulations, taxes and laws at the federal state and local level. Check out our Coronavirus Help Center that includes an interactive state-by-state tool updated with reopening orders and regulations and subscribe to our newsletter that delivers helpful resources right to your inbox.


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* This content is for educational purposes only, is not intended to provide specific legal advice, and should not be used as a substitute for the legal advice of a qualified attorney or other professional. The information may not reflect the most current legal developments, may be changed without notice and is not guaranteed to be complete, correct, or up-to-date.

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