US Tax Newsroom

 Tax News Update    Email this document    Print this document

May 13, 2020
2020-1277

House Democrats unveil HEROES Act coronavirus bill

House Democrats May 12 unveiled their CARES 2/COVID 4 next coronavirus response bill, the roughly $3 trillion Health and Economic Recovery Omnibus Emergency Solutions Act (HEROES) Act, that they intend to bring to a vote on Friday. At a broad level, the bill would provide for $875 billion in state and local funding; $100 billion in grants for hospital and health care providers; $75 billion for testing; housing and food assistance; limitations to CARES Act net operating loss (NOL) provisions and enhancements to the Employee Retention Tax Credit (ERTC), among other tax changes; broadband infrastructure provisions; pension relief; Paycheck Protection Program (PPP) changes; and non-profit and education provisions.

Speaker Nancy Pelosi (D-CA) has described the bill as a starting point and setting a standard for the next coronavirus response measure, with the recognition that bipartisan negotiations will eventually be needed to enact a bill. It is seen as a means of trying to jumpstart those discussions, but Republicans have been dismissive thus far, eager to seize on the idea that the bill is a Democratic wish list.

Ways and Means Committee Ranking Member Kevin Brady (R-TX) released a statement calling the proposal “a recipe for a prolonged recession, with virtually nothing to get the jobless back to work.” Senate Majority Leader Mitch McConnell (R-KY) told reporters this is no time for “aspirational” legislation, and second-ranking Senate Republican John Thune (R-SD) said the House Democratic bill is “nothing more than a messaging exercise” that isn’t going anywhere. Senate Republicans are seen as not wanting to act on any more response legislation until after the Memorial Day recess.

Despite the magnitude of the HEROES Act, it does not include all of the Democratic proposals that were talked about. Traditional infrastructure is not addressed beyond broadband. A guaranteed income proposal advocated by Rep. Pramila Jayapal (D-WA) was not included after reportedly being deemed too costly and complicated, and the bill instead proposes to work within the CARES Act framework of the ERTC and PPP.

Set forth below is a broad outline of the legislation.

The HEROES Act government funding piece would provide additional funding of $500 billion for state governments, $375 billion for local governments, $20 billion each for tribes and territories, $75 billion to aid homeowners, $1.5 billion for Wi-Fi hotspots, and an additional $755 million for the District of Columbia to address CARES Act underpayment.

Tax provisions in the bill include:

  • Repeal of the CARES Act excess business losses provision, which extended NOL relief to passthroughs and sole proprietors, and limiting of operating loss carrybacks permitted by the CARES Act so that losses arising in 2018, 2019 and 2020 cannot be carried back prior to 2018 (in addition, carrybacks would be disallowed for companies that do not meet requirements for executive compensation, dividends and stock buybacks)
  • Elimination of the $10,000 state and local tax deduction cap for 2020 and 2021
  • Expansion of the Employee Retention Tax Credit (ERTC) to increase the value per employee per quarter from $5,000 for the remainder of the year to $12,000 by increasing the credit percentage from 50% to 80% of qualified wages and increase the per-employee limitation from $10,000 for all calendar quarters to $15,000 per calendar quarter ($45,000 for all calendar quarters)
  • Additional recovery rebates of $1,200 per individual, plus $1,200 per dependent up to three dependents (per-family total of $6,000)
  • Amendment of IRC section 7702 relating to interest rate assumptions that must be taken into account for permanent life insurance contracts to qualify as life insurance contracts for tax purposes (those interest rate assumptions, set by statute at 4% and 6%, would instead be tied to a floating rate prescribed in the National Association of Insurance Commissioners’ Standard Valuation Law or a floating rate based on the average applicable federal mid-term rates over a 60-month period)
  • Doubling the above-the-line deduction for teachers and establishing one for first responders
  • Providing a 90% refundable individual income tax credit for certain self-employed individuals who have experienced a significant loss of income 
  • Making the child tax credit (CTC) fully refundable for 2020, increasing the amount to $3,000 per child ($3,600 for a child under age 6), and making 17-year-olds qualifying children
  • Making the child and dependent care tax credit (CDCTC) fully refundable for 2020 and increasing the maximum credit rate to 50%
  • Increasing the exclusion for employer-provided dependent care assistance from $5,000 to $10,500 (from $2,500 to $5,250 in the case of a separate return filed by a married individual) for 2020

Health provisions include:

  • Increasing the Federal Medical Assistance Percentage (FMAP) payments to state Medicaid programs by a total of 14 percentage points starting July 1, 2020 through June 30, 2021
  • Requiring coverage of items and services related to the treatment of COVID-19 in group and individual market health plans, waiving cost-sharing requirements for consumers during the COVID-19 public health emergency, and requiring free coverage of COVID-19 testing retroactive to the beginning of the COVID-19 public health emergency
  • Providing approximately nine months of full premium subsidies to allow workers to maintain their employer-sponsored coverage if they are eligible for COBRA due to a layoff or reduction in hours, and for workers who have been furloughed but are still active in their employer-sponsored plan
  • Establishing zero cost-sharing (out-of-pocket costs) for COVID-19 treatment under Medicare Parts A and B and Medicare Advantage during the COVID-19 public health emergency
  • Ensuring that uninsured individuals whom states opt to cover through the new Medicaid eligibility pathway will be able to receive treatment for COVID-19 without cost-sharing during the COVID-19 public health emergency 
  • Ensuring skilled nursing facilities provide a means for residents to conduct “televisitation” with loved ones while in-person visits are not possible during the COVID-19 public health emergency 
  • A two-month open enrollment period to allow individuals who are uninsured, for whatever reason, to enroll in coverage in Affordable Care Act (ACA) exchanges
  • Requiring the President to appoint a Medical Supplies Response Coordinator
  • Requiring HHS to award contracts, grants, cooperative agreements, and enter into other transactions, as appropriate, to expand and enhance manufacturing capacity of vaccines and vaccine candidates to prevent the spread of COVID-19
  • Requiring HHS to update the COVID-19 strategic testing plan
  • Requiring the CDC to coordinate with State, local, Tribal, and territorial health departments to establish and implement a national evidence-based system for testing, contact tracing, surveillance, containment and mitigation of COVID-19, including offering guidance on voluntary isolation and quarantine of positive COVID-19 cases
  • Codifying the CARES Act health care provider relief fund for the purposes of reimbursing eligible health care providers for expenses related to preventing, preparing for, and responding to COVID-19, as well as lost revenues that have resulted from the COVID-19 pandemic

Pension and Retirement Provisions in the bill include:

  • Relief for Multiemployer Pension Plans through special partition authority to allow the PBGC to keep plans solvent for thirty years with no benefit cuts, the repeal of benefit suspensions, a freeze on the funded zone status of plans, extended amortization of funding shortfalls from investment losses in 2019 and 2020, extended funding improvement periods for plans in critical or endangered status, and doubling the PBGC benefit guarantee
  • Relief for single employer pension plans by extending the amortization period for funding shortfalls from the current seven years to 15 years and by extending interest rate smoothing, providing a narrower corridor through 2025 and then expanding the corridor over five years
  • Creation of an optional new type of multiemployer pension plan, a composite plan, with defined benefit and defined contribution features, which could be adopted either as a stand-alone plan or as part of an existing multiemployer plan as long as the existing plan is not in critical status or projected to be in critical status in the next five years
  • Relief from Required Minimum Distribution (RMD) rules, waiving them for 2019 and January of 2020, waiving the requirement that rollovers be completed within 60 days of a distribution, and waiving for one-rollover-per-year limitation for distributions taken in 2019 or 2020 if the rollover is completed by November 30, 2020
  • Clarifying that employers can rely on employee’s certification that the employee is eligible to take a loan under the CARES Act
  • Making permanent the provision of law that exempts volunteer firefighters and emergency medical personnel from taxation on nominal recruitment and retention incentives
  • Clarifying that money purchase plans are eligible for the early distribution and hardship loan provisions of CARES
  • Awarding grants to help low-income women and survivors of domestic abuse obtain Qualified Domestic Relations Orders
  • Expanding the Community Newspaper pension relief provided in the SECURE Act to additional community newspapers

The Paycheck Protection Program (PPP) wouldn’t receive new funding, but changes include:

  • Extension of the covered period from June 30 to December 31
  • Repeal of the requirement that 75% of loans be spent on payroll
  • Extension of eligibility to all nonprofits of all sizes and clarifies the eligibility of housing cooperatives
  • Providing a 25% set aside of PPP loan funds for nonprofit borrowers, with not more than 12.5% used for loans to nonprofits with 500 or more employees
  • Allowing nonprofit critical access hospitals to get PPP loans

Other nonprofit provisions include:

  • Temporary moratorium on small business and nonprofit debt collection during this COVID-19 crisis, and for 120 days thereafter
  • Ensuring reasonable forbearance and repayment options for small businesses and nonprofit organizations when payments resume following the debt collection moratorium
  • Mandating that the Federal Reserve’s Main Street Lending Program, which was established utilizing CARES Act funds and is backstopped by the Treasury Department, include non-profit organizations as eligible borrowers, and stipulates that the Federal Reserve immediately offer a low-cost loan option tailored to the unique needs of non-profit organizations with deferred payments, and the loan may be forgiven solely for non- profits predominantly serving low-income communities that are ineligible for a PPP loan
  • Mandating that the Federal Reserve, through the Main Street Lending Program, shall provide at least one low-cost loan option that small businesses and small non-profits are eligible for that does not have a minimum loan size, overriding the current $500,000 minimum loan size to participate in the program

The Heroes Act contains a number of education-related provisions, including $100 billion for the Department of Education to allocate to states, with $10 billion specifically targeted to help alleviate the burdens of the coronavirus for both colleges and students as well as additional relief for federal student loan borrowers. The Act further provides that emergency financial aid provided to a student in response to the COVID-19 emergency will not impact that student’s eligibility for federal financial aid. From a tax perspective, the HEROES Act also broadens the paid sick and family medical leave tax credits included in the Families First Coronavirus Response Act to Federal, state and local governments, thus allowing public colleges and universities to take advantage of the program. The HEROES Act also mandates the Federal Reserve to permit non-profits (including colleges and universities) to benefit from the Main Street Lending Facility, within five days of the bill’s enactment.

The bill also includes an extension of weekly $600 federal unemployment compensation payments and unemployment benefits for self-employed and gig workers through January 31, 2021.

The bill and summary are attached.

———————————————

Contact Information
For additional information concerning this Alert, please contact:
 
Washington Council Ernst & Young
   •  Any member of the group at (202) 293-7474.

———————————————
ATTACHMENT

HEROES Act

HEROES Act Summary

 

 


 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 1996 – 2020, Ernst & Young LLP

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

View Tax News Update master agreement and EY privacy statement