The House of Representatives has approved the approximate $3 trillion Health and Economic Recovery Omnibus Emergency Solutions Act (H.R. 6800 ) to be known as the HEROES Act,  another Covid-19 economic recovery package that proposes some significant changes to tax provisions included in the recently enacted CARES Act recovery bill and adds additional relief and recovery proposals.  However, and as with previous stimulus packages, there will likely be debate and delay on the path to Congressional passage and President Trump’s signature.

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.

Any final passage is expected to be materially different from the House bill. Any Senate changes and possible passage is not likely to take place before June.

Tax provisions in the bill include:

• Repeal of the CARES Act excess business losses provision, which extended NOL relief to pass-through 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). The CARES Act permitted losses to be carried back to the preceding 5 years.
• Elimination of the $10,000 state and local tax deduction cap for 2020 and 2021.
• Additional recovery rebates of $1,200 per individual, plus $1,200 per dependent up to three dependents (per-family total of $6,000). Also makes all dependents eligible.
• Doubling the above-the-line deduction to $500 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
• 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
• A new 30% refundable payroll tax credit for expenses paid for the benefit of an employee for reasonable defined expenses incurred as a result of Covid-19 federally declared disaster declaration.
• Expansion of the Employee Retention Tax Credit (ERTC) to increase the value per employee per quarter 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)

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
• Clarifies that expenses paid or incurred with proceeds from Payment Protection Program loans that are forgiven pursuant to section 1106(b) of the CARES Act does not result in a denial of any deduction for federal tax purposes
• Adds flexibility for PPP loan forgiveness for borrowers by extending the 8-week period to 24 weeks
• Establishes a minimum maturity on PPP loans of 5 years to enable borrowers to amortize loans over a longer period of time
• Extension of eligibility to all nonprofits of all sizes
• Allows for continued payroll tax deferrals for recipients of forgiven PPP loans.

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.