Congress signs stimulus deal
After several months of stalled negotiations, the long-awaited and much-debated second Covid-19 recovery plan has been finalized. The Consolidated Appropriations Act, 2021, a 5,500-page spending and stimulus bill, provides $ 900 billion in pandemic-related assistance to individuals and businesses, including a second round of direct payments and an extension popular paycheck protection program.
The bill was passed overwhelmingly in the House of Representatives and the Senate, and although President Trump initially demanded an increase in direct stimulus payments to people who threatened to halt the passage of the bill , nearly a week later, the president signed the bill on December 27. 2020, without the requested changes.
Below are the highlights of the tax provisions included in the legislation.
Another series of direct, tax-free payments is available to eligible individuals. Amounts of up to $ 600 for individuals and $ 1,200 for a married couple making a joint claim, plus $ 600 for each dependent child under the age of 17 will be sent based on the 2019 reporting information. payments start to disappear once the adjusted gross income exceeds $ 75,000 for a single taxpayer and $ 150,000 for a married couple. As was the case for the first installment, this second installment represents an advance on a tax credit which will be reconciled on the 2020 tax return.
Paycheque Protection Program (PPP)
Substantial changes have been made to the PPP, including:
- Expenses paid with the remitted PPP funds are now tax deductible for all borrowers, even those who have previously requested a remission.
- The original PPP will reopen and become available until March 31, 2021.
- For borrowers who have not yet received a rebate, four new expense types are eligible for non-salary uses of PPP funds and eligible for up to 40% of the total rebate: certain operating expenses such as software or cloud computing services or administrative costs, costs related to property damage / vandalism / looting not covered by insurance, supplier costs covered and worker protection costs covered.
- Borrowers can choose any covered period starting on the date a borrower receives the loan and ending on a date chosen by the borrower within 8 to 24 weeks of loan origination.
- Simplified exemption for borrowers with loans of less than $ 150,000.
- A second draw of non-repayable PPP loans of up to $ 2 million will be available to eligible businesses that have or will have fully phased out their first round products. Borrowers must have fewer than 300 employees (up from 500 before) and be able to establish a 25% drop in gross revenue for a quarter in 2020 compared to that same quarter in 2019. The use of funds will follow the same protocol as the first round loans. . Loans will be equal to the lesser of 2.5 times the average monthly salary costs for the one-year period before the loan is granted or the 2019 calendar year, or $ 2 million. The hospitality industry, however, will use a multiple of 3.5.
- PPP remittance amounts will no longer be reduced by any Economic Disaster Lending Grant (EIDL) received.
Other loan and grant programs
The EIDL Advance Grant will again be available, allowing businesses that have not received the full $ 10,000 advance to reapply for the difference. Also, the EIDL advance will not be taxable and expenses paid with funds will be tax deductible. The same is true for traditional SBA Section 7 loan borrowers of which six months of principal and interest were paid under the CARES Act, with the bill requiring the SBA to pay three to eight. additional months from February 2021. programs, a new tax-free grant is also available for eligible venues, theaters and museums.
The bill provides for an additional $ 300 per week until March 14, 2021. Pandemic Unemployment Assistance (PUA) which extends unemployment benefits to the self-employed and others in non-traditional employment has also been introduced. extended, the maximum number of eligible weeks being increased to 50 weeks. An additional benefit of $ 100 may also be available to certain workers who have both wage income and self-employment income. Unemployment benefits received constitute taxable income for the beneficiary.
Credits and deductions
- Paid sick leave and family leave credits under the Families First Coronavirus Response Act (FFCRA) have been extended from December 31, 2020 to March 31, 2021.
- Employee Retention Credit (ERC) is extended until July 1, 2021. Companies can now take ERC and PPP, with salaries being used in the ERC calculation, non-reimbursable costs under the ERC. PPP program. For periods in 2021, the following changes apply to the ERC:
- The credit percentage is increased from 50% to 70% of the eligible salary.
- Eligible salaries are reduced from a total of $ 10,000 per employee to $ 10,000 per quarter per employee.
- Qualified salary restrictions apply to 500 employees, instead of 100.
- The decrease in gross revenue requirements fell from 50% to 20% compared to the previous quarter.
- Business meals at restaurants will be 100% deductible for 2021 and 2022, instead of 50%.
- Above-the-line charitable donations for non-itemizers will also be available in 2021 and increased to $ 600 for married people filing jointly in 2021.
- The individual AGI threshold increased from 60% to 100% and the corporate limit increased from 10% to 25% of taxable income for eligible cash contributions are extended until 2021.
- A special temporary rule allows taxpayers taking the earned income tax credit or the child tax credit the option of using their 2019 tax year income to determine a 2020 credit.
- Favorable depreciation rules for taxpayers choosing outside the tax code Article 163 (j) rules for limiting commercial interest charges.
- Deductible costs for educators now include personal protective equipment and other supplies related to coronavirus prevention.
- Farmers can choose to keep the two-year carry-back of a net operating loss (NOL), rather than requesting a five-year carryback as required by the CARES Act. Farmers can also revoke the choice to forgo the carryback of a NOL.
- The employee’s share of certain deferred payroll taxes under President Trump’s memorandum on wages paid from September 1, 2020 to December 31, 2020 has an extended repayment period until December 31, 2021, rather than April 30, 2021.
- Taxpayers can carry over unused amounts of flexible health and dependent care spending from 2020 to 2021 and 2021 to 2022.
Extension of certain expiring provisions
The bill reinstates several provisions that were to expire at the end of 2020, some permanently, others for shorter terms. Here are some of the provisions made permanent:
- AGI threshold of 7.5% for medical expenses not reimbursed in itemized deduction.
- Article 179D, which allows a deduction when improving the energy efficiency of buildings and commercial systems.
- The deduction for eligible tuition fees will expire at the end of 2020, but will be replaced by income phase-out thresholds on the lifelong learning credit.
A few provisions have been extended for five years, until December 31, 2025 (when many provisions of the TCJA are also expected to expire), including:
- the tax credit for new markets;
- The tax credit for work opportunities;
- Employer credit for paid family and medical leave;
- Tax-free remission of principal residence mortgage debt;
- Immediate charging of certain qualified film, television and live theatrical productions; and
- Allow employers to pay up to $ 5,250 of an employee’s eligible tuition, student loan, and tax-free interest to the employee.
In addition, a host of expiring energy credits, including credits for non-commercial energy goods, energy efficient homes, and fuel cell motor vehicles have been extended until the end of 2021.
Disaster relief unrelated to Covid-19 has also been provided for in the bill for qualified disaster areas with respect to major disaster declarations during the period starting January 1, 2020 and ending 60 days after the promulgation of the law.
Rules similar to the CARES Act for tax-advantaged withdrawals from pension plans also apply to people affected by major disasters. The early withdrawal penalty will not apply to distributions not exceeding $ 100,000 of the aggregate amounts treated as eligible disaster distributions received for all previous taxation years. In addition, distributions may be redeemed at any time during the three-year period beginning on the day after receipt of the distribution and taxpayers may include the distributions in income over three years, unless an election is made. include the entire distribution in income during the first year is done. .
Additionally, an Employee Retention Credit (ERC) is also available for businesses affected by qualified disasters and, although similar, should not be confused with the CARES Act ERC. The credit is equal to 40% of the eligible salary paid to each eligible employee for the tax year, without exceeding $ 6,000 salary per employee for the year. Salaries for these purposes may not include any items taken into account under the CARES ERC Act, may not be used for other credits, and may not be used as reimbursable PPP salary costs.
Finally, the bill changed the bodily injury loss allowance for disaster areas and allowed corporations to make eligible disaster relief contributions up to 100% of their taxable income.
The bill offers tremendous relief and opportunities for businesses and individuals. While some areas add complexity and create a whole host of new questions, the potential value within is significant for those affected by the coronavirus pandemic. Further relief legislation also continues to be discussed; Whether this will happen or take several more months remains to be seen.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.
Tony Nitti, CPA, MST, is a RubinBrown partner in Denver. Amie Kuntz is a CPA, MA, in the Denver office.