On Monday, December 21, Congress released relief bill text also known as Consolidated Appropriations Act, 2021 which contains 5,593 pages and has been long awaited by taxpayers. This legislation has many provisions to aid businesses and individuals as we are approaching the end of 2020, but not the end of the pandemic. The bill is expected to be quickly signed into law by the President and we wanted to share with you the main provisions of the law as we are learning about the effects and impacts to each of our clients.
Additional 2020 Recovery Rebates: the bill provides a refundable tax credit of $600 per eligible family member. Eligible married taxpayers who file jointly will received $1,200. In addition, taxpayers will receive $600 per each qualifying child. The credit will start to phase out using same income limitations as the original Economic Impact Payment. The credit is available on 2020 tax return and the advance payment will be issued based on your 2019 tax filing.
PPP Loan Expense Deductibility: it addresses the uncertainty taxpayers were facing regarding forgivable PPP loan expense deductibility. The bill states that the expenses paid with the proceeds of a PPP loan are tax deductible, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. This is a major win for all the taxpayers who received PPP loans.
EIDL Advance Grants: it clarifies that gross income does not include emergency EIDL grants and certain loan repayment assistance. Also, the deductions are allowed for otherwise tax deductible expenses paid with the amounts not included in income. The bill repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
Second Round of PPP Loans: the loans will be available to first-time qualified borrowers and to businesses that previously received a PPP loan. Previous PPP loan recipients may apply for another loan of up to $2 million provided they: have 300 or fewer employees; have used or will use the full amount of their first PPP loan and can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019. It also allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.
Simplified PPP Loan Forgiveness Application: a simplified application will be available for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.
Business Meals 100% Deductible in 2021 & 2022: under new law the 50% deductibility limit will not apply to business meals provided by restaurants for 2021 and 2022.
Payroll Tax Credits: the bill extends employer tax credits for providing both paid sick leave and paid family and medical leave under the Families First Coronavirus Response Act (FFCRA) through March 21, 2021. In addition, the employee retention tax credit is extended through July 1, 2021, and it increased the fully refundable portion of qualified wages from 50% to 70%.
Child Tax Credit & Earned Income Tax Credit: individuals may elect to base 2020 refundable child tax credit and/or earned income tax credit on preceding years’ earned income. Taxpayers will have an option to substitute 2020 earned income for the preceding tax year, if it is greater than the taxpayer’s earned income for 2020.
Charitable Deductions for Non-Itemizers: the law has extended $300 charitable cash above the line deduction for non-itemizers to 2021. Individual cash contributions of $300 ($600 for married filing joint) is now allowed as above the line deduction for 2020 and 2021.
Unemployment Benefits: the bill has additional relief for the workers receiving unemployment benefits. The additional relief is a $300 per week supplement from December 26 until March 14, 2021. The Pandemic Unemployment Assistance (PUA) program is extended with expanded coverage to the self-employed, gig workers, and others in nontraditional employment. In addition, the Pandemic Emergency Unemployment Compensation (PEUC) program is extended to provide additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
Eviction Moratorium: the bill provides emergency rental aid and an extension of the national eviction moratorium through January 31, 2021.
These are some of the key provisions in the bill and we will continue to closely monitor and keep you informed about the changes as we learn more.
By Nida Gataveckiene
- This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.