Late on December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, which provides a new round of relief for the ongoing COVID-19 pandemic. The President has indicated his intention to sign the bill into law sometime this week.
From a tax standpoint, there are not many new provisions providing new forms of stimulus and relief. However, several small changes are made to provisions of the Families First Coronavirus Response Act and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, while also extending them beyond their initial expiration date. It also includes another round of direct payments to taxpayers, extensions of the charitable contribution provisions and employee retention tax credit, relief for lower income taxpayers on tax credits, and a clarification of the treatment of business expenses for small businesses with forgiven PPP loans. The bill also includes an extension of popular individual and business tax breaks scheduled to expire at the end of 2020.
The proposed legislation is massive – the second largest bill (by page count) ever considered by Congress. This brief summary will be limited to select highlights of the bill.
• Direct stimulus payments to be made to taxpayers. $600 per individual (earlier round was $1,200 per individual). Also $600 per dependent child (under 17). Payments are an advance of a credit to be claimed on taxpayers’ 2020 tax returns and begin to phase out for individuals with adjusted gross income in 2019 of $75,000 ($150,000 for joint filers).
• A new round of PPP loans will be available to borrowers. Please consult your SBA lender for details.
• Since income from forgiven PPP loans is not taxable, the IRS had determined that expenses paid with PPP loans were not deductible. The bill, however, expressly provides that the intent of the original legislation was that such expenses can give rise to a deduction. Accordingly, expenses paid with PPP loans that are otherwise deductible can be deducted.
• The bill clarifies that forgiveness of Economic Injury Disaster Loans (EIDL) granted to small businesses under the CARES Act are excluded from income.
• Covered period for employer credit for paid sick and family leave extended from 12/31/2020 to 3/31/2021.
• Employee retention tax credit to apply to compensation paid to a covered employee through 6/30/2021 (was set to expire after 12/31/2020).
• Lower-income taxpayers can calculate their 2020 earned income tax credit and child tax credit using income information for the 2019 tax year, which could result in a higher credit amount, if there has been a reduction in income in 2020.
• Above-the-line $300 charitable donation ($600 for joint filers), the individual AGI limit increase from 60% to 100%, and the corporate limitation increase from 10% to 25% for qualified cash contributions have all been extended to 2021 under the bill.
• In an effort to help revive the restaurant industry, the bill includes a temporary return of the business deduction for meals. The deduction allows for businesses to deduct the full amount of meals, including beverages, provided at a restaurant. The deduction is allowed for 2021 and 2022 only.
• The 7.5% of AGI threshold for medical expense deductions by individuals has been made permanent.
• The New Markets Tax Credit, Work Opportunity Credit, Empowerment Zone tax incentives, as well as many other tax credits and incentives have been extended from 12/31/2020 until 12/31/2025.
Please contact a member of your Tanner tax team with any questions about your specific situation.
Happy holidays!
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