Posted December 27, 2020 and revised December 28, 2020 to reflect signing of the bill
Congress passed additional COVID-19 relief, among other things – here is a summary of the legislation as signed by President Trump
On December 21, 2020, Congress passed a new bill – the Consolidated Appropriations Act of 2021 - which consists of several bills combined into one piece of legislation. President Trump signed the bill on December 27, 2020.
The bill contains the annual government funding package for the next fiscal year, which must be passed in order to avoid a government shutdown. In additional, the bill contains the fourth package designed to provide additional relief from the COVID-19 pandemic.
Following is a summary of some key provisions contained in the current version of the bill.
The bill provides a second round of Economic Impact Payments of up to $600 per individual and $1,200 per married couple. The payments are actually a credit against 2020 taxes, and will be calculated on 2019 tax return filing information. Payments will be phased out for individuals earning more than $75,000 per year and couples earning more than $150,000 per year. In addition, $600 will be paid for each dependent child under the age of 17. These amounts do phase out faster than the earlier payment, therefore, fewer taxpayers may receive direct payments this time around.
Paycheck Protection Program (PPP)
The bill provides another round of PPP loans along with substantial changes to the program.
Businesses borrowing funds in this second round will be able to spend the funds on new expenses that were not allowed in the first round. However, 60% of the loan must be used for payroll costs. The new expenses are:
- Operations expenditures such as software or cloud computing services or administrative costs
- Property damage costs caused by vandalism and looting that are not covered by insurance
- Supply costs
- Covered worker protection costs
Under the CARES Act, taxpayers who had PPP loans forgiven can exclude the loan amounts from gross income. However, Treasury subsequently stated in Notice 2020-32 that the expenses that were paid for by the PPP loans are not deductible. This was not the intent of Congress. The bill clarifies Congress’ intent by allowing the PPP related expenses to be deducted. This change applies to both previous loans and new loans.
For new loans, the borrower is no longer forced to choose between either an 8 week or a 24 week “covered” period for expenses. New loans will allow some flexibility for the borrower to choose any period lasting between 8 and 24 weeks as long as those weeks fall within the period beginning on the date a borrower receives the loan and ending on a date selected by the borrower during the 8 to 24 weeks after the loan origination..
The bill provides for a new one-page streamlined forgiveness form for borrowers who receive loans of less than $150,000.
Grants for Live Venues, movie theaters and cultural institutions
The bill earmarks funds for the Small Business Administration (SBA) to provide grants to shuttered live event venue operators, independent theaters, live performing arts organization operators, museums, motion picture theatre operators, and zoos that had a 25% reduction in revenues when comparing 2019 revenues to 2020 revenues in the same period. The grants must be used for certain expenses and will not be included in taxable income.
Other Loan Forgiveness
Economic Injury Disaster Loan advances will no longer be taxable and businesses who did not receive the full $10,000 advance will be able to reapply for the difference. Expenses paid with the advance will remain deductible.
Borrowers of traditional Section 7 SBA loans who had six months of their principal and interest paid under the CARES Act will also not be taxed on the payments.
Employee Retention Credit
The bill extends and expands the employee retention credit under the CARES Act. The credit is available to employers experiencing full or partial suspension or significant declines in gross receipts.
- The credit is expanded from a 50% refundable tax credit to 70% refundable tax credit.
- The eligible wage limit per employee will be increased from $10,000 annually to $10,000 quarterly. The credit will increase from $5,000 per employee per year to $7,000 per employee per quarter.
- To be eligible for the credit in 2021, gross receipts for the calendar quarter must be less than 80% of the gross receipts for the same calendar quarter in 2019 or the business must experience a full or partial suspension of operations during the quarter due to a government ordered shutdown.
- The definition of a large employer for purposes of receiving the credit was increased from 100 employees to more than 500 employees.
Paid Leave Credits
Signed into law in March 2020, the Families First Coronavirus Response Act (FFCRA) required paid sick leave be paid by certain small employers for up to 10 weeks of qualified family leave when an adult was unable to work because of a child who was without school or care, and up to two weeks of sick leave for certain COVID related reasons. FFCRA paid sick leave and expanded Family Medical Leave Act leave payroll tax credits are extended through March 31, 2021 but FFCRA leave is no longer required in 2021.
For 2021 and 2022, full expensing for business meals will be permitted. Taxpayers will no longer be limited to 50% of client-related business meals provided they continue to meet the deductibility requirements. This provision only applies to meals provided by a restaurant. In 2023, the deduction for meals will revert to the 50% limitation.
The bill provides an additional $300 per week for all workers receiving unemployment benefits through March 14, 2021. The maximum number of weeks that an individual may claim benefits is extended to 50 weeks.
The Pandemic Employment Assistance program has also been extended. This program provides unemployment coverage for nontraditional employees such as the self-employed.
Under the CARES Act, for 2020 only, taxpayers who do not itemize their deductions are permitted to deduct up to $300 in charitable contributions in arriving at their adjusted gross income. The bill extends the “above-the-line” charitable deduction to 2021 and increases the amount to $600.
The temporary charitable contribution limitation provided in the CARES Act is also extended. For 2020 and 2021 only, the limitation for deductible cash contributions to a public charity is increased from 60% to 100%.
Earned Income Tax Credit and Child Tax Credit
To help those who had lower income in 2020 as a result of the COVID-19 pandemic, lower-income taxpayers may use their earned income from 2019 to calculate their Earned Income Tax Credit and the refundable portion of the Child Tax Credit on their 2020 income tax returns. The use of 2019 income may result in larger tax credits.
Other Tax Provisions
A variety of tax provisions previously expired or were set to expire on December 31, 2020. This bill extends, enhances, and in some cases makes permanent some of those provisions. These provisions include (but are not limited to):
- The unreimbursed medical expenses limitation has been permanently set at 7.5% of adjusted gross income.
- The deduction for qualified tuition expenses will expire at the end of 2020 but the Lifetime Learning Credit income phaseout thresholds will be increased.
- New Markets Tax Credit and the Work Opportunity Credit have been permanently extended.
- Various energy-related tax credits have been extended.
- The low-income housing tax credit has been enhanced.
- Depreciation of certain residential rental property has been reduced to a 30-year period for taxpayers who made the real property trade or business election for purposes of the interest expense limitation under Code § 163(j).
This legislation was signed by the President on Sunday December 27, 2020 and is now enacted. We will keep you posted regarding any updates or additional legislation.
For additional information, contact us at firstname.lastname@example.org. Article contributed by Michele D. Burkins.