The president has just signed the 5,593-page Consolidated Appropriations Act (CAA), which combined a stimulus relief bill for the COVID-19 pandemic with the omnibus spending bill for the 2021 fiscal year. Given the breadth of the CAA, we wanted to take a deeper dive into several of the provisions of the stimulus relief bill that are likely to impact many of you. If you have additional questions about any of these points, or if there are other topics for which you would like more in-depth information, please reach out at any time.
The Paycheck Protection Program has gotten new life in the CAA with additional funding and some tweaks to the rules. The most significant change that we’ve all been waiting for relates to the deductibility of expenses paid for with PPP funds. The original intent of Congress was for the fully forgivable PPP loans to be entirely non-taxable, but the IRS indicated in May 2020 that expenses associated with the loan would be non-deductible, effectively causing a taxable event. The CAA has concretized the position into law that expenses paid for with PPP funds will be deductible and the PPP funds are not taxable income. This is a win for everyone who received a PPP loan. The CAA also set up simplified forgiveness for loans of $150,000 or less, as well as a second round of “New and Improved” PPP Loans. Given the complexity and scale of the remaining PPP changes, we will send out an additional Eblast soon going much deeper into this topic.
Unemployment insurance benefits have been extended! The federal weekly amount is $300 and will only last for 11 weeks. It does not automatically renew, so we will have to wait until after January 20th to see if renewed negotiations can extend or expand on this.
Another round of economic impact payments has been included with the CAA. While not as robust as the first round back in March, payments of $600 to each adult and under-17 dependent child will be forthcoming to many people. The same $75,000/$150,000 income thresholds will be used, along with the same age restrictions as before. The Treasury will begin working quickly to get these payments out, but if payment is not received by January 15, 2021, it is expected that you should plan to request the credit on your 2020 tax return this spring.
Key features of the Families First Coronavirus Response Act (FFCRA) which passed in mid-March were extended through March 31, 2021, including the Emergency Paid Sick Leave and Expanded FMLA. Although the new law does not require employers to offer these benefits beyond December 31, 2020, businesses who provide the benefits to employees after December 31, 2020 will continue to receive a fully refundable dollar-for-dollar payroll tax credit for wages paid for leave for various COVID-related or childcare reasons through March 31, 2021.
The CAA extends the Employee Retention Credit (ERC) through July 1, 2021, but it also has a retroactive component going back to March 12, 2020. When the CARES Act passed, PPP loan recipients were forbidden from accessing the ERC. With the passing of the new law, anyone who received a PPP loan in 2020 can now go back and claim the ERC for 2020 (on non-PPP loan payroll). Additionally, the rules have changed for the first two quarters of 2021, making the credit easier to access while requiring adherence to slightly different parameters. Because this is such an involved topic, we will send an additional Eblast with more specifics as soon as possible.
The new law allocates $15 billion to the SBA to grant to live venue operators, including theatrical producers, live performing arts centers, motion picture theatre operators, museum operators, and the like who show a 25% quarter-over-quarter revenue reduction when comparing 2020 to 2019, so long as the business was in operation as of February 29, 2020. Businesses are eligible to receive no more than $10 million, payable in two separate grants. The grants must be used for specified expenses, including payroll costs, rent, utilities, or mortgage interest and principal, pre-February 15, 2020 debt interest, up to $100,000 to independent contractors, and other ordinary and necessary expenses.
President Trump signed an executive order in late summer 2020 allowing businesses to defer the 6.2% employee Social Security taxes for the final four months of 2020. These taxes were originally required to be collected and paid back by April 30, 2021, but the CAA has extended this repayment deadline to December 31, 2021.
The business meals expense deduction has been increased to 100% for 2021 and 2022. The deduction was not made applicable to 2020, nor is there any change to the non-deductibility of entertainment expenses.
The CARES Act created a new $300 charitable contribution deduction for cash gifts to approved charities in 2020 for individuals who do not itemize. This deduction has been extended into 2021 and expanded to allow a $600 cash contribution deduction for joint filers in 2021. The $300 deduction remains for all others. For 2020, the $300 for all filers remains the same.
Speaking of itemizing, the medical expense threshold has been permanently set at 7.5% of adjusted gross income. This is the same threshold that was in place for the past several years, and it was kept alive several times over the past few years with extender bills, but it has finally been enshrined in law. This will make it easier for those with significant medical expenses to take a deduction for these expenses.
This information is up to date as of December 28, 2020. We will continue to evaluate the recent tax law changes and provide updates as soon as possible.
