Recently the U.S. House and Senate agreed over the details of a $900 billion coronavirus relief bill. The bill extends and modifies several provisions found in the CARES act passed in March. Below please find some highlights from the 5,593-page bill that was signed into law on December 27, 2020.
Business Provisions:
Paycheck Protection Programs (PPP) update – the relief bill renewed funding of $284 billion for the PPP to provide forgivable loans to first- and second-time small business borrowers. The bill expands eligibility for nonprofits and includes set-asides for very small businesses and community-based lenders. Second-time loans are limited to businesses with fewer than 300 employees and at least a 25 percent drop in gross receipts in the 2020 quarter compared to the same quarter in 2019. The maximum loan size for second-time borrowers is $2 million. Businesses taking a PPP loan will now be able to take the Employee Retention Tax Credit (ERTC) when previously they were only allowed to opt into one or the other.
PPP loans can be used to pay qualifying expenses, the definition of which has been expanded to include expenses such as covered property damage, supplier costs, or worker protection expenditures. When used for qualifying expenses, PPP loans are forgivable. The bill provides a simplified forgiveness application process for loans up to $150,000. Most advantageously, the bill also clarifies that businesses can deduct expenses paid with forgiven PPP loans. This clarification applies to old loans and new loans and does not include guardrails or limitations.
Employer-side Social Security Payroll Tax Credits – The bill extended, through March 2021, the employer-side Social Security payroll tax credits used to offset paid sick and family leave related to COVID-19 created in the Families First Coronavirus Response Act.
Deduction of Business Meals – The bill allows business meals to be 100% deductible in 2021 and 2022.
Employee Retention Tax Credit – The bill provided an extension and expansion of the Employee Retention Tax Credit through July 1, 2021. The bill will increase the refundable payroll tax credit from a maximum of $5,000 to $14,000 by changing the calculation from 50 percent of wages paid up to $10,000 to 70 percent of wages paid up to $10,000 for any quarter. The bill clarifies that businesses will now be able to take the Employee Retention Tax Credit and participate in the PPP.
Individual Provisions:
Relief Rebate checks – the bill will enact a second round of direct payments to individuals. These payments are modeled after the previous rebates sent out as part of the CARES Act, but with modifications. The direct payments would be up to $600 per individual and qualified child (which you may have already received) and will have no cap on household size. As with the previous Recovery Rebates, these direct payments will be advanced tax credits based on 2019 income and begin to phase out in value beginning at $75,000 for single filers, $112,500 for head of household filers, and $150,000 for married filing jointly filers. The payments will phase out entirely at $87,000 for single filers with no qualifying dependents and $174,000 for those married filing jointly with no qualifying dependents.
Charitable contributions – the bill extended the above-the-line charitable deduction for non-itemizers through 2021. This enables married taxpayers to take the standard deduction and deduct up to $600 in charitable giving when calculating their taxable income in 2021. All other filers will be able to deduct $300 of charitable contributions above-the-line in 2021.
Flexible Savings Account (FSA) – FSA balances can be rolled from the 2020 tax year into 2021, and 2021 balances can be rolled into 2022. This will help taxpayers with unused balances (IE: childcare expenses) who would normally lose the value of the FSA balance at the end of the tax year.
Unemployment Insurance Compensation Benefits – The bill includes an 11-week extension of the unemployment insurance (UI) compensation benefits first provided in the CARES Act that is due to expire on December 26. This includes the Pandemic Unemployment Assistance (PUA) that extends UI benefits to workers who traditionally are ineligible, such as gig economy workers and independent contractors, and Federal Pandemic Unemployment Assistance (FPUA), which will provide an additional $300 per week supplement to state UI compensation.
Should you have any questions, please do not hesitate to reach out to your HFA representative.
