On December 21, 2020 Congress passed the Consolidated Appropriations Act, 2021. The bill was sent to the President for signature. As of this time on December 23rd the President has yet to sign it and is signaling that he wants changes to the bill for him to sign it into law. Below are some of the relevant provisions in the bill as it was passed on December 21st. We will provide more details on specific provisions and updates as changes are made.
- Economic Impact payments: Additional refundable tax credit of $600 per individual in a household (including children under the age of 17) subject to a limitation which is based on the taxpayers adjusted gross income. The limitations start to phase out the credit at $75,000 for Single filers, $112,500 for Head of Household filers, and $150,000 for Joint filers.
- Deferred Payroll Tax Deposits: Employers who had deferred the deposit of certain employee payroll taxes, as allowed under the CARES Act, will now have until December 31st, 2021 to deposit the amounts deferred. The original due date was April 30th, 2021.
- PPP Loan Forgiveness Treatment: Borrowers who receive forgiveness of their paycheck protection program loan shall not be denied a deduction of the otherwise deductible expenses which were paid using PPP funds. Additionally, the bill makes it clear that loan forgiveness will not be considered taxable income.
- Credit for paid sick and family leave: Credits for paid sick and family leave provided under the Families First Coronavirus Response Act have been extended through March 31, 2021. Previously these credits were only available for amounts paid through December 31, 2020.
- PPP Allowable Expenses: The bill adds to the list of allowable expenses which may be paid using PPP funds. Generally, the additional allowable expenses include covered operating expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.
- Simplified PPP Forgiveness Application: Provides for a simplified PPP forgiveness application on loans up to $150,000. The application will be no more than one page in length and have a reduced level of other supporting requirements.
- PPP Loan Second Draw: The bill provides the opportunity for certain entities to receive a second draw of the paycheck protection program loan. Generally, to be eligible the entity must have no more than 300 employees and had gross receipts during any quarter of 2020 that demonstrate not less than a 25% reduction from the gross receipts during the same quarter in 2019. The loan amount is equal to 2.5 months of the average monthly payroll, not to exceed $2,000,000.
- EIDL Advance & PPP Forgiveness: Provides that a borrowers eligible PPP loan forgiveness amount is no longer required to be reduced by the borrowers EIDL advance amount. Previously a borrower was required to reduce their PPP forgiveness amount by the advance received under a previous EIDL loan. This is effective as if included in the CARES Act.
- Medical Deduction Limitation: The bill makes permanent the lower 7.5% adjusted gross income threshold, which is used by taxpayers who itemize, for deductible medical expenses.
- Employer payment of Student Loans: The exclusion for certain employer payments of student loans which was provided under the CARES Act has been extended through January 1, 2026. Previously this provision was set to expire on January 1, 2021.
- Residential Rental Depreciation correction: Provides that taxpayers who have elected to be treated as a real property trade or business may use a 30-year ADS depreciation period for depreciating residential rental property which was placed in service before January 1, 2018.
- PPP Loan and ERC interaction: Provides that employers who receive a Paycheck Protection Program loan may still be eligible for the employee retention credit with respect to wages which are not paid using PPP funds. This section clarifies that group health plan expenses may be considered qualified wages, for purposes of the employee retention tax credit, even if the employee receives no other wages. This section is effective as if included in the CARES Act.
- Employee Retention Credit Modification: Extends the employee retention tax credit through June 30, 2021 as well as increases the credit percentage from 50% to 70% of qualified wages. The $10,000 per employee creditable wage limit is now applied per quarter instead of the entire year. Previously the employer was required to show a 50% decline in gross receipts, this has now been changed to only require a 20% decline. There is now an option to generally use a prior quarter when determining if there has been a decline in gross receipts. The definition of a “large employer” has been modified by increasing the number of employees from 100 to 500 when determining qualified wages. These provisions will take effect on January 1, 2021.
- Deductible Business Meals: Business meals are temporarily 100% deductible if paid or incurred after January 1, 2021 and before January 1, 2023.
- Above-the-line Charitable Deduction: Allows individuals who do not itemize to deduct up to $300 ($600 for joint filers) of charitable contributions for the 2021 tax year. Contributions to donor advised funds are not permitted under this section.
- Charitable Contribution Deduction Limitation: The increased charitable contribution deduction limitation, put in place by the CARES Act, which applies to individuals who itemize, has been extended to include the 2021 tax year.
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