On December 21, 2020, Congress finally delivered much needed relief to American taxpayers. After many months of contentious negotiations, Congress passed, and President Trump signed into law, a $900 billion COVID-19 relief package with tax benefits for both individuals and business entities. Also included was a long-awaited change to the Paycheck Protection Program that will allow borrowers to deduct expenses paid with PPP funds as well as additional funding for another round of PPP loans.
We want to provide you with a brief summary of the key provisions of the bill. Watch your email and our website for additional information as we analyze the 5,600-page Consolidated Appropriations Act of 2021.
As always, please contact us if you have any questions.
Benefits for Individuals
- Another round of economic stimulus payments – $600 direct payments to individuals making less than $75,000 a year, or couples making less than $150,000 and $600 per child dependent. Payment is phased out if income exceeds these amounts.
- Federal unemployment insurance benefits will be extended through mid-March, with each week supplemented by a $300 payment.
- National eviction moratorium extended through January 31, 2021
- Paid Sick and Family Leave program is no longer mandatory but employers can continue to receive a tax credit if they voluntarily continue to March 31, 2021
- Residents of qualified disaster areas can take distributions of up to $100,000 from their retirement plans or IRA accounts without penalty. Amounts withdrawn are includable in income over 3 years and may be recontributed back to the plan.
Changes for Business Entities
- Temporarily allows a 100% business expense deduction for meals (as opposed to the current 50%), as long as the expense is for food or beverages provided by a restaurant. Expenses must be incurred after December 31, 2020, and before December 31, 2022
- Extends the Employee Retention Tax Credit through July 1, 2021. The bill increases the refundable payroll tax credit to a maximum of $14,000 per employee (up from $5,000) by adjusting the calculation from 50 percent of wages paid to 70 percent of wages paid on up to $10,000 per quarter. In addition, businesses will now be able to take the Employee Retention Tax Credit AND receive a PPP loan.
Changes to Paycheck Protection Program (PPP)
- Overturns current IRS guidance by allowing the deduction of expenses paid with a PPP loan that is fully or partially forgiven. Loan forgiveness continues to be non-taxable income.
- Note: California currently conforms to existing IRS guidance so expenses are not deductible and forgiveness is not taxable.
- Creates a simplified forgiveness process for loans under $150,000
- Eliminates the reduction in PPP forgiveness for borrowers receiving an EIDL advance
- New round of PPP loans with $284 billion of funding:
- Both new borrowers and borrowers with existing PPP loans are eligible
- Funds have been specially allocated for borrowers with 10 or fewer employees
- Existing borrowers must show a decline in gross receipts of at least 25% during one quarter of 2020 vs 2019 and have 300 or fewer employees
- Loan amounts are capped at $2 million and will be based on 2.5 times average monthly payroll for 2019 or the prior 12 months (restaurants/hotels receive 3.5 times)
- Covered period is between 8 and 24 weeks
- Creates new categories of cost eligible for forgiveness to include: software and cloud computing services, employer-provided PPE, property damage from public disturbances, and purchases of “essential goods and services”. These new categories apply to both existing borrowers and new borrowers.