The Consolidated Appropriations Act, which includes the Paycheck Protection Program (PPP) timeframe modification and extensions and other COVID-related tax relief, now awaits President Trump’s signature. In addition to addressing the tax issues related to forgiven PPP loans, the $900 billion COVID stimulus package includes $600 stimulus checks for many individuals, additional PPP loans for certain businesses, as well as a host of other modifications. Key provisions are:
- Allows PPP borrowers to take tax deductions for business expenses paid with forgiven PPP loan funds, officially reversing the IRS non-deductibility position that has caused much anxiety among borrowers.
- Provides availability for small businesses with fewer than 300 employees that experienced a revenue decrease of at least 25% in a 2020 quarter as compared to the same quarter in 2019 to apply for a second loan of up to $2 million (publicly traded companies are barred from participating). Also allows first-time borrowers to receive PPP funding.
- Simplifies the forgiveness application for businesses with PPP loans under $150,000.
- Expands PPP eligibility to include nonprofits and local newspapers, TV, and radio broadcasters.
- Extends the employee retention tax credit enacted by the CARES Act for wages paid through June 30, 2021 by employers with up to 500 employees (up from 100) with a reduction in gross receipts of 20% (down from the 50% requirement). The credit is calculated on 70% of wages (up from 50%) to a maximum of $10,000 per employee per quarter (previously credit-eligible wages were $10,000 per year), increasing the maximum credit from $5,000 per employee per year to $7,000 per employee per quarter. The bill also clarifies that employers receiving PPP funds can still be eligible for the employee retention tax credit for wages that are not funded by forgiven PPP proceeds.
- Allows a 100% deduction for business meals (food or beverages provided by a restaurant – subject to the normal substantiation rules) from January 1, 2021 through December 31, 2023.
- Includes direct-to-taxpayer $600 stimulus checks for many individuals earning up to $75,000 as shown on the 2019 income tax return ($112,500 for heads of households and $150,000 for couples) – plus $600 for each dependent child age 16 and younger. Similar to the previous stimulus checks earlier in 2020, people with income above these levels could receive a partial payment ($600 amount decreases by $5 for every additional $100 in income). Those not eligible based on 2019 but eligible based on 2020 income will be eligible for a refundable tax credit when filing their 2020 income tax return.
- Enhances unemployment benefits by adding $300 weekly and extending benefits for an additional 11 weeks (most states pay benefits for 26 weeks; the CARES Act earlier in 2020 extended benefits for 13 weeks, and this act adds 11 more weeks for a total combined 50 weeks of benefits).
- Reduces surprise medical bills for those who incur out-of-network provider costs unexpectedly, such as emergency room physicians, by requiring health providers to work with insurance companies to settle on a fair amount.
- Allows those claiming the earned-income tax credit and the refundable portion of the child tax credit to use earned income from 2019 rather than 2020 for qualification purposes, allowing the credit for people who might otherwise have lost eligibility due to a reduction in earned income or a job loss.
- Allows employers with flexible spending accounts to carry over unused funds for health and dependent care from 2020 to 2021 and from 2021 to 2022, and allows employers to raise the age for qualifying dependent care from 12 to 13 for 2020.
- Extends repayment of deferred payroll tax payments through calendar year 2021.
- Clarifies that the educator expense deduction of up to $250 includes expenses for personal protective equipment and other supplies related to the prevention of the spread of COVID-19.
- Allows farmers who had irrevocably elected to waive the net operating loss carryback period to revoke the election. Farmers who also elected a 2-year net operating loss carryback period are also allowed to retain that rather than using the 5-year carryback provided in the CARES Act.
In addition to the COVID focused stimulus provisions above, the act contains several other important provisions and “tax extenders”:
- Simplifies the Free Application for Federal Student Aid (FAFSA) form beginning in 2023 by reducing the number of questions from 108 to 36 and replacing the expected family contribution figure with a student aid index.
- Permanently extends selected tax provisions that were set to expire. These temporary tax provisions previously had a fixed termination date. Some of these provisions include:
- 7.5% of Adjusted Gross Income threshold for unreimbursed medical expenses for itemizers.
- Energy efficient commercial building deduction (Section 179D) for energy efficiency improvements to lighting, heating, cooling, ventilation, and hot water systems. Beginning in 2021, an inflation adjustment will apply.
- Transition from the deduction for higher education expenses (that no longer applies after 2020) to increased income phase-out thresholds for the Lifetime Learning Credit to $80,000 ($160,000 for married filing jointly couples) after 2020 (similar to the phase-out thresholds for the American Opportunity Tax Credit).
- Temporarily extends selected tax provisions that were set to expire. Some of these provisions include:
- Work Opportunity Tax Credit extended through 2025.
- Employer tax credit for paid family and medical leave extended through 2025.
- Charitable contribution deduction for non-itemizers of up to $300 extended through 2021 and increased to $600 for married filers.
- Increased limitations on charitable contributions extended through 2021.Exclusion from income for the discharge of qualified principal residence indebtedness extended through 2025. The maximum acquisition indebtedness limits are reduced to $750,000 ($375,000 for married couples filing separately).
- 7-year recovery period for motorsports entertainment complexes extended through 2025.
- Empowerment zone designations extended through 2025.
- Mortgage insurance premiums deduction (phase-out still applies) extended through 2021.
- Health Coverage Tax Credit extended through 2022.
- Several energy provisions including the carbon dioxide sequestration credit, electricity produced from certain renewable resources credit, the credit for non-fiber-optic solar energy property, the second generation biofuel producer credit, 2-wheeled plug-in electric vehicle credit, and the nonbusiness residential energy credit (lifetime maximum of $500 still applies).
This is a quick synopsis of the almost 6,000-page legislation. While every attempt has been made to include the most up-to-date information, you should check any specific provisions of interest to be sure. This information is for general guidance.
Julie Welch, CPA, PFS,
CFP®, AEP (Distinguished)
Meara Welch Browne, P.C.
This advice isn’t intended or written to be used for the purpose of avoiding penalties and cannot be used for that purpose.
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