2021 Consolidated Appropriations Act
To our Valued Clients,
As many of you have already heard in the news media, Congress passed the 2021 Consolidated Appropriations Act (CAA) which not only keeps our government funded until September 2021, but provides much needed relief to businesses and individuals affected by COVID-19. Though expressing disagreement initially, the President has signed the bill.
Stimulus Provisions for Individuals –
- The direct deposit of the 2nd round of Economic Impact Payments will begin as early as next week
- $600 for individuals making up to $75,000 per year or $1,200 for couples making up to $150,000 per year,
- Plus, an additional $600 per qualifying child under age 18.
- Federally funded supplemental unemployment benefits of an additional $300/week for all workers receiving unemployment benefits from December 26, 2020 through March 14, 2021.
- Established an emergency federal rental-assistance program and a national eviction moratorium through January 31, 2021.
Many industries have been severely impacted by this pandemic and the CAA has provided many provisions that will stimulate businesses and encourage Companies to continue to hold on and continue operations.
Highlights include –
- Paycheck Protection Program – Changes to PPP1 and the new PPP2
- The proceeds of the forgiven loan remain non-taxable, but Congress has overridden the IRS and Treasury and has made all eligible expenses paid with PPP proceeds also non-taxable. Furthermore, they went one step further and put into law that this non-taxable income will increase shareholder & partner basis. This applies to all PPP loans including loans already forgiven at (or prior) to this new legislation.
- There will be round 2 of PPP loans for businesses experiencing a drop of 25% or more in receipts for any quarter in 2020 compared to the same quarter in 2019 for companies with 300 or fewer employees. Rules will be similar to the first round, however if you are a hotel or restaurant, you will be able to include 3.5 x average monthly payroll costs, rather than the 2.5 multiple for other companies. These PPP2 loans will be capped at $2 million. Some additional COVID related costs were added to the eligible qualifying costs. There are a few “set aside” provisions that provide somewhat of a first come, first serve opportunity for certain borrowers. These include PPP borrowers with 10 or fewer employees and newly eligible PPP borrowers due to the Act’s provisions.
- Companies can now select the covered period anywhere between the original 8 weeks to the extended 24 weeks period. If you had a reduction in full time equivalent employees or a pay rate reduction, you may elect to end the covered period before the 24 weeks period.
- There will be a simplified forgiveness one-page certification application for loans under $150,000 – this new form will be released by the SBA within 7 days of enactment of the CAA.
- EIDL Advances received will not decrease the amount of the PPP loan forgiven.
- The Act provides the opportunity for most Section 501(c)6 organization to be eligible to apply for PPP loans. Previously, only 501(c)3 and 501(c)19 organizations were eligible.
- We are advising waiting on submitting current forgiveness applications until more information is available. There is no hurry, and it is prudent to allow time for the issuance of the PPP2 instructions and for lenders to modify their application portals for changes made in the Program resulting from this Act.
- Continued Payroll Relief
- The Employee Retention Credit was extended through July 1, 2021. Previously, the ERC was an annual 50% refundable credit of eligible wages up to $10,000 (a credit of $5,000 per employee). Beginning in 2021, there is a quarterly 70% credit up to $10,000 in eligible wages ($7,000 per employee per quarter). As with the CARES Act, there are gross receipts tests (now only a 20% or more decrease is required) as well as larger employee thresholds (now increased to 500 or fewer employees). This credit is also available even for employers who receive PPP loans, however, the credit can only be used for wages that were not paid for with forgiven PPP proceeds.
- This Act extends the availability of Family First Coronavirus Response Act (FFCRA) paid sick leave and the expanded FMLA payroll tax credits through March 31, 2021 (previously through December 31, 2020). Interestingly, CAA removes the mandatory requirement language of the FFRCA. In other words, as of December 31, 2020, employers will no longer be required to provide the FFCRA leave benefits to employees. If employers want to voluntarily provide the benefits, they are eligible to take advantage of the credits through March 31, 2021.
- The surprise of this Act was allowing a 100% deduction for restaurant meals in 2021 and 2022, thereby bolstering the devastated restaurant industry so hard hit by this pandemic. During 2020, the 50% deduction remains in effect.
- Other Relevant Tax Provisions
- CCA includes an additional $20 billion funding of EIDL Advance Grants for targeted low-income communities. These are similar to the previous $10,000 advance grants under the CARES Act, however it is still not clear as to how ‘low income community’ will be defined.
- A 3-tier priority grant program for museums, independent theatres, zoos, and live event venues will be established with the highest priority to the hardest hit financially.
- The CARES Act created an additional $300 charitable deduction for taxpayers that claim the standard deduction. This Act increased the amount to $600 on joint returns in 2021.
- Extension of various energy related tax credits
- Unused health & dependent care Flexible Spending Accounts (FSA) benefits may be carried from 2020 to 2021.
- Earned Income Tax Credits and the refundable portion of the Child Tax Credit can be calculated using 2019 income amounts in 2020, if that calculation provides a larger refund.
The above highlights are only a portion of the entire legislation which provides funding for vaccines, COVID testing, health care provider support, food and housing assistance, schools, childcare facilities, and transportation.
This legislation will be a wonderful gift for the Holidays. If you have any questions regarding this update, please feel free to contact us.