On December 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law. As trusted advisors, we at Schulman Lobel have been monitoring the various revisions leading up to the final draft and signature. Now that this has been finalized, absent some remaining add-ons or revisions, we wanted to highlight key items of the more than 3,000 pages found in the Act’s final form. The following information highlights these details:
Individual Provisions
Stimulus Payments
Individuals will receive a maximum of $600 and married couples filing joint tax returns will receive a maximum of $1,200. An additional $600 per qualifying child will also be paid through the stimulus benefit. These payments will be treated as an advance rebate of a 2020 tax credit. The phaseout range begins (based on 2019 adjusted gross income) at $75,000 for individuals and married filing separate, $150,000 for joint filers or surviving spouse, $112,500 for head of household. Eligible individuals must have a valid social security number and must not be a non-resident alien, trust, estate or an individual claimed as a dependent by someone else.
Federal Unemployment Benefits
$300 supplemental jobless benefits ("Enhanced UI") for workers - including those self-employed and in the "gig economy" - displaced due to the pandemic. These benefits will be extended through mid-March 2021.
Extension of CARES Act Charitable Contribution Modifications
For 2020, and now extended through 2021, individual taxpayers who do not claim itemized deductions can claim a $300 "above the line" deduction. For those who do claim itemized deductions, the increased deduction percentage limitation from 60 percent of AGI to 100 percent of AGI for cash gifts to charities has also been extended through 2021.
General Business Provisions
Extension of CARES Act Employee Retention Tax Credit
The employee retention tax credit, scheduled to expire on compensation paid after December 31, 2020 has been extended to compensation paid through June 30, 2021.
Modification to Deduction Percentage for Business Meals
The deduction percentage for business meals is increased from 50 percent to 100 percent for business meals (as long as the expense is for food and beverages provided by a restaurant) after December 31, 2020 through December 31, 2022.
Extension of CARES Act Charitable Contribution Modifications
The increase in the deduction limit for corporation charitable contributions from 10 percent of taxable income to 25 percent has been extended through charitable contributions made prior to December 31, 2021.
PPP Loan Provisions
Deductibility for Business Expenses Paid with Forgiven PPP Loans
Borrowers of PPP funds that qualify for tax-free loan forgiveness may deduct the business expenses that have been paid with such funds. This is an override to the IRS' previously issued rulings (Notice 2020-32 and Rev. Rul. 2020-27) that borrowers would not be eligible to deduct eligible expenses paid from PPP funds that qualified for loan forgiveness. This override and clarification will allow PPP loan borrowers to enjoy the benefits of tax deductions and associated tax benefits such as research tax credits and Section 199A deductions. In addition, SL notes that the amount of tax-free loan forgiveness ("tax-exempt income") will result in a basis increase for owners of pass-through entities for purposes of loss limitation rules and taxation of distributions.
Additional $284 Billion of Funding for PPP Loans
A new round of PPP loans, up to $2 million, will be made available for both first-time eligible borrowers and businesses that also previously received PPP loans. To qualify for the second round of PPP loans, borrowers must have 300 or fewer employees (remains at 500 if you are a first-time borrower), have used or will use the full amount of their initial PPP loan (if taken), and must demonstrate that the borrower has suffered a 25 percent gross revenue decline in any 2020 quarter, as compared to the same quarter in 2019. In addition, borrowers must wait 90 days after the initial PPP loan forgiveness period and receiving Second Draw PPP Loan proceeds. While the Second Draw PPP Loans are more restrictive, individual borrower loan amounts remain capped at 2.5 times (3.5 times for Accommodation and Food Services (must have a NAICS code starting with 72)) the average total monthly payroll costs for the one-year period prior to the date of the loan is made or calendar year 2019 (at the election of the borrower).
Modifications to PPP Loan Terms and Simplified Application Process
While the second PPP funding opportunity will still require at least 60 percent of loan proceeds to be used for eligible payroll costs, the second round of loans can also be used for worker protection equipment and facility modifications to comply with COVID safety guidelines, computer software, accounting and human resource needs, including cloud based services, payments to essential suppliers to the borrower's business operations, and reimbursement for costs not covered by insurance to remediate damage incurred during 2020 due to vandalism or looting due to public disturbances. Employer-provided group insurance coverages are now specifically included as eligible costs. These additional expenses can also be included in the forgiveness application for first round PPP loans as long as forgiveness has not been granted on that first round loan prior to December 27, 2020.
The Act allows borrowers to select a covered loan period between 8- to 24-weeks. Borrowers, including first round borrowers, with loans of $150,000 or less will be eligible to submit a simplified, one-page certification that the borrower can use to certify the amount of loan proceeds used to cover payroll costs and the number of employees that the borrower was able to retain.
Modifications to Treatment of SBA Economic Injury Disaster Loans ("EIDLs")
The Bill clarifies that forgiveness of EIDL loan proceeds (generally $1,000 per employee, up to a maximum of $10,000) will qualify for tax-free treatment. Further, the legislation repeals the requirement that PPP loan borrowers must reduce their PPP loan forgiveness amount by the amount of EIDL advances.
Grants for Entertainment Venues
The Acts makes available to operators, promoters, producers demonstrating a 25% reduction in revenue, Grants totalling $15 Billion for shuttered entertainment venues (movie theatres, concert halls, museums, etc.)
The bill also contains numerous additional tax provisions which Schulman Lobel will communicate as details continue to emerge.
