Updated 12/28/2020 at 7:16 am
On December 22, Congress passed the long-awaited legislation around continued COVID relief efforts, and on December 27, President Trump signed the $2.3 trillion funding package, the Consolidated Appropriations Act, 2021, into law. Given that 2020 only has a few days left and some of these provisions are critical to year end planning, we put together a high-level summary of the most salient provisions of the bill, and what this will mean for businesses, individuals, and our national economy in the wake of the COVID-19 global pandemic.
As more data emerges over the next 1-2 weeks, we will begin providing deeper dives into the most impactful provisions and will continue to update this blog.
Income and Payroll Tax Provisions
- Paycheck Protection Program (“PPP”) loan funded expenses will be deductible, and the forgiveness of a PPP loan remains nontaxable at the federal level. A note to Maryland borrowers – stay tuned as Maryland automatically decouples from this federal tax provision, absent new legislation to allow tax free treatment. EIDL grants will also not be taxable.
- Additional recovery rebates will be provided to individuals – $600 per taxpayer, $1,200 for a married couple and $600 per qualifying child. Income phaseout ranges will begin at $75,000 for single, $112,500 for head of household and $150,000 for married filing jointly taxpayer designations, respectively. Payments could begin before January 1st.
- Extensions of various favorable tax provisions
- Itemized deductions for medical expenses will remain subject to a 7.5% floor, as opposed to a previously scheduled 10% floor for all taxpayers.
- Itemized deduction for mortgage insurance premiums is now allowed through 2021.
- The Section 179D energy efficiency deduction for commercial building owners is made permanent.
- New Markets Credit, Employer Credit for Paid Leave, and Work Opportunity Credit are extended through 2025.
- Exclusion from taxable compensation of employer payments of student loans is extended through 2025.
- Nonbusiness energy credit for certain energy efficiency improvements made to a principal residence is extended through 2021.
- Business meals will be 100% deductible in 2021 and 2022, up from 50%.
- Non-itemizers can deduct cash charitable contributions of up to $600 through 2021.
- Teachers can include costs for PPE and other supplies incurred to prevent the spread of COVID-19 as qualified expenses for the Educator Expense deduction.
- Emergency financial aid received by college students is specifically excluded from taxable income.
Adjustments to Existing PPP Loans and the Related Forgiveness Process
- Expenses for PPE, virtual work environments, damage due to protests and essential supplier costs contracted for prior to receiving a PPP loan are added to the list of qualifying forgivable expenses.
- Covered period may be either 8 or 24 weeks at the borrower’s discretion.
- Group life, disability, dental and vision insurance will be considered a payroll cost.
- There will now be a simplified application process for loans of under $150,000.
- EIDL grants will not reduce PPP forgiveness, refunds should be processed when loans are closed out.
“PPP 2.0” – PPP Second Draw Loans
PPP 2.0 loans will be made to harder hit, smaller businesses and there will be a cap of $2 million.
- Borrowers cannot employ more than 300 employees or be a public company – rules for multi-location businesses are similar to round 1.
- To be eligible, any first-round PPP loan must either be already fully exhausted or will be fully utilized.
- Eligible businesses will have incurred a 25% reduction in gross revenue during a calendar quarter in 2020 when comparing that to the same quarter in 2019.
- 501(c)(6) organizations qualify for Second Draw PPP loans.
- Similar loan request, forgiveness and payment terms as we saw for original PPP loans.
Other Relief Provisions
- Employee Retention Credit – this provision is enhanced and extended. Beginning on January 1, 2021 and through June 30, 2021, the changes enacted will increase the rate to 70%, expand eligibility and increase the per employee limit by a multiple of 4.
- Enhanced unemployment benefits will be continued into as late as April of 2021, with a $300 per week pandemic supplement for eligible recipients.
- Substantial relief is provided to industries such as transportation, as well as significant funding enhancements for emergency rental assistance, SNAP benefit increases, broadband internet, education and health care provider payments.