On December 27, 2020, the President signed the Consolidated Appropriations Act of 2021, in an effort to provide COVID-19 relief. While additional time is still needed to review one of the largest pieces of legislation in US history, the following are some of the key takeaways:
PPP Loan Forgiveness – Tax Deductibility
One of the most important changes was to the deductibility of covered expenses for the PPP loan. Previously, covered expenses were not going to be deductible, essentially making the portion of the PPP loan that was forgiven, taxable. By making the covered expenses deductible, this now makes PPP loan forgiveness truly tax-free.
PPP Loan #2
The bill also rolled out a second round of PPP funding for qualified borrowers. The loan amount is up to 2.5 times the average payroll costs in the year prior to the loan, or the calendar year, similar to first PPP loan. Previous PPP recipients may apply for up to $2M, provided they:
- have 300 or less employees,
- have fully used the first PPP loan,
- show a 25% gross revenue decline in any 2020 quarter, as compared to the same quarter in 2019.
There are some slight modifications to the application process and what is covered, so stay tuned for more information, as well as talk to your lender.
EIDL and PPP Loan Forgiveness
As a modification from the previous rules, the forgiveness application for PPP loans under $150,000 will be greatly simplified. The SBA is expected to be releasing the simplified forgiveness application form within the next month. Also, PPP borrowers are no longer required to deduct the EIDL advance from the PPP loan forgiveness amount, which could be a significant benefit for many borrowers.
Employee Retention Credit
The Employee Retention Credit is a payroll tax credit and has been enhanced from $5,000 to $14,000 per eligible employee. Previously, those who received PPP funds were unable to take advantage of this credit. That restriction has been lifted and is now allowed; however, there is no “double-dipping” on wages. There was also an extension on this credit through July 1, 2021.
To encourage spending at restaurants, the bill now allows a 100% deduction for qualified meals provided by restaurants, up from 50% deductibility. These are for expenses incurred after December 31, 2020 and though December 31, 2022.
There was some concern that several common tax extenders would not be approved for the 2020 tax year. Fortunately, the Work Opportunity Tax Credit (WOTC), the New Markets Tax Credit, the Medical Expense Deduction Expansion, among others, have been extended.
Stimulus Checks and Unemployment Benefits
There will be an additional $600 stimulus payment issued to individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, along with $600 per eligible dependent. The bill also announced $300 of supplemental unemployment benefits through March 14, 2021.
Because this bill was just passed, we will be providing additional information as it is received to keep you up to date on what this means to you and your business. Be sure to follow us on all the social media platforms to stay current with all things COVID-19 and tax related issues. If you have questions on any of these topics, please give us a call at (503) 277-0581.