What’s Included in the New COVID Relief, Extenders and Spending Authority Legislation

December 28, 2020 | Article

New COVID-19 relief legislation, along with extenders and spending authority necessary to keep the government open, has been signed by President Trump.

Key highlights from the new relief legislation include:

  • $600 stimulus checks
  • An additional round of forgivable Paycheck Protection Program (PPP) loans
  • Relaxed forgiveness criteria for PPP loans up to $150,000
  • Updated information on the deductibility of expenses paid with the proceeds of forgiven PPP loans
  • $300 per week supplemental unemployment insurance assistance
  • Direct funding of COVID-19 related healthcare needs and support for affected industries

The legislation also delays the expiration of a number of provisions otherwise scheduled to expire, makes others permanent and provides for other changes in the tax laws.

Have questions about how to make the most of the new legislation and its impact on you?

Key Provisions in the COVID-19 Portion of the Legislation
Stimulus Checks: The IRS will issue $600 stimulus checks ($1,200 for married couples) plus an additional $600 for each dependent under the age of 17. The amount of the check will phase out at a 5% rate for individuals making over $75,000 per year or married couples making over $150,000 per year.

Round Two Paycheck Protection Plan (PPP) Loans: A second round of PPP loans will be available to businesses with 300 or fewer employees that have sustained a 25% gross revenue loss in any quarter of 2020 compared to the same quarter in 2019.

PPP Loan Forgiveness: For both rounds of PPP loans, additional expenditures will qualify in determining the portion of PPP loans forgiven, including:

  • Payments made to a supplier for goods that are essential to a business if the obligation was binding prior to the covered period of the loan.
  • Payments made to a supplier for perishable goods during the covered period.
  • Payments for business software or cloud computing service that facilitates business operations.
  • Operating and capital costs incurred to comply with published health and worker protection guidance.
  • Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation.
  • An expanded definition of payroll costs to include group life, disability, vision, and dental insurance.

PPP Loan Forgiveness Applications: For both rounds of PPP loans, simplified applications will be provided for loans of $150,000 or less, and lender banks will be held harmless provided they acted in good faith.

Deductibility of Expenses Paid with the Proceeds of Forgiven PPP Loans: No deduction will be denied, no tax attribute reduced, and no basis increase denied with respect to forgiven PPP loans. Forgiven PPP loans will be treated as tax-exempt income and an increase in basis allowed for partners and S corporation shareholders. These changes will be retroactive as if included in the original CARES Act legislation.

The PPP loan is complex and maximizing forgiveness is essential.

EIDL Grants: The CARES Act created emergency grants under the Economic Injury Disaster Loan (EIDL) program of up to $10,000. Taxpayers receiving an EIDL grant were required by the CARES Act to reduce any PPP loan forgiveness by the EIDL grant. This new legislation now provides that any EIDL grants do not reduce a borrower’s PPP loan forgiveness amount.

Extension and Expansion of the Employee Retention Tax Credit (ERC): The refundable ERC is extended through July 1, 2021. For calendar quarters beginning after December 31, 2020:

  • The credit rate is increased from 50% to 70%.
  • The limit on per-employee creditable wages is increased from $10,000 for the year to $10,000 for each quarter.
  • The required year-over-year decline in gross receipts on a quarterly basis is reduced from 50% to 20%.
  • The definition of a “large employer” that can only claim the credit with respect to employees that are not working because of the COVID pandemic is increased from more than 100 to more than 500 employees.
  • Certain public instrumentalities may now claim the ERC.

Retroactive to its inception, the ERC is expanded to allow employers who receive PPP loans to qualify for the ERC with respect to wages that are not paid with forgiven PPP proceeds and to include group health plan expenses even if no other wages are paid to the employee.

Extension of the Credit for Paid Sick and Family Leave Through March 31, 2021: While the mandate to provide paid leave is not extended and expires after December 31, 2020, the employer may still claim the credit if the employee would have qualified for mandated paid leave had the mandate been extended and the employer provides paid leave.

Unemployment Assistance: $300 per week of additional unemployment insurance assistance is provided for 11 weeks from the last week of December.

Deferred Employee Payroll Taxes: The repayment period for deferred employee payroll taxes is extended through the end of 2021.

Provisions Extending Expiring Provisions and Making Other Changes
Provisions made permanent include:

  • Itemized deduction for medical expenses that exceed a floor of 7.5% of AGI
  • The energy efficient commercial buildings deduction of section 179D
  • The railroad track maintenance credit of section 45G
  • Reduced excise taxes on beer, wine and spirits

Provisions extended through 2025 include:

  • The look-through rule for related controlled foreign corporations
  • The New Markets Tax Credit
  • The Work Opportunity Credit
  • The exclusion from gross income of the discharge of qualified principal residence indebtedness
  • Empowerment Zone incentives

Provisions extended through 2023 include:

  • Beginning of construction date for business solar energy property
  • Residential energy-efficient property credit

Most other extenders set to expire on December 31, 2020, have been extended until December 31, 2021. This will allow Congress time to further evaluate the need of these extenders. One of these extensions was the construction of new energy efficient homes.

The legislation also includes several new provisions, including:

  • Full deductibility for business meal expenses for food and beverages provided by a restaurant that are paid or incurred during 2021 and 2022.
  • Expansion of the energy credit (which is extended through 2023) to include waste energy recovery property and offshore facilities.
  • Adjustment of ADS depreciation recovery period for residential rental property placed-in-service prior to January 1, 2018, held by an electing real property trade or business to 30 years (from 40 years).
  • Ability of farmers who elected a two-year NOL carryback period to use the two-year carryback period rather than the five-year period allowed by the CARES Act.
  • Extension through 2021 of the CARES Act’s non-itemizer charitable deduction and the increased limit on deductible charitable contributions for corporations and individuals itemizing deductions.
  • Clarification that forgiveness of EIDL loans, emergency EIDL grants and SBA loan repayment assistance does not result in taxable income.

The new legislation contains several provisions that will impact organizations and individuals alike. We’re here to make sure you know what will affect you.

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