Covid-Relief Legislation: Key Tax Provisions for Businesses and Individuals
On December 27, 2020, the President signed the Consolidated Appropriations Act of 2021 into law. This legislation introduces significant tax relief, Covid-relief provisions, and tax extenders that will impact both businesses and individuals.
We are highlighting the provisions that are most likely to affect taxpayers and offer potential tax savings. This list does not cover every detail in the legislation, so please contact your tax professional to discuss how these changes may affect your situation.
Key Tax Provisions for Businesses
PPP Loan Forgiveness: What You Need to Know
The new legislation clarifies that PPP loan forgiveness is not taxable. Additionally, expenses paid with PPP loan proceeds are deductible. The forgiven amount will be treated as tax-exempt income.
Second Round of PPP Loans: Eligibility and Guidelines
Businesses may qualify for a second round of PPP loans if they:
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Employ fewer than 300 employees
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Show at least a 25% reduction in gross receipts in Q1, Q2, or Q3 of 2020 compared to the same quarter in 2019
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Operate within the Accommodation & Food Services sector, which may receive up to 3.5 times average monthly payroll (other sectors receive 2.5)
Contact your lender for application details. The deadline for a second draw is March 31, 2021.
Grants and Other Non-Taxable Income
The following are considered tax-exempt income:
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EIDL Grants and Advances
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Debt forgiveness under the CARES Act
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Subsidies for loan payments under the CARES Act
Self-Employed Tax Credits
Self-employed individuals can take a credit if they had Covid-19, cared for someone who did, or were affected by other health-related reasons from 4/1/20 to 3/31/21.
Employee Retention Credit Update
Businesses that received PPP loans can now take the Employee Retention Credit (ERC) on wages not covered by PPP proceeds. The credit is retroactive to 3/13/20 and covers 50% of qualified wages in 2020 and 70% in 2021, with new eligibility criteria and increased limits.
100% Deduction for Meals in 2021 and 2022
To support restaurants, the meal deduction for business food and beverage expenses has increased from 50% to 100% for the 2021 and 2022 tax years.
Permanent Tax Extenders
Several tax provisions that were set to expire after 2021 are now permanent, including:
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Work Opportunity Tax Credit
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Exclusion from income for employer-paid student loans
Key Tax Provisions for Individuals
Stimulus Checks: Recovery Rebate Details
Eligible individuals will receive a payment of $600 per adult and $600 per child under 17. Payments phase out for incomes above $75,000 (Single) and $150,000 (Married). Check your payment status at the IRS website.
Charitable Contribution Deductions
For tax year 2020, non-itemizers can deduct up to $300 in cash contributions to qualified charities. For 2021, married filing jointly can deduct up to $600.
Increased AGI Limit for Charitable Deductions
For 2020 and 2021, the deduction limit has increased to 100% of Adjusted Gross Income (AGI), up from the previous 60%.
Educator Expense Deduction Update
Teachers can now include personal protective equipment and other Covid-related supplies in their above-the-line deduction of up to $250.
Permanent Tax Extenders for Individuals
The following provisions are now permanent:
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7.5% floor for medical deduction
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Certain energy-efficient credits, including solar
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Exclusion from gross income for discharged principal residence debt
Need Help Navigating These Changes?
If you have questions about how these provisions impact your tax situation, reach out to our team. We can help you make the most of the available tax savings and stay compliant with the new regulations.