Tax Relief in the Consolidated Appropriations Act of 2021

President Signs Covid-relief Legislation

On December 27, 2020 the President signed into law the Consolidated Appropriations Act of 2021. This legislation includes tax relief, Covid-relief provisions, and tax extenders that will affect business and individual taxpayers.

We are going to highlight the provisions that we think are will effect the most taxpayers and help you with tax savings.

This list does not cover everything in the legislation. Contact your tax professional to discuss how these items, or any other tax law, will effect your specific situation.

Businesses

Ppp Forgiveness

This legislation clarified that PPP forgiveness is not taxable, and the expenses paid with PPP loan proceeds are deductible.

The PPP forgiveness will be treated as tax-exempt income.

Another Round Of Ppp Loans

There will be a second round of PPP loans. In order to qualify for this loan, you must:

• Employ less than 300 employees

• Have at least a 25% reduction in gross receipts in the 1st, 2nd, or 3rd quarter 2020 relative to the same quarter in 2019

• Accommodation & Food Services may receive up to 3.5 times average monthly payroll (everyone else is 2.5)

Contact your lender on how to proceed. The loan process is not open yet but it will be soon. The deadline for a second draw is March 31, 2021.

Grants & Other Items Are Not Taxable

The following items will be considered tax-exempt income:

• EIDL Grants and Advances

• Debt forgiveness under the CARES Act

• Subsidy for loan payments under CARES Act

Self-employed Tax Credits

Self-employed taxpayers can take a new credit in 2020 if they had Covid, cared for someone who had Covid, and various other health reasons. This credit is similar to the FFCRA mandated sick pay for Covid related reasons.

This includes dates from 4/1/20 through 3/31/21.

Employee Retention Credit

This payroll credit has been available since the CARES Act, however you could not take the credit if you received a PPP loan.

If you received PPP loans, you can now take the ERC, but only on wages not paid for with PPP proceeds (so basically, only on wages after you spent your PPP money), retroactive to 3/13/20.

The credit for 2020 is 50% of qualified wages paid between 3/13/20 and 12/31/20 during a quarter in which:

• there has been a full or partial shutdown due to a government order, or

• 50% decline in gross receipts for the same quarter the prior year (in 2021 the decline only needs to be 20% instead of 50%)

The credit is now extended to wages paid through 6/30/21. The credit amount is 70% of qualified wages. It is capped at $10,000 per employee per quarter.

You can do the same for 2021, except the decline only needs to be 20%, and the tax credit is raised to 70%.

100% Meals Deduction For 2021 & 2022

In hopes to support restaurants, the have increased the Meals deduction from 50% to 100% for business food and beverage expenses provided by a restaurant for tax years 2021 and 2022.

Tax Extenders Made Permanent

There were tax provisions set to expire after 2021, but this bill now makes these extenders permanent. This includes:

• Work Opportunity Tax Credit

• Exclusion from income for certain student loan payments made for your employees

Individuals

Stimulus Checks

The technical name is “Additional 2020 Recovery Rebate for Individuals”. The IRS is issuing payments of $600 per adult and $600 per each child under 17 years of age. There is a phase out limit if your income is above $75,000 (Single) and $150,000 (Married).

You can check on your stimulus payment here: www.irs.gov/coronavirus/get-my-payment

Charity Deduction

For tax year 2020, if you do not itemize you can take an up-to $300 additional charity deduction. For 2021 the amount is up-to $600 if married filing joint return.

This is only for cash contributions paid to a qualified organization. It does not include non-cash contributions.

Increased Limit For Charity Deductions

For 2017-2019 your charity deduction maxed out at 60% of your Adjusted Gross Income (AGI). This means if you had income of $100,000, the maximum amount of your charity deduction would be $60,000.

For 2020 and 2021, the AGI limit is moved to 100%.

Educator Expense Deduction

If you are a teacher, you can take a maximum $250 above-the-line deduction. You may now count personal protective equipment, disinfectant, and other Covid supplies towards your deduction.

Tax Extenders Made Permanent

There were tax provisions set to expire after 2021, but this bill now makes these extenders permanent. This includes:

• 7.5% floor for medical deduction

• Certain energy efficient credits (including solar)

• Residential energy efficient property credit

• Exclusion from gross income on the discharge of qualified principal residence indebtedness

If you have additional questions regarding this information, or other tax and accounting related matters, give us a call.