This piece of legislation is a $900 billion pandemic-related stimulus attached to the $2.3 trillion Consolidated Appropriations Act of 2021 that provides funding for the federal government for the upcoming year. Most of the provisions contained in the supplemental act extended and/or amplified those contained in the CARES Act of March 2020. Some of the tax and business-related highlights are discussed below.
- Another round of Economic Impact Payments (EIP) The income thresholds for these payments are the same as those that were issued in 2020. After reaching Adjusted Gross Income of $75,000 for single taxpayers and $150,000 for jointly-filed returns, payments are phased out and ultimately reduced to $0. Payments will be reconciled on 2020 tax returns but are being distributed based on 2019 tax numbers. If you received less than you should have per your 2020 tax return reconciliation, the difference will work in your favor. If you received more than you should have per your 2020 tax return reconciliation, there is no requirement to ‘give back’ the overpayment. The main difference with this round of payments relates to the amounts – now at $600 per qualifying person. For example, a couple who jointly-filed a 2019 tax return reporting $100,000 in Adjusted Gross Income and listing three dependent children under 17 years of age should receive a payment for $600 * 5 = $3,000. The IRS started issuing these second round of Economic Impact Payments in late December 2020.
- Paycheck Protection Program (PPP) Loans A big question mark for many businesses for most of last year was the tax treatment of expenses paid for with PPP loans. The Appropriations Act has clarified that these will subject to the same tax treatment they otherwise would, e.g., salaries paid for with PPP loan funds will be tax deductible. Additionally, for businesses that continue to struggle, the PPP program itself has opened a second round of funding available to certain businesses that can demonstrate a decrease in revenue during 2020 from 2019. The most current loan application can be found here.
- Economic Injury Disaster Loans (EIDL) These loans are still available and have also been expanded. The Appropriations Act confirmed receipt of the up-to-$10,000 so-called “EIDL Advance” is not taxable and also removed the CARES Act requirement that an EIDL Advance amount reduce PPP loan forgiveness.
- Numerous changes and updates for 2021 Business meals will be 100% tax deductible for 2021 and 2022. The charitable contribution for personal tax returns claiming the standard deduction has been extended into 2021 with a slight increase. The 60% Adjusted Gross Income limitation for deducting cash charitable contributions that was increased to 100% for 2020 is extended through 2021. The income threshold for itemized deductions for medical expenses is permanently set at 7.5%. The Employee Retention Credit is extended through June 2021 and for 2021 is no longer mutually exclusive with receiving PPP loans. Lower-earning individuals will be able to use their 2019 or 2020 income to calculate the Earned Income Credit and the Child Tax Credit. Unemployment benefits have been extended for employees and self-employed folks into early 2021.
If you have any questions regarding this new tax law and how it applies to you, don’t hesitate to reach out.