Consolidated Appropriations Act, 2021 – latest pandemic relief bill

The Consolidated Appropriations Act, 2021 (the CAA, 2021), signed into law on December 27, 2020, is a further legislative response to the pandemic. The tax provisions are found in two of the several acts included in the CAA, 2021, specifically, (1) the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (the TCDTR) and (2) the COVID-related Tax Relief Act of 2020 (the COVIDTRA). Following is information on some of the more common provisions.  

Individual provisions

Extension of unemployment benefits

The new benefit of $300 per week is half of the amount of the benefit provided under the CARES Act, which expired at the end of 2020. The extension runs through March 14, 2021.

Stimulus payments (also called recovery rebates or economic impact payments) – round 2

U.S. taxpayers will be receiving another stimulus payment from the federal government. There are several changes to the second round of individual stimulus payments compared to the first round received earlier in the year as a result of CARES Act.

The general payment amount to U.S. citizen or resident adults is half the amount of the previous round in the amount this time of $600 compared to $1,200 last time.

However, in the first round of payments, dependent children added $500 to the stimulus payment and in the second round, they add $600 per child.

The range of adjusted gross income where the payment begins to phase out is the same as the first round of payments ($75,000 for individual taxpayers, $150,000 for married taxpayers). Yet, the second round of payments phase out quicker as income exceeds the thresholds, so you will not see much, if any of a payment in the second round if your income exceeds those limits.

Nonresident aliens, persons who qualify as another person’s dependent, and estates or trusts don’t qualify for the rebate. Taxpayers without a Social Security number are likewise ineligible, but if only one spouse on a joint return has a Social Security number, that spouse is eligible for a $600 payment. Children must also have a Social Security number to qualify for the $600-per-child payments.

The second round of payments will be paid via the same method that taxpayers received the first payment (either a direct deposit to your bank account or a paper check).

Taxpayers who receive an advance payment that exceeds the amount of their eligible credit (as later calculated on the 2020 return) will not have to repay any of the payment. If the amount of the credit determined on the taxpayer’s 2020 return exceeds the amount of the advance payment, taxpayers receive the difference as a refundable tax credit.

Slight revision on rules for Child Tax Credit and Earned Income Tax Credit

The Act does not change the amounts or calculations of these credits for 2020, but allows taxpayers to use 2019 income levels when determining eligibility for the credits. This helps certain taxpayers whose income is lower in 2020 compared to 2019 and may not have been eligible for the full credit based on 2020 income.

Charitable Contributions

An extension and expansion of the above-the-line charitable contribution was enacted. For 2020, under the CARES Act, taxpayers (either single or married filing joint) can claim an above-the-line deduction of $300 for donations made to public charities.

This most recent Act extended that benefit to 2021 and allows married filing joint taxpayers to deduct $600 above-the-line in 2021.

An above-the-line tax deduction allows you to deduct the contributions in addition to the standard deduction, which most taxpayers take due to the increases enacted with the Tax Cuts and Jobs Act.

Flexible Spending Account balances can roll over from 2020 to 2021

A Flexible Spending Account (FSA) allows you to deduct amounts funded to your account each year. In a typical year, any amounts not spent out of the account on qualified medical expenses are lost. This benefit allows you to leave your funds in 2020 and use them in 2021 instead.

Employee-side Payroll tax deduction payback period extended from April 2021 to December 2021

Employers were offered the opportunity to suspend employee payroll tax deductions from their paychecks from September 1 – December 31, 2020 if the employee’s wages were less than $4,000 for a biweekly pay period.

Those payroll tax deferrals were due to be paid back by April 30, 2021. Essentially, employees working for employers that took advantage of this provision would have seen higher than usual amounts in take-home pay for the final quarter of 2020, but lower amounts in take-home pay for the first quarter of 2021.

This Act extends the payback period to the full 2021 calendar year, meaning the reduction in paychecks in 2021 will be smaller.

Business provisions

Paycheck Protection Program (PPP) – more funding, new rules, business expenses deductible

This Act includes an additional $284.5 billion in funds for another round of PPP loans. This round of funding is designed to be available only to businesses who have been hit the hardest by the pandemic.

A couple of the new requirements are:

  1. Businesses must have fewer than 300 employees
  2. Businesses must have experienced at least a 25% decrease in gross receipts in a 2020 quarter compared to the same quarter in 2019

Another major development: For all of the PPP funds received during the year, there will be no reduction to otherwise deductible business expenses that were paid by use of the PPP funds.

Furthermore, there will be available a simplified forgiveness for loans under $150,000. This simplified process has not been made available yet but entails a one-page verification of certain items to achieve forgiveness rather than a more extensive documentation process. Congress has directed the Small Business Association (SBA) to release the simplified forgiveness form within seven days after enactment of the new bill.

EIDL grants for businesses in low-income communities

These grants are only available if a business has fewer than 300 employees and has experienced a loss of revenue of at least 30% in calendar year 2020 compared to 2019.

Further, the business must be located in a “low-income community” which has various calculation metrics.

If your business qualifies based on employee count and revenue loss, then please contact our office for further determine if the other metrics are met to qualify for the grant.  

Employee Retention Credit

The Employee Retention Credit provides a benefit to businesses who retained their employees during the pandemic. Under the CARES Act, businesses could only pursue the Employee Retention Credit if they did not claim the PPP loan. Under this new Act, businesses are allowed to claim both the PPP and the Employee Retention Credit.

In order to claim the Employee Retention Credit, a business must have experienced loss in gross revenue of at least 25% in a 2020 quarter compared to the same 2019 quarter, or have been mandated to shut down by a governmental authority during any calendar year in 2020.

If you believe your business qualifies for these requirements, let us know and we will look into your specific situation further to see if we can claim the credit.

Extension of employer-side payroll tax credits for paid sick and family leave for employees who take leave due to impact from the coronavirus

These credits pertain specifically to employers who pay sick and/or family leave pay for employees who miss time at work due to complications from the coronavirus (either themselves or a family member that they take care of)

100% deduction for business meals in 2021 and 2022

Lawmakers want to encourage businesses to stimulate the ailing restaurant industry. As a result, businesses are allowed to deduct 100% of the costs of business meals paid during 2021 and 2022. It was previously limited to a 50% deduction.

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