On December 27, 2020, the Consolidated Appropriations Act of 2021 was finally signed into law. Embedded within the over 5,500 pages was a series of extensions and expansions of key tax and stimulus-related provisions first enacted in the CARES Act.
We expect continued discussion related to this legislation as the 117th Congress convenes. President-elect Biden has described the new law as merely a "down-payment" on the relief and stimulus he will pursue following his inauguration.
The following summarizes key provisions of the new legislation impacting individuals and family business owners.
Rebate Checks and Unemployment Benefits
- Includes a provision for an additional Recovery Rebate payment of $600 per eligible individual. An eligible individual includes the taxpayer, the taxpayer's spouse, and any children for whom a Child Tax Credit could be claimed. Eligibility phases out at a rate of $5 per $100 of AGI in excess of $75,000 single / $112,500 head of household / $150,000 married. As with the initial rebate payments, these are reportable as a credit against 2020 taxes and are therefore tax-free to the recipient.
- Provides an extension of Federal Pandemic Unemployment Assistance, which provides supplemental federal payments of $300 per week (in addition to state unemployment insurance) through March 14, 2021, up to a maximum of 24 weeks. Original supplemental payments under the CARES Act were $600 through July 2020 and were subsequently reinstated via Executive Order by President Trump at $300 per week through the end of 2020.
Federal Emergency Lending and Employer Incentive Programs
- Provides extension and clarifications
related to the Paycheck Protection Program (PPP), including:
- New funding for first-time and so-called "second draw" forgivable loans to eligible businesses (up to $2M) under the modified PPP2 program.
- Second-time loans are limited to businesses with
- Expansion of PPP-eligible expenses, including employer-paid employee benefits, certain software and technology expenses, operating expenses, property damage costs, supplier costs, and worker protection-related expenses.
- Expansion of PPP eligibility for nonprofits, local newspapers, and TV and radio broadcasters.
- Clarification to allow full deductibility for expenses paid with forgiven PPP loans, certain loan forgiveness, and other financial assistance provided under COVID-19 legislation.
- Simplification of small loan forgiveness procedures and administrative safe- harbors.
- Includes extension and expansion of CARES Act Employee Retention Credit for eligible pandemic impacted businesses through June 30, 2021.
- Extends employer credit for paid sick and family leave through March 31, 2021.
- Extends eligible Economic Injury Disaster Loan (EIDL) grants through December 31, 2021.
- Extends repayment period for deferred payroll taxes to December 31, 2021.
- Provides new dedicated funding for live venues, independent movie theaters, and cultural institutions.
Select Tax Provisions
- Extends through 2021 both the $300 above-the-line charitable deduction ($600 for joint returns) and the 100% of adjusted gross income ("AGI") charitable itemized deductions provided by the CARES Act. These rules apply only to cash gifts to public charities (excludes Donor Advised Funds, Private Foundations, etc.).
- Extends through 2021 the increased corporate limit on charitable deductions (up to 25% of taxable income).
- Provides new one-year carryover and extended qualified expenditure grace periods for Health and Dependent Care Flexible Spending Plans for 2020-2021.
- Makes permanent the income tax medical expense deduction floor of 7.5% of AGI.
- Starting in 2021, the Tuition and Related Expenses above-the-line deduction is replaced with a more generous Lifetime Learning Credit, which phases-out at the same income levels ($90,000 single / $180,000 joint) as the American Opportunity Credit.
- For 2021-2022, increases deductibility of business meals at restaurants from 50% to 100%.
- Extends tax-exclusion for employer-paid employee student-loan debt (up to $5,250) to 2025.
- Extends tax-exclusion for the discharge of indebtedness income on qualified personal residence short-sale deficiencies through 2025, although reduces maximum amount from $2M to $750k.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.