COVID Legislation Quick Updates 12.28.2020

 

On December 21, 2020 the House & Senate passed a new round of COVID-relief legislation, which was signed into law on December 27, 2020.  Below are the primary updates that apply to many of our clients.  Please note that this is not comprehensive (the bill is over 5,000 pages long!) and we are waiting for a lot more information on procedures for many of these provisions.

PPP Loans – new forgiveness rules

Originally forgiven loan amounts were not taxable income, but expenses paid with those proceeds were not deductible, in effect making the forgiven amount taxable.  Under the new law, the forgiven amount is not taxable AND the expenses paid with those proceeds ARE deductible.

There will be a new forgiveness application for loans under $150,000 that will not require backup documentation to the bank/lender.  However, the SBA can still review your loan so you must have the backup documentation ready if requested by the SBA.

This streamlined forgiveness application will require:

  • The number of employees you were able to retain because of the loan
  • The estimated amount of the loan spent on payroll costs
  • The total loan amount
  • Your attestation to the accuracy and compliance with the loan rules

Finally, under the original law, if you also received an EIDL Grant, this reduced the amount of the PPP loan that was forgivable.  Under the new law, your full PPP loan amount can be forgiven, even if you received an EIDL Grant.

PPP Loans – new round of funding

The new law funds a new round of PPP loan funding.  This new funding is limited to businesses who had at least a 25% decrease in revenue in any quarter in 2020 as compared to the same quarter in 2019.  If you qualify because of reduced revenue, then you can apply – even if you previously received a PPP loan in the original program.  This loan application will be made through your bank, similar to the first rounds of the program.

PPP Loans – Employee Retention Tax Credit

The original law did not allow PPP loan recipients to also receive the employee retention tax credit.  The new law does allow both, although not for the same wages, expands the tax credit, and extends the tax credit through June 30, 2021.  There are several updates including:

  • The credit is increased from 50% to 70% of qualifying wages
  • The wage limit per employee is increased from $10,000 per year to $10,000 per quarter
  • The required reduction in gross receipts has is reduced from 50% decline to 20% decline
  • New employers can now qualify to receive the tax credit

Unemployment Benefits

Federal unemployment benefits and Pandemic Unemployment Assistance have been extended into March 2021.

Economic Impact (“Stimulus”) payment

There will be another round of economic impact (“stimulus”) payments.  These will be $600 per adult and $600 per dependent child. Similar to the first payment, this is limited to individuals making up to $75,000 per year and married couples making $150,000 per year (based on your 2019 tax filing).

Similar to the first payment, this is an advanced payment on a tax credit on your 2020 tax return, so if your income was over the threshold in 2019 but below it in 2020, you will receive the payment as a credit on your 2020 tax return.

Charitable Contributions  

[This paragraph updated 1/5/2021]

The original law allowed for a new charitable contribution deduction for cash donations up to $300 for individuals who do not itemize deductions.  For 2020, this is $300 per tax return, whether it was a single individual or married couple.  The new law expands this for 2021 and future years to mean $300 per adult on the tax return, so single filers have a $300 deduction and married couples filing jointly $600.

Business meals deduction for restaurant meals in 2021-2022

Historically business meals expenses have been deducted at 50% of the cost.  The new law allows 100% deduction for business meals purchased from restaurants in 2021-2022.  Note that this does not apply to 2020.