Covid-19-Related Tax Relief Act of 2020
On December 21, 2020 Congress passed, and the President is expected to sign into law, the Consolidated Appropriations Act, 2021 (“CAA”) (H.R. 133). The CAA is an expansive act covering close to 5,600 pages that provides another round of COVID-19 stimulus funding and further relief for taxpayers affected by the COVID-19 pandemic. Included within the act is a second round of funding under the Paycheck Protection Program (“PPP”), which includes an expansion of eligible expenses and addresses the deductibility of expenses paid for with the PPP loan proceeds. Below are some of the highlights of the PPP loan provisions within the COVID-19-Related Tax Relief Act of 2020 (contained in the CAA):
PPP loans will be available to first-time qualified borrowers as well as businesses that previously received a PPP loan. However, previous PPP recipients will have more stringent requirements this time around as they must have 300 or fewer employees, have used or will use the full amount of their first PPP loan and can show a 25% gross revenue decline in any 2020 quarter as compared with the same quarter in 2019. The same “necessity requirement” that was part of the first PPP loan is in place
PPP Loan Amount
Eligible borrowers may receive a PPP loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or calendar year. However, under this round of funding the maximum loan amount has been cut to $2 million as opposed to the $10 million in the first round of the program. For borrowers with an NAICS code starting with 72 (hotels, restaurants, etc.) the maximum loan amount is calculated based on 3.5 times average monthly payroll costs but is again limited to a maximum of $2 million.
Similar to the first round of funding, PPP borrowers will have to spend at least 60% of the funds on payroll over a covered period of either 8 or 24 weeks. The CAA has also created a simplified loan forgiveness process for borrowers with loans of $150,000 or less.
Costs eligible for loan forgiveness include payroll, rent, covered mortgage interest and utilities. The Act has expanded eligible expenses to include:
- Certain expenses for worker protection and facility modifications, including personal protective equipment, incurred in order to comply with COVID-19 federal health and safety guidelines
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s operations
- Covered operating costs such as software and cloud computing services and accounting needs
Follows the CARES Act with respect to treating the loan forgiveness as an exclusion from gross income for federal income tax purposes. In addition, language was added that specifies that eligible business expenses paid for with forgiven PPP loan proceeds are also tax-deductible. This language follows the legislative intent of the CARES Act by treating both the loan forgiveness and the expenses paid with the forgiven loan as non-taxable events for PPP borrowers. This supersedes the IRS guidance that had been issued previously.
In addition to the items noted above with respect to the new round of PPP funding the CAA contains a host of other tax provisions. Below are just some of the tax items:
- Advance payments to eligible individuals of $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child who has not attained age of 17. The credit phases out starting at $75,000 of modified adjusted gross income ($150,000 for married filing jointly)
- Extension of payroll related tax credits for wages paid for a variety of COVID-19 related reasons under the Families First Coronavirus Response Act through March 31, 2021
- Extension of the Employee Retention Tax Credit through July 1, 2021
- Full expensing of business meals in 2021 and 2022 (provided by a restaurant)
- Charitable Deduction from adjusted gross income for taxpayers who do not itemize has been extended to 2021 and increased to $600 for taxpayers married filing jointly
- Makes permanent Section 179D which allows for a limited deduction for energy efficient improvements to nonresidential rental property
- Makes permanent the railroad track maintenance credit under IRC Section 45G and reduces the credit rate to 40% (from 50%) for tax years beginning after December 31, 2022
As more information is made available regarding these provisions, we will provide you with further updates. In the meantime, if you have any questions or concerns please do not hesitate to contact your Bowers representative, or you can contact us at firstname.lastname@example.org.
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