Late last night, the US Senate and House of Representatives passed a $900 billion COVID-19 relief bill. President Trump is expected to sign it into law before the end of the year.
The bill is over 5,500 pages and contains many provisions. Here is a summary of the key provisions that are most likely to impact you and your business.
Paycheck Protection Program (PPP) Loans
Business expenses paid with forgiven PPP loan proceeds are deductible for tax purposes. With the original PPP bill, it was clear that the forgiven loan proceeds would not be taxable. However, the IRS later announced that while the proceeds would be tax-free, businesses would not be able to deduct related PPP expenses. This would essentially result in the forgiveness becoming a taxable event. The new law removes this nondeductibility, allowing for the PPP loan forgiveness to be tax free and all related expenses to be deductible.
A simplified forgiveness application will now be available for PPP loans of $150,000 or less.
Borrowers are no longer required to deduct the amount of any Economic Impact Disaster Loan (EIDL) advance from their PPP forgiveness amount.
Second Round of PPP (PPP2) Loans
Some business that previously received a PPP loan may be eligible for a PPP2 loan. Previous PPP recipients may apply for another loan of up to $2 million if they have 300 or fewer employees, have used or will use the full amount of their first PPP loan and have experienced a 25% gross revenue decline in any 2020 quarter compared to the same quarter in 2019.
In addition, first-time borrowers may apply for a PPP2 loan. The following groups may be eligible: businesses with 500 or fewer employees, sole proprietors, independent contractors or self-employed individuals, non-profit organizations (including churches), and food service operations with fewer than 300 employees per physical location.
The eligibility, loan amount calculations, terms and forgiveness factors for the PPP2 loans are generally similar to those of the original PPP loans. However, restaurants are now eligible for a loan equal to 3.5 times monthly salary rather than the 2.5 factor that applies to other businesses. Also, costs eligible for loan forgiveness have been expanded to include personal protective equipment and facility changes to comply with health and safety guidelines, payments to suppliers that are essential to the recipient’s current operations and covered operating costs such as software, cloud computing services and accounting needs.
Second Round of Economic Impact Payments
Individuals making up to $75,000 per year may be eligible for a $600 payment and married couples making up to $150,000 per year may be eligible for $1,200. Those with dependents will be eligible for an additional $600 for each dependent child. In general, the rules, limitations and phase outs are similar to the first round of economic impact payments issued over the spring and summer. If you received an impact payment earlier in the year, you should receive a second round payment equal to approximately 50% of the original payment.
Just like with the first round, the second round of payments will generally be calculated based upon your 2019 income. However, there will be a recalculation of the benefit on your 2020 return. If this recalculation shows that you were entitled to more based upon your 2020 tax information, you will receive the additional amount through your 2020 income tax filing. If the recalculation shows that you received too much based upon your 2020 tax information, you will not be required to pay the excess back.
Payments are expected to begin next week.
The federal unemployment benefits provided by the CARES Act that expired in July will be renewed to provide a $300 per week unemployment benefits supplement for those receiving state unemployment benefits. This supplement will last from December 26 through March 14. The bill also extends the Pandemic Unemployment Assistance (PUA) for self-employed workers, independent contractors and others not traditionally eligible for unemployment benefits.
Employer Retention Credit (ERC)
The bill extends the ERC until June 30, 2021 and expands the credit by providing a 70% credit for up to $10,000 in creditable wages per quarter and reducing the gross receipts decline to 20% from 50%. So instead of a $5,000 credit per employee per year, it will be a credit of up to $7,000 per employee per quarter. The employee retention credit gives businesses of all sizes, including nonprofits, a payroll tax credit for wages paid during a suspension of their business operations or periods where they have experienced significant revenue losses.
In addition, employers who receive PPP loans may still qualify for the ERC with respect to wages that were not paid using forgiven PPP proceeds. This change is retroactive to March.
Paid Leave Credits
The paid sick leave and expanded FMLA payroll tax credits under the Families First Coronavirus Response Act (FFCRA) are extended through March 31, 2021, but the FFCRA paid leave mandates were not extended and will expire on December 31, 2020. In other words, FFCRA leave is no longer required in 2021, but if employers want to voluntarily provide these leave benefits through March 31, 2021, they are eligible to take the tax credit for the leave. For employers who want to continue to provide this leave in 2021 and take advantage of these credits, the same daily limits and employee eligibility requirements would continue to apply as if the entire FFCRA was extended through March 31, 2021. These provisions apply only to employers with fewer than 500 employees.
Various Other Provisions
- For 2021 and 2022, businesses can deduct the full cost of business meals. Currently, taxpayers generally may deduct only 50% of client-related business meals if certain requirements are met. Note, this provision is not retroactive to the 2020 tax year and only applies to food or beverages provided by a restaurant.
- The ability of individual taxpayers who do not itemize to take a charitable deduction of up to $300 is extended to the 2021 tax year. Also, in 2021, joint filers may deduct up to $600.
- The gross income limitation on qualifying charitable contributions has been suspended through 2021.
- Various energy-related tax credits have been extended through December 31, 2021.
- The income threshold for medical expense deductions has been reduced from 10% to 7.5%.
- Employees with unused amounts in their health and dependent care flexible spending accounts may be eligible for more expansive carryover and grace period policies.
- The income threshold at which the Lifetime Learning Credit phases out has been increased.
- Employees and employers will have more time to pay back deferred employee payroll tax amounts. The repayment deadline has changed from April 30, 2021 to December 31, 2021.
- The Work Opportunity Tax Credit has been extended for five years, helping employers to continue to hire disadvantaged individuals.
2020 has certainly been an unusual and challenging year. SFW Partners, LLC remains dedicated to serving and supporting you. We value your business and appreciate your continued trust in our firm. Please let us know if we can assist you in any way. You can contact your regular SFW representatives via email or phone. You can also call our receptionist at 314-569-3333 or email her at SFW@sfwpartnersllc.com and she will put you in contact with the right person.