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What You Need to Know About the Latest COVID-19 Relief Bill

Last week, Congress passed a $900 billion relief bill called The Consolidated Appropriations Act, 2021 (the Act).  The legislation was signed into law by the President on Sunday, December 27, 2020.  Here are some of the key provisions.

Expenses Funded by Forgiven PPP Loans Are Now Tax Deductible

Ever since the IRS announced that there would be no deductions for expenses funded by forgiven PPP (Paycheck Protection Program) loans, several groups have pleaded with Congress that this result was inconsistent with the original intent of the PPP.  Congress listened, and these expenses are now tax-deductible.

PPP & EIDL Loans

The Act includes additional relief for small businesses, mostly through new PPP loans programs administered by the Small Business Administration (SBA).  A total of approximately $284 billion has been allocated for PPP loans, and another $20 billion has been allocated to provide Economic Injury Disaster Loans (EIDLs) to businesses in low-income communities. $15 billion has been set aside for live venues, independent movie theatres and cultural institutions. The second round of PPP loans will be available to first-time borrowers as well as businesses that previously received PPP loans.

Previous PPP recipients can apply for up to another $2 million per business if they meet the following conditions:

  1. Have 300 or fewer employees
  2. Have used up their first PPP loan
  3. Had a 25% gross revenue decline in any quarter during 2020 compared with the same quarter in 2019

New borrowers may also apply for PPP loans, including:

  1. Businesses with 500 or fewer employees that are eligible for other SBA loans
  2. Sole proprietors, independent contractors, and self-employed individuals
  3. Non-profit entities
  4. Accommodation and food service operations with fewer than 300 employees per physical location

Second Round of Stimulus Checks

The Act includes a new round of stimulus checks.  The payments are a maximum of $600 per individual ($1,200 per couple) plus another $600 per qualified child (adult dependents are not eligible).  This will work just like the first stimulus payment via an advance of tax credits based on 2019 income.  The payment phases out for single filers with income between $75,000 and $87,000 and married filers with income between $150,000 and $174,000 (assuming no qualifying dependents in each case).  For individuals and couples with children, the payment is reduced by $5 for each $100 that their adjusted gross income (“AGI”) exceeds these thresholds.

Flexible Spending Account (FSA) Extensions

Health and dependent-care flexible spending plans are typically “use it or lose it.” Many taxpayers did not have the opportunity to use all of their set aside funds during 2020. The Act allows unused Health FSA balances to be spent in 2021 and 2022. Dependent-care balances may now be used to claim reimbursements for expenses for the 2021 plan year. Additionally, the maximum age for reimbursements has been temporarily increased from 12 to 13 years old.

Tax Extenders

The Act includes several tax extenders, including a 5-year extension of the following provisions:

  • Work Opportunity Tax Credit
  • New Markets Tax Credit
  • Offshore look-through provisions for controlled foreign corporations (foreign corporations in which more than 50% of the vote is controlled by U.S. shareholders)
  • Exclusion from gross income for mortgage forgiveness
  • Employer credit for paid family and medical leave
  • Exclusion for employer payments of student loans

Other tax extensions and benefits include:

  • Employee Retention Tax Credit extended until June 30, 2021
  • Health Coverage Tax Credit (one-year extension)
  • Medical expense deduction threshold permanently reduced to 7.5% of AGI
  • Business meals provided by a restaurant are now 100% deductible (up from 50%) through 2022
  • Above-the-line charitable deduction extended for one year and raised to $600 for joint filers
  • The CARES Act charitable contribution changes, including the 100% of AGI allowance for cash gifts, have been extended for one year

Since the Act is almost 6,000 pages long, we are continuing to review and analyze its content and will provide additional details as more developments unfold.  As always, we encourage you to contact your Wealth Advisor to discuss any of the provisions in the Act that may apply to you.