On December 21, 2020, Congress passed another stimulus bill aimed to help individuals and businesses during the COVID-19 pandemic. The President later signed the bill right before year-end. Below is an overview of some significant changes from the act.
Paycheck Protection Program (PPP) Loan Forgiveness:
Simplified procedures for certain applications for forgiveness were provided.
- If your PPP loan is less than $150,000, the new bill provides for a one-page document that will need to be supplied to lenders to qualify for forgiveness. Backup documentation is not required to be sent to the lender. However, payroll documentation must be retained for four years and all other documentation must be kept for three years.
- The covered period is now allowed to end prior to the 24-week period for purposes of cut off calculations.
- Expenses paid with the proceeds of PPP loans that are forgiven are now tax deductible.
A second round of PPP loans is authorized, with a maximum loan amount of $2,000,000 per loan. To qualify:
- A business must have a 25% reduction in gross receipts in 2020 when compared to the same quarter in 2019. For example, a 25% reduction in gross receipts in the 3rd quarter of 2020 when compared to the 3rd quarter of 2019.
- In most cases, a qualifying business cannot have more than 300 employees.
- 501(c)(6) organizations can now qualify for PPP loans.
- Money can also go towards covered operations expenditures, property damage costs, supplier costs, and covered worker protection expenditures.
*YHB Note – Although there is an easier process for forgiveness, the U.S. Small Business Administration (SBA) can still audit your PPP loans. Therefore, we recommend you consult your YHB advisor to help you with the calculations to help avoid personal recourse on these loans, and assistance with the required documentation for your files.
- Meal expenses are now 100% deductible by businesses if paid or incurred after December 31, 2020 but before January 1, 2023.
- Any payroll tax deferred under the President’s Executive order in the 4th quarter of 2020 will not need to be repaid until May 1, 2021.
- EIDL Grants are non-taxable and the amounts used for qualifying expenses are deductible.
- SBA loan repayments made on behalf of the borrower are not treated as income.
- Families First Coronavirus Response Act (FFCRA) credits are extended through March 31, 2021.
- Self-employed individuals can use their 2019 net income for determining their credit for sick or family leave under the FFCRA.
- EIDL grants are extended through 2021.
- Internal Revenue Code section 179D relating to energy efficient commercial buildings is made permanent.
- Employee Retention credit is extended through July 2, 2021. The amount potentially available for the credit has increased.
- A provision allows for additional payments by SBA of principal and interest on SBA loans.
- There is a new $600 stimulus payment for a taxpayer, their spouse, and any dependents under the age of 18 living in the same household. The rules will mirror the stimulus payments issued earlier in 2020 where the amount will start to phase-out for individuals with adjusted gross income in excess of $150,000 (filing married) and $75,000 (filing single).
- Additional Federal unemployment insurance of $300 per week is extended through March 14, 2021.
- Personal protective equipment, disinfectant, and other supplies for COVID will count toward the $250 educator deduction.
- Medical expense deduction floor is set at 7.5% of adjusted gross income.
- Starting in tax year 2021, the qualified tuition and related expense deduction will be repealed, and the Lifetime Learning Credit will have an increase in income limitations.
- Allows the Earned Income Tax Credit to look at tax year 2019 for determining earned income in 2020.
- Charitable donation limits of 100% apply to 2020 and 2021. The above the line deduction of $300 is allowed in 2020. This above the line deduction is available in 2021 and going forward for only cash donations.
- Flexible Spending Account (FSA) and Dependent Care FSA owners can carry unused amounts over to 2021.
These are extended through 2025:
- New Markets Tax Credit.
- Work Opportunity Credit.
- Exclusion from income of discharge of qualified principal residence indebtedness.
- Empowerment Zone Tax Incentives.
- Employer Credit for Paid Family and Medical Leave.
- Exclusion of Student Loan Payments from W-2 Income.
The law also extends the deductibility of qualified mortgage insurance premiums through 2021.
The above is not an all-inclusive listing of the provisions contained in the over 5,000 page bill. Please reach out to your YHB Advisor to address specific questions or issues impacting your business or personal financial situation.
Additional articles in this series:
- Overview of Second Round of PPP Funds
- New Rules Related to PPP Loan Forgiveness
- Major Changes to Meals Expense Deductions for Tax Years 2021 and 2022
- Employment Credit for Schedule C Businesses
- Additional Payroll Help from the New Stimulus Bill
- Change for Residential Rental Property Depreciation
- 2020 Tax Extenders