On Sunday, December 27, 2020, a new $900 billion Coronavirus relief bill was signed into law by the President. The bill includes updates to the Families First Coronavirus Act, CARES Act and the Paycheck Protection Program (PPP). There is a substantial amount of information in this new bill, as it is over 5,500 pages compared to the 300 pages of the CARES act that was passed earlier this year. We wanted to go over some of the highlights of the provisions that will be affecting individuals and businesses.
Stimulus Payments – The law provides stimulus payments of $600 ($1,200 for a married filing jointly), plus $600 for each dependent child under the age of 17. Taxpayers eligible to be claimed as a dependent on another’s return (i.e. your dependent children) are not eligible to receive a payment. The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly) at a rate of $5 per $100 of income over the limit. For example, a single taxpayer with AGI over $87,000 does not qualify for the rebate.
Just like the CARES Act stimulus payments, the payments are a prepayment towards a tax credit you will claim on your 2020 tax return, but using your 2019 tax return information. If the actual credit based on your 2020 tax return information exceeds the prepayment received, you will receive an additional credit for the balance. If the prepayment exceeds the actual credit, you will not be required to repay the additional amount received.
Unemployment Benefits – The bill provides for an additional $300 per week of unemployment benefits from December 26th until March 14, 2021.
Charitable Contributions – The CARES Act added an “above-the-line” deduction for up to $300 of cash contributions in 2020 for individuals that claim the standard deduction (don’t itemize) – per tax return. The new bill has extended this to 2021 as well and increases the deduction to $600 for married filing joint taxpayers in 2021. At this point, we believe that the $600 MFJ does not apply to 2020.
Deduction for Meals – In 2021 and 2020, qualified business meals purchased from a restaurant will now be 100% deductible, and no longer be limited to 50%.
PPP Loans – In the bill, there were several significant changes made to the original PPP loan and forgiveness calculations. In addition, there will be “PPP2” loans available to qualifying businesses. As we have said before (many times), keep waiting!! The SBA will need to modify their PPP forgiveness applications to factor in the new changes. If you have already applied and/or received forgiveness, these new rules may not be applied retroactively – you will need to consult with your bank for more info.
Included in the updated rules/calculations:
- Deductibility of Expenses – Expenses used to apply for forgiveness of the PPP loan will now be deductible. This will make the PPP loan truly tax free to the recipients.
- Simplified Forgiveness for Borrowers Under $150,000 – Borrowers with loans under $150,000
will receive forgiveness if a borrower signs and submits to the lender a certification that includes the number of employees the borrower was able to retain because of the loan, the estimated amount of the loan spent on payroll costs, and the total loan amount. The SBA has 24 days to create the simplified application form after the bill’s enactment. Borrowers will not be required to provide additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements.
- EIDL Advance Reduction – Under the old law, the amount of the PPP forgiveness you were eligible to receive was reduced by the amount of the EIDL Advance you received earlier in the year. This has been removed and you can now receive full forgiveness of the PPP loan. The bill also makes the EIDL Advance payments non-taxable.
- Additional Expenses Eligible to Apply Towards Forgiveness – 60% of the PPP forgiveness amount still must be used towards qualifying payroll expenses, but they added some new categories of expenses that will qualify towards the additional 40%. These are generally for COVID related expenses (for example, having to upgrade technology for more remote workers).
- Covered Periods – You will now be able to choose your covered period to be any period between 8 and 24 weeks after the PPP funds were received.
- New PPP Loans (PPP2) – The new loans will be available to businesses that did not receive an original PPP loan or business that did receive the original PPP loan and have or will fully use the original funds. There are a couple new qualifications to be eligible for the PPP2 loans. The biggest being the business must experience a 25% drop in gross receipts during any quarter in 2020 compared to the same quarter in 2019. The loan amounts will be the same 2.5 times the monthly average payroll in 2019. Businesses in the hospitality industry (restaurants, bars and hotels) will be eligible for 3.5 times.
SBA Loan Payments – Under the CARES Act, businesses with an existing SBA loan received 6 months of their payments covered by the SBA. This was previously taxable income to the business receiving the covered payments. These payments will no longer be taxable and the SBA will be covering an additional 3 months of payments. The additional months should be starting in February 2021.
Grants for Shuttered Venue Operators – There will be SBA grants available to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues quarter-over-quarter comparing 2020 to 2019.
Employee Payroll Tax Deferral – The President previously issued an executive order to allow certain employees to defer the 6.2% share of Social Security tax on wages paid from September 1, 2020 through the end of the year until the first four months of 2021. The bill extends the due date for that deferral to be repaid from April 30, 2021 until December 31, 2021.
FFCRA COVID Sick Pay and Credits – The bill extends the Families First Coronavirus Response Act requirement for employers to pay up to 10 weeks of leave when an employee couldn’t work because they had to care for a child who was not able to attend school or care, and up to 2 weeks of sick leave for certain COVID-related reasons. The employer is eligible for a credit for the wages required to be paid. It is extended to March 31, 2021.
Employee Retention Tax Credit – The Employee Retention Tax Credit has been extended through July 1, 2021. Employers are now eligible in 2021 if there is a 20% drop in revenue in a quarter, compared to the original 50% requirement. The calculation of the credit has been modified to be 70% of qualified wages, instead of the original 50%, and is now eligible for up to $10,000 per employee per quarter, instead of $10,000 total per employee.
As always, let us know if you have questions and Happy New Year!!
Gidget and Adam
Schutte & Hilgendorf offers a broad range of professional accounting, tax, and audit services to individuals and businesses throughout Yavapai County and Northern Arizona. With over 40 years combined certified public accounting experience, we specialize in providing services to numerous industry specific areas, including non-profit organizations, homeowner’s associations and construction contracting. We also provide tax planning and preparation, sales tax and payroll tax return preparation, ongoing accounting/bookkeeping, live payroll, and QuickBooks setup and training (QuickBooks Proadvisors). Given our small size, we can still provide a personal touch with professional expertise. Come in and see us anytime at 2086 Willow Creek Road, Prescott, Arizona or call us at 928-778-0079.