The signing of the Consolidated Appropriations Act 2021 on December 27, 2020 provides COVID-19 pandemic financial relief to small businesses and individuals through several provisions.
Paycheck Protection Program (PPP) – The paycheck protection program (PPP) has reopened for a second time for businesses to take an initial draw or a second draw if they meet specified criteria related to revenue. Please contact our office for details if you would like assistance in determining if you qualify for this round of relief. Applicants must apply by March 31, 2021.
Employee Retention Tax Credit – The Employee Retention Tax Credit is a refundable tax credit against certain employment taxes equal to 70% on qualified wages paid in 2021. In the original Cares Act that was signed in March of 2020, this was 50% of qualified wages and if the employer had participated in the PPP loan program, they were not eligible. This is no longer the case under the new law. The limit on creditable wages is $10,000 for each quarter, which increased from $10,000 for the year. Your business is eligible for this credit if you were shut down by government order during a calendar quarter or your business experienced a large drop in year over year gross receipts. Please contact our office, or your payroll service provider, if you need assistance in determining your eligibility.
Deductibility of PPP funded expenses – This bill clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a forgiven PPP loan. Originally, the IRS had taken the position that businesses were not eligible to deduct expenses paid with the funds because they were paid with nontaxable funds. The AICPA disputed this interpretation heavily, arguing that this was not Congress’s intent to disallow these deductions. Congress has now agreed with the AICPA position and those expenses are deductible.
Temporary Allowance of full deduction for business meals – This bill will temporarily allow a 100% deduction for business expense deduction for meals. This is an increase from the current 50%. This provision is allowed through the end of 2022 and the food or beverages provided must be by a restaurant.
Refundable tax credit – This bill provides a refundable tax credit in the amount of $600 per eligible family member and qualifying child. The credit phases out starting at $75,000 of modified adjusted gross income for single taxpayers or $150,000 for married filing joint. Advance payments of this credit will be paid in the same way stimulus payments were sent under the CARES Act.
This is only a few of the highlights that are available with this new tax legislation. If you have questions or would like additional details, please contact our office.