The Consolidated Appropriations Act, 2021 (the “Act”) has been passed by Congress and now signed into law by President Trump. The Act contains a wide array of provisions that will impact Americans and their businesses in a multitude of ways. As a follow up to our Tax Update dated December 22 on the enhancements to the Paycheck Protection Program (PPP), the professionals at Miller Cooper have put together this summary of some of the most impactful provisions of the Act.
Miller Cooper will continue to review the new legislation to provide additional analysis and keep clients apprised of relevant developments. Please check our website regularly and follow us on social media as we will post links to new information as it is published on our site. Miller Cooper’s professional team is available to answer questions and respond to your needs.
Extension and Modification of CARES Act Unemployment Benefits
- The Act extended and modified two programs originally created under the CARES Act; Pandemic Unemployment Assistance and Pandemic Emergency Unemployment compensation.
- Qualified recipients would be eligible for a $300 weekly enhancement to aid payment.
- This is in addition to any state benefits.
- Some self-employed and gig workers may also qualify for an additional $100 enhancement aid payment.
- The extension provides for an additional 11 weeks of coverages and is available from December 28, 2020 through March 14, 2021.
- This raises the total weeks of eligible coverage under these programs from 39 weeks to 50 weeks.
Additional 2020 Recovery Rebates for Individuals
- Rebate checks will be issued to eligible individuals in the amount of $600 per individual ($1,200 if married filing jointly), plus $600 for each qualifying child.
- Payments will be phased out $5 for every $100 that the taxpayer’s AGI exceeds the following thresholds:
- Single – $75,000
- Married Filing Jointly – $150,000
- Head of Household – $112,500
- The Department of Treasury is to begin making payments as quickly as possible and will be made electronically if direct deposit information was provided after January 1, 2019.
- Any payments an individual receives are to be considered advance payments of a tax credit.
Taxability of Original and New PPP Loans, EIDL Advance Grants, and SBA Loan Debt Relief Payments
- A borrower will not recognize federal taxable income on the forgiveness of an original or new PPP loan, an EIDL Advance Grant received, and/or the benefits received via SBA loan payment subsidies under the Act or the CARES Act.
- There will be no denial of deductions, no basis reduction and no reduction of tax attributes from the forgiveness of an original or new PPP loan, an EIDL Advance Grant received, and/or the benefits received via SBA loan payment subsidies under the Act or the CARES Act.
Extension of Debt Relief Payments for Certain SBA Loans
- The government will subsidize three more months of principal and interest payments on outstanding SBA borrowings (up to $9,000/month). This is in addition to the six months previously subsidized on such loans under the original CARES Act.
- Businesses with certain NAICS (primarily bars, restaurants, and hospitality), may be entitled to an additional five months of benefits for a total of eight months in additional subsidies under the Act.
- Limited to one SBA loan per borrower.
Extension of Certain Deferred Employee Payroll Taxes
On August 8, 2020, the President of the United States issued a Presidential Memorandum directing the Secretary of the Treasury to use his authority to defer the withholding, deposit, and payment of certain employee payroll tax obligations with respect to employers affected by COVID-19. The stimulus bill provides further deferral for affected employees through December 31, 2021, as opposed to the previous April 30, 2021 deadline. Interest and penalty accrual on unpaid taxes has been extended to January 1, 2022 from the previous deadline of May 1, 2021.
Temporary Allowance of Full Deduction for Business Meals
The new stimulus bill provides for a temporary full deduction of business meals for food or beverages provided by a restaurant and paid or incurred after December 31, 2020 and before January 1, 2023. Expenses related to entertainment remain non-deductible.
Depreciation of Certain Residential Rental Property (Over 30-Year Period)
The bill provides that the recovery period applicable to residential rental property placed in service before January 1, 2018 and held by an electing real property trade or business is 30 years.
New and Modified Tax Credits
- Transition from deduction for Qualified Tuition and related expenses to increased income limitation on lifetime learning credit.
- The amount of modified adjusted gross income that a taxpayer can have for claiming the Lifetime Learning Credit (LLC) has been increased to $90,000 and $180,000 for single and joint filers, respectively. Phaseouts begin at $80,000 and $160,000 respectively. The LLC provides eligible taxpayers a tax credit worth up to $2,000 for qualified tuition and related expenses paid for eligible students in an eligible institution.
- Extension of FFCRA Sick and Family Leave Credits.
- The period these credits are available were extended through March 31, 2021 (was originally set to expire after December 31, 2020).
- Extension and modification of employee retention and rehiring tax credit.
- The employee retention credit encourages businesses to keep employees on their payroll and was originally enacted under the CARES act. The new stimulus package increases the tax credit from 50% to 70% of up to $10,000 in wages (per quarter) paid by an eligible employer whose business has been financially impacted by COVID-19. The new law also extends the credit for wages paid through the second quarter of 2021. It also provides for improved coordination between the paycheck protection program and employee retention tax credit, which effectively denies a double benefit.
- Employee retention credit for employers affected by qualified disasters.
- The stimulus package adds a new general business tax credit available to eligible employers that retain employees and are affected by qualified disasters. The credit amount will equal 40% of the qualified wages with respect to each eligible employer of such employer for such taxable year. The maximum amount of wages that an employer can take into account in a taxable year is $6,000 for purposes of this credit.
- Minimum low-income housing tax credit.
- The stimulus package provides for additional low-income housing credit allocations for buildings in states located in any qualified disaster zone. A minimum 4% credit rate is also established with respect to buildings placed in service after December 31, 2020.
Extension of Various Expiring Tax Provisions
The following tax credits/provisions previously scheduled to expire for tax years ending after December 31, 2020 have been extended five years and will be available for all tax years ending prior to December 31, 2025:
- Work Opportunity Tax Credit (IRS form 5884)
- Empowerment Zone Tax Incentives (IRS form 8844)
- Section 45S (paid family and medical leave credit) (IRS form 8994)
- New Markets Credit (IRS form 8874)
The Energy Efficient Homes Credit (IRS form 8908) previously scheduled to expire for tax years ending after December 31, 2020 has been extended one year and will be available for all tax years ending prior to December 31, 2021.
Your professional service team at Miller, Cooper & Co., Ltd. is here to help you understand this new legislation. Please contact a member of your service team for additional guidance and assistance.