COVID-19 Relief bill – Consolidated Appropriations Act, 2021
On December 21, 2020, U.S. Senate and House of Representatives passed a $900 billion COVID-19 relief bill, the Consolidated Appropriations Act , 2021. President Donald Trump signed the bill on December 27, 2020.
Below is a summary of the key business and individual provisions.
- Tax treatment of PPP loans:
- The IRS has held the position that the expenses paid with forgiven PPP funds are not tax deductible because PPP loans are not taxable. The bill clarifies that PPP loans are not included in gross income and the expenses paid with forgiven PPP loans are tax-deductible. This applies to original PPP and subsequent PPP loans.
- Economic Injury Disaster Loan (EIDL) grants/advances:
- This bill repeals the requirement for EIDL advance to be deducted from PPP forgiveness amount.
- It also excludes EIDL grants/advances from gross income and allows a tax deduction for expenses paid with those funds.
- CARES Act required the SBA to make loan payments that borrowers owe on 7(a) loans in a regular servicing status. This bill excludes those payments from gross income.
- There will be a simplified PPP loan forgiveness for loans of $150,000 or less. The SBA has 24 days from the enactment of this Act to create the simplified application.
- PPP Second Draw (PPP2):
- The SBA has 10 days from the enactment of this Act to establish regulations.
- PPP2 will be available to first time borrowers and also to businesses that previously received PPP funds.
- The maximum loan size is $2 million.
- Available to businesses that have 300 or fewer employees.
- The business needs to have used or will use the full amount of the first PPP loan.
- The business needs to be able to show a 25% gross revenue decline in any quarter of 2020 compared to the same quarter of 2019 (special timeline applies to businesses that were not in business in 2019 or for the entire 2019).
- Maximum loan amount:
- Businesses can receive up to 2.5 times the average monthly payroll costs in the year prior to the loan or the calendar year.
- Restaurants (NAICS codes starting with 72) can get up to 3.5 times their average monthly payroll.
- Original PPP loan increase:
- Some businesses didn’t receive the maximum eligible PPP amount due to many changes to the original PPP loan guidelines. Partnerships specifically should review their calculation and make sure that they received the maximum eligible amount. If the borrowers didn’t receive forgiveness, they can request an increased loan amount due to changes in the interim final rules. (How to calculate maximum loan amounts by business type)
- Temporarily allowance for full deduction of business meals:
- The bill allows a 100% business expense deduction for meals as long as the expense is for food or beverages provided by a restaurant. This is effective for expenses incurred after December 31, 2020 and expires at the end of 2022.
- Impact payments to individuals:
- $600 individuals earning up to $75,000 a year,
- $1,200 married couples earning up to $150,000 a year,
- $600 for each dependent child.
- Unemployment benefits:
- $300 per week supplement for up to 11 weeks, from December 26, 2020 until March 14, 2021,
- The Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) are extended until March 14, 2021.
- Health and dependent care flexible spending arrangements (FSA accounts):
- Normally only up to $500 in unused funds can be rolled over into the following plan year. The bill temporarily changes that by allowing balances from 2020 tax year to be rolled into 2021 and balances from 2021 tax year to be rolled into 2022.
Please contact us if you have any questions or to discuss how this impacts your specific tax situation.