2021 Consolidated Appropriations Act-Business Tax Provisions
The 2021 Consolidated Appropriations Act (“Act”) recently signed into law addresses both individual and business taxpayers. The Act contains numerous provisions related to business taxpayers.

The following are some of the business taxpayer key provisions :

  • Deductibility of Paycheck Protection Program (“PPP”) funded expenses. The Act clarifies that gross income does not include any amount that would otherwise arise from forgiveness of a PPP loan. The Act also clarifies that a deduction will be allowed for otherwise deductible expenses paid with PPP loan proceeds.

  • PPP “Round 2” – To be eligible for the second round of PPP loans you must meet one of the criteria listed below:

  • Businesses that did not receive a PPP loan previously (regardless of whether you had a reduction in revenue from one quarter to the next) can apply.
  • Businesses that had a 25% or greater reduction in gross receipts from any one quarter of 2020 over the same quarter in 2019.

  • Highlights of PPP “Round 2”

  • Loans are capped at $2 million.
  • First-time PPP borrowers can have 500 or fewer employees, while second-time applicants can only have a maximum of 300 employees.
  • Reduced documentation requirements for loans of less than $150,000.
  • “Community” financial institutions will be the first banks to offer the second-round of PPP loans with larger financial institutions following shortly thereafter.
  • First-time PPP borrowers with a minority, veteran, or women-owned business that are applying for a loan of $150,000 or less can start applying on January 11, 2021.
  • Second-time PPP borrowers with a minority, veteran, or women-owned business that are applying for a loan of $150,000 or less can start applying on January 13, 2021.
  • All other PPP round 2 borrowers will be able to apply “shortly after that” (as defined by the SBA, but the earliest it could be opened is January 15, 2021)
  • 60% of funds must be used on payroll and 40% on an “expanded” list of expenses over a 24-week period.
  • Forgiveness of loans $150,000 or less will have a “check the box” option that allowing the borrower to self-certify that they used funds according to regulations.
  • Funding will expire March 31, 2021.

  • Employee retention tax credit (“ERTC”) modifications. The Coronavirus Aid, Relief, and Economic Security (CARES) Act created a tax credit for businesses that either had their operations fully or partially suspended due to orders from a government authority limiting commerce, travel, or group meetings due to COVID-19, OR the business experienced a decline in gross receipts during the calendar quarter compared to the same quarter of 2019. The Act extends the ERTC through June 30, 2021. (The exact wages that qualify and how it is calculated is very detailed and too voluminous to expound upon in this update, but if you meet the initial eligibility requirements listed above, then we can work with you to determine the amount of your credit.) The changes to the credit by the 2021 Act include:

  • An increase in the credit rate from 50% to 70% of qualified wages
  • An increase in the limit on per employee creditable wages from $10,000/year to $10,000/quarter
  • A reduction in the year-over-year gross receipts decline from 50% to 20%. This calculation is performed on a quarter by quarter basis (i.e. if 1st quarter 2020 gross receipts were $100,000 and 2021 gross receipts for the 1st quarter were less than $80,000 then you are eligible for the credit)
  • A safe harbor allowing employers to use prior-quarter gross receipts to determine eligibility
  • A provision to allow certain governmental employers to claim the credit
  • An increase from 100 to 500 in the number of employees counted when determining the relevant qualified wage base
  • Rules allowing new employers who were not in existence for all or part of 2019 to be able to claim the credit.
  • Retroactive to the effective date of the CARES Act, the bill also provides that employers who receive PPP loans may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds, clarifies the determination of gross receipts for certain tax-exempt organizations, and clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee. In addition to the above, wages paid to a stockholder or relative of a stockholder (as defined in the Act) are not eligible for this credit.

  • Sick and family leave payroll tax credits. The Act extends the refundable tax credits available to employers who provide sick and family leave related to the coronavirus pandemic as enacted in the Families First Coronavirus Response Act (“FFCRA”). Employers are no longer mandated to provide paid leave, but if they choose to do so they may claim the tax credit through March 31, 2021.

  • Deferral of employees’ portion of payroll tax. In August, President Trump issued a memorandum allowing employers to defer the withholding, deposit, and payment of the employee portion of the OASDI and Railroad Retirement Act Tier 1 tax for any employee whose pretax wages or compensation during any biweekly pay period generally is less than $4,000. The deferred tax must be repaid, and the Act extends the repayment period through December 31, 2021.

  • 50% limit on certain business meals temporarily suspended. Business meals provided by a restaurant that are paid or incurred after December 31, 2020 and before January 1, 2023 will not be subject to a 50% limit and will be fully deductible.

  • C corporations can deduct “qualified disaster relief contributions” up to 100% of taxable income. In general, corporations cannot deduct charitable contributions that exceed 10% of modified taxable income. The CARES Act allowed certain 2020 cash contributions to be deducted up to 25% of taxable income. The Act created another type of charitable contribution that can be deducted up to 100% of taxable income. A “qualified disaster relief contribution” is defined as any qualified contribution paid during the period beginning January 1, 2020 and ending 60 days after the enactment date of the Act, and is made for relief efforts in one or more qualified disaster areas. The taxpayer must also have a written acknowledgement from the charity that the donation was used for disaster relief efforts.

  • Business energy credit extended. Businesses are eligible to take a credit for certain solar, geothermal, fuel cell, and wind property. The Act extends the phaseout of the credit for two years.

  • Work opportunity credit extension. The credit is available to employers hiring individuals who are members of one or more of ten targeted groups. The credit has been extended through 2025.

  • Exclusion for certain employer payments of student loans. If an employer has a qualified education assistance program under Code Section 127, certain educational expenses paid by the employer up to $5,250/year are excluded from the employee’s income. The Act has extended student loan repayment as a qualifying educational expense through 2025.

About Shelton & Company, CPAs, P.C.

Shelton & Company, CPAs, P.C. is a CPA firm specializing in the accounting needs of construction contractors and their related companies. If you have any questions about the information provided here or for more information about our firm, please contact us at 1-800-446-2534 or visit us on the web at www.ConstructionCPAs.com