Note: The stimulus bill summarized in this communication has not yet been signed into law by President Trump and is therefore subject to change.
On Monday, December 21, 2020, Congress passed the 2021 Consolidated Appropriations Act (CAA), which contains several provisions applicable to individuals and small businesses. The stimulus bill is extensive, and we have provided below a summary of some of the key items contained within the legislation.
Payroll Protection Program Provisions
Clarification of Tax Treatment of PPP Loans — The CAA clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a Paycheck Protection Program (PPP) loan. The Act further clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower's assets will not be reduced as a result of the loan forgiveness. This provision fixes and overrides the previous position taken by the IRS in which they stated that expenses paid with forgiven PPP loan proceeds should not be deductible by the borrower.
PPP Second Draw Loans — The CAA provides for a second round of PPP loans for “harder-hit” businesses that employ 300 or fewer employees. In order to qualify, borrowers must show a loss of at least 25% of gross receipts in any quarter during 2020 when compared to the same quarter in 2019. There are special rules for businesses not in existence for all of 2019. The maximum loan amount is $2 million for "second draw" loans, which is down from the $10 million maximum that applied to loans under the original CARES Act rules. In addition, the bill has also made certain 501(c)(6) organizations eligible for the loans.
Simplified Forgiveness Application for Loans less than $150,000 — The Act provides for a simplified loan forgiveness application for loans less than $150,000. The simplified application will be one page and will include a description of the number of employees the borrower was able to retain, the estimated amount of the loan spent on payroll costs, and the loan amount. The SBA has 24 days to create this form.
Additional Eligible Uses of PPP Loan Proceeds — The Act includes additional expense categories eligible for use of the PPP loan proceeds. As a result of this provision, forgiveness will now be granted for funds spent on the following expenses (subject to a limitation that at least 60% of the loan must be used for payroll related costs):
- Covered payroll costs
- Interest on covered mortgage obligations
- Payment on covered rent obligations
- Covered utility payments
- Covered operations expenditures including payment for any software, cloud computing and other human resource and accounting needs
- Covered property damage including costs related to property damage due to public disturbances not covered by insurance
- Covered supplier costs including expenditures pursuant to a contract essential to the recipient’s operations at the time at which the expenditure was made
- Covered worker protection equipment including PPE
- The purchase, maintenance or renovation of assets that create or expand a drive-through window facility; an indoor, outdoor, or combined air or air pressure ventilation or filtration system; a physical barrier such as a sneeze guard; an indoor, outdoor or combined commercial rental property; an onsite or offsite health screening capability; or other assets relating to the compliance with the requirements of certain protective guidance
Covered Period — The CAA allows borrowers to select an end date of their covered period, provided the end date is greater than eight weeks from the date of disbursement of the PPP loan and not more than 24 weeks.
EIDL Advance — The CAA repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
Other Stimulus Provisions
Direct Payments — The CAA includes a recovery rebate program. Individual taxpayers are eligible for $600 per individual, plus $600 per qualifying child. This means a family of four could receive up to $2,400 in payments. These payments are subject to phase out based on the adjusted gross income of the taxpayer. Taxpayers with the following adjusted gross income levels are completely phased out of this benefit: single taxpayers with AGI of $87,000 and joint filers with AGI of $174,000. (Note: These amounts are subject to change as President Trump has called on Congress to increase the amount of the rebate checks from $600 to $2,000.)
Business Meals — The Act provides for a 100% expense deduction for the cost of business meals provided by a restaurant that are paid during the 2021 and 2022 tax years. Under prior law these expenses were limited to a 50% tax deduction.
Grants for Certain Venue Operators — The CAA includes up to $15 billion to provide grants to shuttered live event venues, independent theaters, museums and zoos that have experienced revenue losses due to the pandemic.
Payroll Tax Credits — The CAA extends and expands the Employee Retention Credit under the CARES Act and the paid leave credits under the Families First Coronavirus Response Act.
Additional Tax Provisions:
- Extension of several energy-related tax provisions
- $250 educator expense deduction applies to PPE
- Certain charitable contributions deductible by non-itemizers extended through 2021
- Suspension of limitations on qualifying charitable contributions extended through 2021
This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.