On December 21, 2020, Congress passed legislation that would provide tax and direct spending relief for business and individuals affected by the coronavirus pandemic. The Act extends expiring tax deductions, credits and incentives.
The legislation makes a technical correction to the CARES act passed in March 2020. The Act confirms the deductibility of expenses paid with proceeds from PPP loans which are forgiven. The Act clarifies and supersedes previous IRS positions that expenses paid with PPP loan proceeds were not deductible expenses. The Act clarifies the PPP debt forgiven is not includible in gross income and the forgiven loan proceeds are to be treated as tax-exempt income. Additionally, business expenses paid with forgiven PPP proceeds are tax deductible to the taxpayer. Finally, the Act provides that tax basis and other tax attributes will not be reduced as a result of those amounts being excluded from gross income.
The Act provides for a second PPP forgivable loan (PPP2) for businesses with revenue reductions. As in PP1, loan applications and forgiveness applications will be processed by Banks on behalf of SBA. Eligible businesses must show a 25% gross revenue decline in any 2020 quarter compared to the same quarter in 2019. PPP2 has the same provisions as PPP1 – the cost eligible for forgiveness are payroll, rent, covered interest and utilities. The expenses list was expanded to include covered worker protection and facility modification costs to comply with COVID-19 safety guideline. PPP borrowers may receive a loan of up to 2.5 times their average monthly payroll in the year prior to the loan or the calendar year. Except for maximum borrowing thresholds, all other borrowing and loan forgiveness provisions are the same for PPP2 as in PPP1.
The Act provides for the extension of FFCRA credits for paid sick and family leave are extended through March 31, 2021.
The bill provides for another round of stimulus checks: $600 per adult and per child. PPP1 provided $1,200 per adult and $500 per child. These payments will also be phased out for individuals with Adjusted Gross Income over $75,000 ($150,000 for married filing joint). Stimulus check amounts are based on 2019 filing status and are subject to reconciliation on the 2020 tax return, but there are no claw back provisions as in PP1.
The legislation will also provide for a $300 per week federal unemployment subsidy and a $100 per week subsidy for wage earners with self-employment income. The benefit period will also be extended to 50 weeks.
The Act allows for the temporary full deduction for business meals. The legislation provides for a 100% deduction for business food and beverage expense provided at a restaurant that are paid before January 1, 2023.
The educator expense deduction was amended to include pandemic related expenses (PPE) as eligible expenses after 3/12/2020.
The Act extends for one year the $300 above the line deduction for charitable contributions. It also increases the amount for 2021 that married couples filing jointly can deduct for charitable contributions from $300 to $600.
There are additional provisions with additional credits and non-tax assistance that are included in the legislation. As these items do not directly affect the majority of our clients, they have not been specifically addressed in this notice. If you have questions of concerns that need to be discussed in greater detail, please contact our offices for more specific guidance.December 28, 2020 2:12 pm