Late last night, following several days of contentious negotiations, Congress approved the “Consolidated Appropriations Act of 2021” (“Act”) which includes a legislative package that provides an additional $900 billion of pandemic relief for American taxpayers. The Act also includes an additional $1.4 trillion of funding for government operations through the end of the 2021 fiscal year. President Trump has until December 28 to sign the bill into law. The Act contains several favorable economic and tax provisions, including:
- Allows businesses to deduct expenses paid with forgiven Paycheck Protection Program (“PPP”) loan proceeds. This clarifies the Congressional intent for the provisions related to the treatment of PPP loan forgiveness included in the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act and supersedes previous IRS guidance regarding the deductibility of these expenses (See Whitley Penn Tax Alert: IRS Issues Guidance on Deducting Expenses with PPP Loan Proceeds” dated November 23, 2020).
- Extends and provides additional funding for the PPP loan program and allows certain borrowers that had previously obtained a PPP loan to obtain a second PPP loan.
- Expands the potentially forgivable expenses paid with PPP funds to include payments made for software, cloud computing, human resources, accounting, supplier expenses paid pursuant to a contract, and personal protective equipment and adaptive instruments.
- Provides simplified forgiveness procedures for PPP loans of $150,000 or less.
- Allows a tax deduction for 100 percent of expenses for business food and beverages provided by a restaurant for the 2021 and 2022 tax years.
- Extends and expands the CARES Act employee retention tax credit. The expansion of the credit includes an increase in the credit rate and an increase in the creditable amount of employee wages. It also reduces the percentage of the decline in gross receipts required for eligibility and provides a safe harbor for determining eligibility. Taxpayers with forgiven PPP loans are also now eligible for the credit.
- Extends and increases the charitable contribution deduction for non-itemized filers and extends the increased itemized deduction limitation included in the CARES Act through 2021.
- Provides both permanent and temporary extensions of several expiring tax provisions including the New Markets Tax Credit, the Work Opportunity Credit, the employer tax credit for paid family and medical leave, the exclusion for certain employer payments of student loans, and the exclusion for discharge of qualified principal residence indebtedness.
- Provides a one-time $600 payment to individuals and each of their children. The payment is subject to phase-out for taxpayers with modified adjusted gross income in excess of $75,000 for single filers, $112,500 for heads of household, and $150,000 for joint filers.
- Extends federal unemployment benefits through mid-March 2021, providing a weekly supplemental benefit of $300 during that time period.
For more information regarding the CARES Act and the SBA loan programs, please see the COVID-19 information page on the Whitley Penn website at https://www.whitleypenn.com/covid-19/.
Whitley Penn is continually monitoring the tax and economic developments related to the coronavirus pandemic and will send out additional alerts in the future. In the interim, please contact your Whitley Penn tax advisor if you have any questions or require any additional information.