Summary of the Consolidated Appropriation Act of 2021
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The Consolidated Appropriation Act of 2021 passed Congress on Monday, December 21, 2020, containing the most recent COVID-19 relief provisions as well as many tax provisions. The following is a summary of key provisions included in the proposed Act.
Additional Cash Stimulus Payments
In addition to the original Economic Impact Payment, an eligible individual is allowed $600 for 2020 ($1,200 for married joint filers) plus $600 for each qualifying child. Phase-out of stimulus payment eligibility commences at income levels of $75,000 for individuals $150,000 for married/joint.
Child Tax Credit and Earned income tax credit
Taxpayers can use their earned income from 2019 to determine their earned income tax credit and refundable portion of the child tax credit.
Individuals that do not itemize their deductions can deduct up to $300 in charitable contributions in 2021. Originally, this was solely allowed for 2020 returns. The 100% AGI limit for cash contributions to a qualified charity, which was also set to expire at the end of 2020, is extended through 2021.
Small business loans
The PPP receives additional funding, but this round is more targeted than the first version introduced in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Designed to target small businesses that have been particularly affected by the pandemic, the new stimulus package includes:
- Directing $284 billion to the Small Business Administration (SBA) to fund additional loans of up to $2 million
- Targeting businesses with fewer than 300 employees and that have sustained a 25% revenue loss in any quarter in 2020 relative to the same quarter in 2019
- Allowing small 501(c)(6) organizations that have 150 employees or less and are not lobbying organizations to apply for funding
In addition, for loans that have not yet been forgiven, the Act extends the covered period for all first draw PPP loans up to March 31, 2021, and expands the list of expenditures eligible for forgiveness to include:
- Supplier costs,
- Software or cloud computing software that facilitates operations,
- Costs related to property damage, vandalism or looting caused by public disturbances that occurred in 2020, that were not covered by insurance,
- Investments in facility modifications and personal protective equipment, and
- Other group insurance premiums were added to the list of payroll costs (previously, only group healthcare benefits were eligible premiums).
The Act also provides a streamlined forgiveness process for borrowers with loans of $150,000 or less.
Expenses associated with forgiven PPP loans
The CARES Act provided that if taxpayers used PPP loans for certain eligible expenses, those loans would be forgiven. Further, any forgiveness would be excluded from gross income. Treasury subsequently stated in Notice 2020-32 (reiterated in November in Revenue Ruling 2020-27 and Revenue Procedure 2020-51) that expenses funded with forgiven PPP loans would be nondeductible for federal income tax purposes. In a major win for taxpayers, the Act clarifies Congress’ previous intent that these expenses are deductible.
Deductibility of business meals
The deduction for business meals in increased from 50% to 100% for 2021 and 2022.
Payroll Tax Credits
The payroll tax credits for paid sick and family leave provided by the Families First Coronavirus Response Act are extended through March 31, 2021.
Employee retention credit
The credit has been extended to June 20, 2021. Certain changes to the Employee Retention Credit were made retroactive to the effective date of the CARES Act in March 2020.
In addition, eligible healthcare expenses can be considered qualifying wages regardless of whether they are allocable to an employee’s salary. The Act separately excludes wages taken into account in computing the credit from a PPP loan borrower’s payroll costs.
The Act also makes prospective changes to the credit, which include but are not limited to:
- Increasing the amount of the credit to 70% of qualified wages from 50%
- Increasing the cap on the amount of qualifying wages per employee to $10,000 per calendar quarter from $10,000 for the calendar year
- An employer will qualify under the “gross receipts” test if their revenues in a calendar quarter are less than 80% of their revenues from the same quarter in 2019 (previously, revenues must have been less than 50% from the same quarter in 2019)
- The employee limit for determining “small employer” status increasing to 500 employees from 100 employees
In addition to COVID relief, the legislation contains a number of tax extender provisions.
- New Markets Tax Credit
- Work opportunity Credit
- Mortgage insurance premiums treated as qualified resident interest
- Employer paid family and medical leave program
- Exclusion for employer payment of student loans
- Empowerment zone tax incentives
Some provisions were made permanent by the Act including:
- Sec 179D Energy-efficient commercial building deduction
- 7.5% adjusted gross income (AGI) threshold for determining the deductibility of individual medical expenses