By: Madison Contri, CPA, Alan Zgoda, CPA, and Derek Gray, CPA
On Sunday, after weeks of gridlock, Congressional leaders announced a compromise has been reached on the framework for the second relief bill.
This second round of government stimulus aims to provide more direct payments to individuals, additional aid for small businesses, and the expansion or extension of tax legislation to ease the burden the COVID-19 pandemic has placed on countless Americans. The bill passed through Congress Monday evening and awaits signature by President Trump, which the White House indicated he will sign.
Another round of stimulus checks are among the most-discussed provisions. Per the relief package, individuals will receive another direct stimulus payment. Eligible Americans can expect to receive a $600 check and an additional $600 per child. Similar to the stimulus checks from the CARES Act, payments will begin phasing out at $75,000 for single filers, $112,500 for heads of household, and $150,000 for married couples filing jointly. If an individual already received or is still waiting on their CARES Act stimulus check, they are still eligible for the new $600 stimulus payment.
The amount received through the new stimulus checks is based on the individual’s 2019 income. If 2019 income is more than the phase-out amount, or dependents were added in 2020, the stimulus checks or a fraction thereof may still be available to claim on a 2020 tax return. Like the first round of stimulus checks, this payment represents an advanced payment of a credit that will be taken on an individual’s 2020 income tax return.
On Monday, Treasury Secretary Steven Mnuchin said millions of Americans could begin seeing stimulus payments as soon as next week.
Americans receiving federal pandemic unemployment compensation can expect an extension of those benefits through mid-March, as well as an extension of state unemployment compensation eligibility. The federal portion of supplemental benefits amounts to $300 per week. For those that have both income from wages and self-employment, the new legislation provides for a potential $100 per week in additional compensation if their unemployment benefits calculation does not account for self-employment income.
PPP Deductibility and Additional Funding
One highly anticipated provision is the deductibility of expenses paid with Paycheck Protection Program (PPP) funding. Although forgiveness of the original PPP loans was billed as “tax-free” to the businesses that received them, the Treasury Department quickly clarified they intended to disallow the deduction for any expenses used in connection with forgiveness of the PPP loan. This new legislation is consistent with Congress’ original intent and allows for expenses paid with PPP funding to be deductible on business tax returns, thereby providing a substantial benefit to businesses receiving PPP funds.
The bill also includes an additional $284 billion in funding for the PPP, as well as allowing new expenses to qualify for forgiveness and making changes to the covered period for loan forgiveness. You can read a comprehensive summary of the PPP provisions here.
Employee Retention Credit (ERC)
The Employee Retention Credit (ERC), which was enacted in the CARES Act, has been extended and expanded. Under the CARES Act, the ERC provides businesses a payroll tax credit equal to 50% of an employee’s wages, up to $10,000. The ERC is now extended through July 1, 2021, in a greatly expanded manner. To qualify, a business must have a 20% decrease in revenue, quarter over quarter, during the qualifying period. The credit is now calculated at 70% of an employee’s wages, up to $10,000 per quarter. Additionally, the ERC is no longer mutually exclusive of receiving a PPP loan. Therefore, a taxpayer can receive both a PPP loan and take the Employee Retention Credit.
Other tax provisions in the new relief bill include the ability to deduct 100% of business meal expenses and expansion of the “above the line” deduction for charitable contributions. The Earned Income Tax Credit and the Child Tax Credit have been expanded as well, making them available to Americans who lost their jobs, or experienced reduced income, during the pandemic.
Industries that have been deeply impacted by the coronavirus pandemic, like event venues, movie theaters, and museums, are set to receive a $15 billion boost. Airlines are expected to receive a similar amount to help maintain their payroll, and other transportation sectors such as state highways and Amtrak are also expected to receive aid. The package also includes $25 billion for emergency rental assistance and extends the ban on evictions through January 31, 2021. Additional funding for COVID-19 vaccines, testing, and contact tracing is also included. Additionally, nearly $82 billion is designated for providing funding for colleges and schools.
President-elect Biden said in a statement Sunday that “this action in the lame-duck session is just the beginning. Our work is far from over.” As such, many economists have expressed hope that Biden will be willing to pursue another package in early 2021 to further the recovery efforts.
While the legislation addresses many concerns of borrowers there are many uncertainties ahead that we here at Blue & Co. will continue to monitor. We here at Blue & Co. will continue to monitor the evolving developments and will continue to get the most timely information out to our clients as we get it. If you have any additional questions in the interim, please speak to your local Blue & Co representative.
If you have any questions or concerns regarding the upcoming tax bill, please consult your local Blue & Co. tax advisor. However, if you do not have a Blue & Co tax advisor and have questions regarding the upcoming tax bill, please feel free to contact the authors at:
Madison Contri, CPA
Alan Zgoda, CPA
Derek Gray, CPA