The Consolidated Appropriates Act was passed by Congress and signed into law by the President on December 22. The bill provides relief to individuals, families and businesses who may still be struggling due to COVID-related issues.
Some of the key provisions of this legislation include:
- Economic Impact Payments.
- Payments of $600 for individuals with adjusted gross income (AGI) under $75,000 per year and $1,200 for married couples with AGI below $150,000 will be paid out starting next week. Each dependent child under the age of 17 will also receive $600. The benefit amount is phased out by$5 for every $100 above the threshold amount. If AGI was above the threshold amount in 2019 but is expected to be below that in 2020, you may receive a refundable credit on your 2020 tax return. It is currently estimated that 10 million payments will be sent out per week.
- Anyone who meets the income requirements and 1) has filed their 2019 tax return, 2) submitted non-filer information through the EIP portal earlier this year, or 3) is receiving Social Security, SSI, Railroad Retirement benefits, or VA benefits should automatically receive their payment.
- Educator Expense Deduction. Teachers who spend money on personal protective equipment (PPE) can count those amounts towards their educator expense deduction. Unfortunately, the $250 limit remains in place. Expenses incurred since March 12, 2020 are eligible.
- Medical Expense Deduction Floor. The AGI floor for deducting medical expenses has floated between 7.5% and 10% in recent years. The 7.5% has now been made permanent.
- Mortgage Insurance Premium Deduction. Mortgage insurance premiums (PMI) are deductible as an itemized deduction through December 31, 2021.
- Charitable Deductions Enhanced. The $300 above-the-line charitable deduction available to non-itemizers will also be available for 2021. Married taxpayers will be able to deduct up to $600 in 2021, but not 2020. The ability for donors to deduct cash contributions up to 100% of their AGI is extended into 2021.
- Flexible Spending Accounts (FSAs). Both dependent care and health care FSA balances that are unused can be carried over from 2020 to 2021. 2021 balances will be able to be carried over into 2022. The employer must adopt this provision, so you may want to confirm that they have before allowing your balance to carry past the current deadline. The law also allows 2021 elections to be changed mid-year without disqualifying the plan.
- Extension of deferred payroll taxes. If your employer deferred your payroll taxes due to President Trump’s Executive Order signed on August 8, 2020, the payback period has been extended to December 31, 2021 from April 31, 2021. In other words, your monthly payback amount will be less, as the payback period is now extended over a longer period.
- Emergency Financial Aid Grants are not taxable. Certain emergency financial aid grants issued under the CARES Act are excluded from the gross income of college students. Students do not need to factor in this amount when determining their eligibility for the American Opportunity and Lifetime Learning credits.
- FAFSA Simplification. On July 1, 2023, the FAFSA form will be much shorter (possibly around 1/3 of the questions it currently has), the formulas to determine need will be adjusted, along with several other changes. More details will become available as we get closer to that time.
- Expenses on forgiven PPP loans ARE deductible. Businesses can deduct expenses paid with forgiven PPP funds. This applies to the Initial PPP program and the Second Draw PPP program authorized by this law. Lenders will not be required to issue 1099s for forgiven PPP debt. Tax basis and other attributes of a borrower’s assets will not be reduced because of forgiveness.
- On a related topic, forgiveness from certain loans and Emergency Economic Insurance Disaster Loans (EIDL) grants are not included in gross income.
- PPP Second Draw.
- Smaller and harder hit business will be eligible for a forgivable loan up to $2 million. To be eligible, the business must:
- Not employ more than 300 employees
- Have used or will use the full amount of their initial PPP loan and
- Have had a 25% reduction in gross receipts in the first, second, or third quarters of 2020 relative to the same quarter in 2019. Applications submitted on or after January 1, 2021 may also use the fourth quarter of 2020.
- Eligible entities include businesses, self-employed individuals, sole proprietors, independent contractors, certain non-profits, housing co-ops, veterans’ organizations, tribal businesses, and small agricultural co-ops.
- Borrowers may receive a loan of up to 2.5X their average monthly payroll costs in the one year prior to the loan or the calendar year.
- Borrowers are eligible for loan forgiveness equal to the sum of their payroll costs, mortgage, rent, utilities covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period. Payroll costs must be 60% or more of the total to receive full forgiveness.
- New qualifying expenses include operations expenditures, property damage costs, supplier costs and worker protection expenditures. These are all defined in the text of the law.
- All borrowers may choose between an 8 or 24 week “covered period”, which starts after origination.
- There is a simplified application process for loans under $150,000, which includes a “one-page” forgiveness certification.
- The SBA must carry out this provision no later than 10 days after enactment of the law. (Good luck to them!)
- Smaller and harder hit business will be eligible for a forgivable loan up to $2 million. To be eligible, the business must:
- Extension of credits for paid sick and family leave. The refundable payroll tax credits for paid sick and family leave are extended through March 31, 2021. Self-employed individuals may use their average daily self-employment income from 2019 rather than 2020 to compute the credit.
- Business Meals Deduction. For 2021 and 2022, 100% of business meal expenses will be deductible. To receive this 100% deduction, the food or beverages must be provided by a “restaurant”.
- Extension of Pandemic Unemployment Assistance (PUA). PUA benefits are extended to the shorter of March 14, 2021 or until the person has reached the maximum number of weeks. The number of benefit weeks was increased from 39 to 50. Payments of retroactive benefits are limited to weeks of unemployment after December 1, 2020. Effective January 31, 2021, new applicants will need to submit documentation to substantiate employment or self-employment.
- Restoration of Federal Pandemic Unemployment Compensation (FPUC). An extra unemployment benefit of $300 per week is available, starting December 26 and ending March 14, 2021.