New COVID-19 Relief Provisions for Individuals and Businesses

01/06/2021

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On December 27, 2020 the latest in a series of COVID relief provisions was signed into law. This most recent round of stimulus and tax relief was tied to the Consolidated Appropriation Act, which provides additional economic aid in response to the pandemic and also helps to prevent a federal government shutdown. Below are some of the bill’s broadest-reaching components:

INDIVIDUALS

Stimulus Payments to Individuals:
The CARES Act that passed in the spring of 2020 included a $1,200 stimulus check per individual plus $500 per child. These payments could be phased out if your adjusted gross income was more than $75,000 for single filers or $150,000 for married couples filing jointly. This income phase-out was based on your 2019 tax return (if your 2019 return was filed before the stimulus checks were issued) or your 2018 tax return (if your 2019 return had not yet been filed).

This latest legislation provides for an additional $600 per individual plus $600 per child. Similar to the stimulus amounts at the beginning of the year, these payments are phased out once individuals reach an income level of $75,000 ($150,000 for married filing joint). However, unlike the first round of payments, this second round will be based solely on income reported on your 2019 tax return. Therefore, it’s possible if your income increased from 2018 into 2019 that you may have received a first-round stimulus check (based on your 2018 income) but won’t receive a second-round stimulus check (based on your 2019 income).

Both rounds of stimulus payments are prepayments of tax credits for the 2020 tax year. Therefore, if you don’t receive the full stimulus amounts in your checks from the IRS, you may still be eligible to claim a credit on your 2020 tax return.
 

• Additional unemployment benefit of $300 per week through March 14, 2021.
• Unemployment benefits are also extended for self-employed and gig workers.
• Provides federal rental assistance for families impacted by COVID-19.
• The threshold for medical expenses is permanently set at 7.5% of adjusted gross income beginning in 2021.

BUSINESSES

PPP 2:
The Paycheck Protection Program (PPP) was a very popular program in that businesses could apply for a loan through a lending institution, and as long as that business uses the loan proceeds for qualified business expenses, the PPP loan is forgiven.

The new law continues and expands the PPP program. For businesses that did not receive any PPP funds earlier in 2020, the rules are generally unchanged - these businesses can now seek PPP money and, assuming they meet the rules on spending that money, can have that PPP loan forgiven.

The expansion of the PPP program allows certain businesses that have already received the first round of PPP money to now seek another round of PPP money.

• With less than 300 employees, and
• Can show a decline of gross receipts of at least 25% in a calendar quarter (2020 vs. same quarter in 2019).

The maximum loan amount for this second loan will be 2.5 times the monthly average payroll, not to exceed $2 million. Certain lodging and restaurant businesses may qualify for 3.5 times monthly payroll. Businesses that meet the 300-employee headcount threshold should compute their gross receipts by quarter for both 2019 and 2020 to determine whether they can pursue this second PPP loan.

Furthermore, it would be prudent to analyze 2020 qualified expenses (ie: payroll, rent, and utilities, etc;) to determine whether there are enough of these expenditures to achieve full forgiveness for a second PPP loan.

PPP Deductibility:
After the original PPP legislation was passed the IRS issued guidance indicating any expenses paid with funds from a forgiven PPP loan would be nondeductible for income tax purposes. That IRS interpretation would have generated a tax liability for many businesses—in essence, taxing the PPP loan itself.

The new law unequivocally states that the PPP loan itself should be tax-exempt income AND the associated expenses should be deductible expenses. Additionally, the law clarifies that no tax attributes (such as net operating losses) need to be reduced by PPP loan forgiveness.

Therefore, some businesses following the earlier IRS guidance, may have overpaid their 2020 estimated taxes assuming they would have large nondeductible expenses associated with forgiven PPP loans. Now that Congress has made those PPP expenses deductible, those businesses will need to revisit their 2020 extension and 2021 estimates.
 

• For corporations, the limitation on charitable deduction was increased from 10% up to 25% through 2021.
• Business meal expenses incurred in the 2021 calendar year and 2022 will be 100% deductible.
• Certain incentives and credits were extended through 2025 (Work Opportunity Tax Credit, New Markets Tax Credit, and Empowerment Zone incentives).
• Any advances that businesses received under the Economic Injury Disaster Loan program will no longer reduce any PPP loan forgiveness.

 
For more information regarding these changes, please contact Michael Ceschini of Ceschini CPAs, (631) 474-9400.