Update: The Consolidated Appropriations Act of 2021 was signed into by the president on December 27, 2020.
On December 21, 2020, Congress passed the Consolidated Appropriations Act of 2021, a package that combines $900 billion in coronavirus relief aid and a $1.4 trillion omnibus package to fund the government through September 30, 2021. The coronavirus relief package will deliver emergency aid to the American economy in the form of new federal assistance to households, small businesses and healthcare providers.
Congress also approved a one-week stopgap spending bill which will prevent a government shutdown, giving President Trump time to sign this piece of legislation. It is important to note that the bill is awaiting final signature by the President and has not been signed into law.
A high-level overview of the bill is below; look for more in-depth analysis from us in the coming weeks. If you have any questions about the recently passed bill, please contact your tax advisor.
Financial Relief for Individuals
Direct Payments of $600
- The legislation provides $600 in direct payments to individuals making up to $75,000 and couples making $150,000 or less, plus $600 per dependent.
- An extra $300 per week jobless benefit will be available for unemployed workers, compared to the prior CARES Act $600 per week boost to benefits.
Flexible Spending Accounts
- FSA can be fully rolled over from 2020 into 2021 and a 2021 balance can be rolled into 2022.
Financial Relief for Businesses
Paycheck Protection Program (PPP)
- $284 billion available for a second round of PPP loans for qualifying businesses, including $35 billion earmarked for those who have not yet borrowed under PPP.
- Allows tax deductions for expenses paid with PPP loans. This fix will resolve previous conflicting IRS guidance which had been proposed to disallow expenses even though the loans were intended to be tax exempt.
- Businesses taking a PPP loan will now also be allowed to participate in the Employee Retention Credit.
- Small businesses may qualify for a second PPP loan if they have 300 employees or less and can show revenues have fallen by 25% compared to the same quarter in 2019. The maximum loan amount for second round of PPP is $2 million. The Small Business Administration will be required to issue guidance on calculating the revenue reduction within 10 days of passage.
- A simplified loan forgiveness process has been created for loans under $150,000 assuming all other loan requirements are met.
- The list of eligible expenses has expanded to include covered operations (i.e. software, accounting needs, etc.), property damage costs derived from public disturbances that occurred in 2020 and are not covered by insurance, covered supplier costs and covered PPE. This expansion of non-payroll costs is expected to apply to all borrowers who have not yet applied for forgiveness but it will still be subject to the 40% limitation as before.
- There is now expanded eligibility for 501(c)(6) nonprofit organizations.
- The bill repeals the CARES Act provision that requires PPP borrowers to deduct an Economic Injury Disaster Loan Program Advance from the PPP loan forgiveness amount.
Extension and Expansion of the Employee Retention Credit
- Increases maximum credit from $5,000 to $14,000 and is also allowed in coordination with the PPP loan.
Economic Injury Disaster Loan (EIDL) Advance Program
- The bill sets aside $20 billion for the Small Business Administration’s EIDL Advance Grant program for small businesses in low income communities.
Small Business Administration (SBA) Loan Programs
- The bill provides $2 billion to enhance SBA’s existing government guarantee loan program, which includes the 7(a) Loan Program, the 504 Loan Program and the Microloan Program.
- Borrower and lender fees are now waived under the 7(a) and 504 Loan Programs.
- 7(a) loan guarantee increases to 90%.
- Borrowers with traditional Section 7 SBA loans will have their payments covered by SBA for at least another 3 months and potentially up to 8 months in a continuation of a similar CARES Act benefit.
Certain Payroll Tax Deferrals Extended
- Employers who chose to defer withholding employee’s deposit and payment of employee Social Security tax or Railroad Retirement tax on wages or compensation paid to certain employees from September 1, 2020 through December 31, 2020 now have until December 31, 2021 to issue repayments on the deferred amounts.
- If these withheld taxes are not repaid within the specified timeframe, then interest, penalties and additions to the existing tax requirements will not begin to accrue until January 1, 2022.
Live Music, Movie Theatres and Cultural Institutions
- $15 billion provided to support live music venues, movie theatres and cultural institutions (i.e. museums and zoos).
Relief for Schools
- The bill includes $82 billion to help colleges and universities cover HVAC repair and replacement that are aimed to help reduce to risk of COVID-19 infections.
$10 billion is included for childcare assistance.
- Business meal expenses provided by a restaurant will be 100% tax deductible for 2021 and 2022.
Smith and Howard is here to help you and your business navigate this new piece of legislation. Please contact your advisor with any questions you may have or call 404-874-6244 and your call will be directed appropriately.