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Help is on the Way – Congress Finalizes Second Stimulus Deal for $900B

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The U.S. Senate and House of Representatives passed a $900 billion Covid-19 relief bill and it is expected to be signed by President Trump.

The Consolidated Appropriations Act, 2021, includes spending for a second round of direct stimulus checks, unemployment benefits, additional PPP loan funds, rental and housing assistance, assistance to schools, vaccine distribution, and tax provisions to accelerate the economy. The final bill will bring total government stimulus spending to $4 trillion with another “shot in the arm” to boost the economy and help families and businesses.

  • Deductibility of Expenses Paid with Forgiven PPP Funds – The bill provides that no deduction shall be denied due to forgiveness of PPP loans. This is a huge win for businesses that received PPP loans and overturns the Treasury and IRS interpretations that treated these expenses as nondeductible.
  • Changes to the Existing PPP Program – The bill reopens the original PPP by setting aside $35 billion for those who have not yet borrowed. For existing borrowers of PPP funds, the bill makes several changes to the existing program. If a borrower has already applied for forgiveness, the changes will not apply. If you have not, these new rules can be used.

The bill expands eligible qualified expenses, but maintains the requirement that at least 60% must be spent on payroll. The four new expenses pertain to software to facilitate business operations, property damage costs related to looting or public disturbances, supplier costs, and worker protections. More detail to come in a subsequent BP blast on these expenses.

The bill also provides new options for the PPP covered period. The bill gives a borrower the right to choose any covered period beginning on the date the borrower received the loan and ending on a date selected by the borrower during the period beginning on the date that is 8 weeks after loan origination and ending on the date that is 24 weeks after origination.

Lastly, the bill provides streamlined forgiveness for borrowers with PPP loans under $150,000.

  • Stimulus Checks – The bill provides another round of individual stimulus payments, albeit smaller than those available under the CARES Act: up to $600 for individuals and $1,200 for a married couple filing jointly, plus $600 for each dependent child under the age of 17 (no payment is available for an adult dependent). Taxpayers eligible to be claimed as a dependent on another’s return are not eligible to receive a payment.

Once again, the payments phase out once adjusted gross income exceeds $75,000 for a single taxpayer and $150,000 for a married couple.

  • Full Business Meals Deduction in 2021 and 2022 – The bill allows for full expensing of “restaurant” meals purchased in 2021 and 2022 provided the other requirements for deductibility are met (i.e., not lavish, taxpayer is present along with employees or business associates). Currently, there is a 50% deduction allowed for client meals where business is conducted (including meals and snacks consumed at work). If passed, this measure would allow a temporary allowance for the full deduction of business meals specific to the cost of food and beverages provided by a restaurant and paid or incurred in 2021 and 2022.
  • Round 2 of PPP Loans – The bill creates a second round of PPP loans. A BP blast is forthcoming on this topic. Stay tuned.
  • Debt Relief Program – Section 1112 of the CARES Act provided that the SBA would make 6 months of payments on new and existing 7(a) loans. The new bill provides an additional 3 months of payments and clarifies that the payments shall not be included in taxable income.
  • Extension of the Employee Retention Credit ­- The bill extends the ERC through July 1, 2021, and expands several aspects of the credit for amounts paid in the first two quarters of 2021. The credit percentage is increased from 50% to 70% of qualified wages. Qualified wages, in turn, are increased from $10,000 in total per employee to $10,000 per quarter per employee, while the change in treatment of qualified wages that once occurred above 100 employees now does not kick in until the number of employees exceeds 500. In addition, a 20% drop in quarter-over-quarter receipts is now required to make a quarter an “eligible quarter,” rather than the 50% initially required by the CARES Act.

A taxpayer may now claim the ERC and take out a PPP loan; they are no longer mutually exclusive. Any wages upon which an ERC is computed, however, would not be forgivable costs under the PPP program.

  • Charitable Contributions – The $300 charitable deduction for those who do not itemize deductions was extended into 2021 but is now per person so a married couple could deduct $600 in 2021 versus $300 in 2020. Additionally, the ability in 2020 to offset 100% of adjusted gross income with cash contributions to qualified charities was extended for 2021.
  • Extension of expiring tax provisions:
    • Unreimbursed medical expenses are deductible to the extent they exceed 7.5% of adjusted gross income. This was scheduled to be 10% in 2021. The bill makes the 7.5% floor permanent.
    • Section 179D, which allows for a limited deduction upon making energy efficient improvements to nonresidential property is now permanent.
    • The work opportunity and new markets tax credits are extended for five years through December 31, 2025.
    • Personal tax credits for energy efficient property, homes, and fuel cell motor vehicles were extended through the end of 2021.

For more information, please contact your Berntson Porter representative at 425-454-7990. We are here to help!

Berntson Porter is here to help businesses navigate these challenging times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business. 


     

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