Breaking the Code: New Changes for the New Year
By: Rachel Speigle Dunnigan, CPA, MSA, CFP®
On December 27, 2020, President Trump signed into law the new COVID-19 Relief Bill (Consolidated Appropriations Act, 2021). Along with other expected changes for 2021, this new legislation has a range of provisions that we wanted to highlight.
Paycheck Protection Program (PPP) Loans
PPP has been reopened with more money allocated for businesses in need. Along with a few notable updates here, borrowers are now permitted to apply for a second PPP loan. The Second Draw loan program (PPP2) is comparable to the first round with a few exceptions: maximum loan amount of $2 million; businesses must employ 300 or less employees; businesses must have used or will use the full amount of the first loan; must show a 25% gross revenue decline in any 2020 quarter compared to 2019. PPP2 applications are open until March 31, 2021 or until funds are exhausted.
For first-time borrowers, the guidelines are still the same - $10 million limit for businesses with a maximum of 500 employees. Expenses eligible for loan forgiveness may now also include expenditures for personal protective equipment / worker protection, software, accounting, cloud computing needs, and suppliers’ expenditures for essential operations. An important clarification with this new bill is that business expenses paid with the proceeds of a PPP loan are tax deductible. 501(c)(6)s with less than 300 employees and less than 15% of receipts from lobbying are now also eligible to apply for loans.
Economic Impact Payments
The new stimulus checks will be quite similar to those received in the spring and summer of 2020. A maximum of $600 for individuals ($1,200 for joint filers) and $600 for each qualifying child will be provided as a payment for US taxpayers. These amounts are subject to a phaseout of adjusted gross incomes greater than $75k (single) and $150k (joint filers). If individuals received a payment via direct deposit for the first stimulus payment, the same payment method will be used. There is no way to update the payment information for the second stimulus payment. If you are eligible for the stimulus payment but did not receive it, there will be a line item for a credit on your 2020 tax return filing to correct this.
Other Changes for 2021
Temporarily allows a 100% business expense deduction for meals through 2022 (required to be spent on food and beverages provided by a restaurant)
Extended $300 additional weekly unemployment benefits until March 14, 2021
Extended Pandemic Unemployment Assistance program for self-employed individuals
Extended Employee Retention Tax Credit for businesses with a drop in gross receipts or suspended business (fully or partially)
Extended $300 charitable deduction of taxable income for individuals who do not itemize deductions ($600 for joint filers)
Extended allowance of charitable deduction up to 100% of adjusted gross income
Temporary allowance for rollover of unused flexible spending account funds from 2020 to 2021 and 2021 to 2022 (companies must opt-in for employees to take advantage of)
Permanent threshold of 7.5% of adjusted gross income for medical expense deductions
Permanent allowance of retirement-plan withdrawals up to $100k for federally declared disasters; withdrawals taxable or required to be repaid within 3 years
Inflation adjustments and thresholds for tax brackets, standard deductions, retirement and healthcare account contributions, and estate tax lifetime exclusion
As always, please do not hesitate to reach out to us if you have any questions about your specific situation. We will keep you informed of any updates as they become available.
To ensure compliance with the requirements imposed on us by IRS Circular 230, we inform you that any tax advice contained in this communication (including any attachments) is not intended to and cannot be used for the purpose of: (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.