On Dec. 21, Congress passed the new COVID-19 relief bill, which President Trump signed into law on Dec. 27.
Included in the massive bill is a nearly $900 billion relief package that includes stimulus checks for qualifying recipients, additional funding for small businesses, enhanced unemployment benefits, and several provisions (some permanent) on “tax extenders.”
Key parts of the legislation that impact business follow:
The legislation includes a second round of PPP loans, generally available to businesses with up to 300 employees that have sustained a 25% reduction of gross receipts in one or more quarters in 2020 compared to the comparable quarter for 2019.
Some businesses are excluded and there are special provisions for live venues, independent movie theaters and cultural institutions.
Many of the terms of the new program are consistent with the original program. However, the new program expands the list of costs eligible for PPP loan forgiveness to include certain covered operations expenditures, property damages, supplier costs and personal protection equipment (PPE).
Congress also clarified that expenses associated with the PPP loan forgiveness are fully deductible. The IRS had previously taken the position that expenses associated with PPP loan forgiveness are not deductible, so the change provides welcome relief.
The CARES Act already provided that the forgiveness of the PPP loan is excluded from taxable income.
The CARES Act added a refundable payroll tax credit equal to 50% of certain compensation paid from March 13, 2020, to December 31, 2020. The employee retention credit was available only to businesses whose operations were suspended or whose gross receipts declined by more than 50% compared to the same quarter during the prior year.
Under the CARES Act, the credit was limited to the first $10,000 of compensation paid to a particular worker each year.
The employee retention credit is significantly enhanced under the year-end bill. Specifically, the credit is:
PPP borrowers are not prohibited from claiming this credit on wages not paid for with forgiven PPP loan proceeds.
The IRS allowed employees to defer paying their share of Social Security tax on applicable wages paid from September 1, 2020 through December 31, 2020.
Any Social Security tax deferred for the period was to be repaid via additional withholding from January 1, 2021 through April 30, 2021. The new bill allows the deferred tax to be repaid throughout 2021 (rather requiring repayment in the first four months of the year).
Under current law, business meals are only 50% deductible. For 2021 and 2022, all businesses, regardless of size or industry, will be permitted a 100% deduction for business-related meals provided by a restaurant.
However, there is no change to the limit on entertainment expenses, which are non-deductible after December 31, 2017.
The refundable payroll tax credits for paid sick and family leave (enacted earlier in the year in the Families First Coronavirus Response Act) are extended through March 31, 2021.
There is a group of tax provisions (commonly referred to as “tax extenders”) that Congress has a pattern of extending for one or two years at a time. Some of the typical tax extenders, such as the work opportunity tax credit, were extended through 2025 as part of the new bill.
Other provisions have become permanent and thus will be removed entirely from the extender list. These provisions include the Section 179D energy efficient commercial buildings deduction and certain provisions related to beer, wine and distilled spirits, among others.
Next week we will discuss the bill’s individual provisions. Stay tuned!
Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at mike.bosma@claconnect.com.
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