Dear Valued Clients and Friends of Burkhart & Company,
On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021. The bill consists of $300 billion in aid for small businesses, stimulus payments to individuals, additional unemployment benefits, and other tax deductions and credits. Listed below is a summary of many key provisions of the bill.
Paycheck Protection Program 2
A new round of Paycheck Protection Program (PPP), referred to as PPP2, provides $284 billion of fresh funding. PPP recipients may apply for another loan of up to $2 million if the business meets all of the following criteria:
- Has 300 or fewer employees
- Has used or will use the entire amount of their first PPP loan
- Had at least a 25% gross revenue decrease in any quarter in 2020 compared with the same quarter in 2019
Borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs. Hotels and restaurants can get up to 3.5 times their average monthly payroll costs.
Other Paycheck Protection Program Items
One of the most controversial items of the CARES Act has been the deductibility of the expenses paid with PPP funds. The bill ensures tax deductibility for business expenses paid using proceeds from PPP loans that were forgiven. This headline item can have a significant impact on a taxpayer’s tax liability.
Also included in the bill are provisions for simplified loan forgiveness based on loan amounts and provisions for additional eligible costs.
Direct Stimulus Payments
Much like the CARES Act, the bill provides for direct payments to taxpayers in an effort to stimulate the economy. The payments are $600 per individual plus an additional $600 per dependent. These payments to taxpayers are phased out based on their 2019 adjusted gross income starting at $75,000 for individuals and $150,000 for joint filers.
Tax Credits and Deductions
The bill extends numerous deductions and credits including:
- Employee Retention Tax Credit
- Employer Credit for Paid Sick and Family Leave
- $300 above-the-line deduction for charitable contributions
- 7.5% medical expenses deduction floor
The bill introduces a new deduction as well – a temporary return of the business deduction for meals. The deduction is designed to help the dining industry by allowing businesses to deduct the full amount of meals for 2021 and 2022, rather than the current 50 percent. Many other tax breaks were also extended.
The bill provides for extension of unemployment related provisions until March 14th and includes a supplemental $300 per week benefit (half the former rate). The bill also extends the payback period to December 31, 2021, for deferred payroll taxes. Additionally, there are many provisions for specific areas in need of relief such as education, transportation, healthcare, vaccine development and distribution, food and rental assistance, and more.
Please reach out to us with any questions or if you would like more information about how the various relief provisions will affect you or your business.