Consolidated Appropriations Act 2021
On Sunday, December 27, 2020, the President signed into law H.R. 133, an Act making consolidated appropriations for the fiscal year ending September 30, 2021, providing coronavirus emergency response and relief, and for other purposes.
Key Tax & Accounting Provisions:
The bill includes a provision that clarifies that expenses paid with forgiven Paycheck Protection Program (PPP) loans are fully deductible for federal income tax purposes.
The bill provides additional funding for a second round of PPP loans and modifies some rules with respect to existing PPP loans:
- Businesses are eligible for a second PPP loan if they satisfy all the following requirements: 300 or fewer employees, have used or will use the full amount of their first PPP loan, and can demonstrate a 25% or more gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
- Maximum loan amount is 2.5 times a business’ average monthly payroll costs in the year prior to the loan or the prior calendar year. It is capped at $2MM per recipient (first round of PPP was capped at $10MM per recipient).
- Eligible costs paid or incurred during the covered period are eligible for forgiveness. Businesses can elect any period lasting between 8 and 24 weeks beginning on the date that the business receives the loan.
- Expands the definition of costs that are eligible for loan forgiveness for both new PPP loans and existing PPP loans to include:
- Worker protection and facility modification costs; to include PPE equipment to comply with COVID-19 safety guidelines.
- Costs paid to suppliers that are essential at the time of purchase to the recipient’s current operations and made pursuant to a contract, order, or purchase order that was either in effect at any time before the covered period, or for perishable goods: in effect before or at any time during the covered period.
- Other operating costs – software and cloud computing services and accounting services.
- Use of proceeds from the first round of PPP loans was previously limited to payroll, rent, mortgage interest, and utilities.
- 60% of total costs paid for with loan proceeds must be used to cover payroll costs.
- Creates a simplified forgiveness application process for loans under $150,000.
- Expenses are deductible for tax purposes (same as first round of PPP loans).
- Makes 501(c)(6) organizations eligible for a PPP loan (not eligible in first round). Must not receive more than 15% of their gross receipts from lobbying activities.
In addition to the above modifications, the bill:
- Extends the employee retention tax credit through June 2021 and allows borrowers of PPP loans to also claim this credit on wages that were not treated as forgivable payroll costs for PPP purposes.
- Extends the paid sick and family medical leave tax credit through March 2021.
- For businesses with existing Section 7 SBA loans, the SBA will pay an additional 3 months of principal and interest for borrowers beginning in February 2021. The CARES Act provided for 6 months of principal and interest payments to be paid for by the SBA.
- For employees who chose to defer their 6.2% share of social security tax on wages paid from September 1, 2020 through December 31, 2020, the due date for repayment has been extended from April 30, 2021 to December 31, 2021.
- Business meals will be 100% deductible for tax years 2021 and 2022 provided the expense is for food or beverages provided by a restaurant.
- Additional round of direct payments (“stimulus checks”) to individuals:
- $600 per individual for those with adjusted gross income (AGI) up to $75,000 per year.
- $1,200 for married couples for those with adjusted gross income up to $150,000 per year
- $600 per dependent.
- Payment decreases $5 for every $100 over the AGI limits (i.e. no payment for individual making over $87,000 per year or $174,000 if married filing jointly).
- A hypothetical family of 4 would receive $2,400.
- AGI threshold for the advance of the direct payment is based on 2019 filed tax returns.
- Payments expected to begin within the next few weeks.
Please contact Dugan & Lopatka if you have any questions on how the Consolidated Appropriations Act 2021 impacts your individual situation.