On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021.
Below is a selection of highlights of the Act that we would like to share with you. As always, we recommend that you consult with your tax professional regarding specific items that may benefit your business.
PPP Loan Changes
- Expenses paid with PPP Loan funds are now 100% deductible as allowed through law and forgiven PPP loans will now be considered tax-exempt income.
- The PPP loan program has been extended to March 2021
- Additionally, particularly hard-hit businesses that already received PPP loans will be eligible for the second round of funds. The Act defines eligibility for the PPP second draw as small businesses that: have no more than 300 employees; used or will use all proceeds of the first PPP loan for permitted purposes; and demonstrate at least a 25% reduction in gross revenues between comparable quarters in 2019 and 2020. The amount of any additional PPP loan that may be obtained is 2 1/2 times the average monthly payroll, except that businesses in NAICS Code 72 (Accommodation and Food Services) may obtain an additional PPP loan up to 3 1/2 times the average monthly payroll. However, all second-draw PPP loans are capped at $2 million per borrower.
- The definition of forgivable expenses have been updated to include: incurred for personal protective equipment (PPE); costs incurred to comply with federal or state health and safety guidelines; costs incurred for software, cloud computing, and other human resources and accounting needs; and costs related to property damage due to public disturbances that took place in 2020 that were not covered by insurance.
- Borrowers who returned all or part of the PPP loan may reapply for the maximum amount applicable if they have not yet received forgiveness.
- Borrowers that would be eligible for a higher loan amount as a result of interim final rule changes may work with lenders to modify their loan amounts, even after forgiveness.
- The process for the application for and forgiveness of PPP loans under $150,000 has been simplified.
- Repeal of the requirement that borrowers must deduct the $10,000 Economic Injury Disaster Loan (EIDL) advance amount from the forgivable amount of the PPP loan.
First time PPP loan applicants will be able to apply for a PPP loan starting January 11th and second-time applicants will be able to apply, starting January 13th if they are working with a community financial institution. Other approved lenders will begin starting applications later next week.
Payroll Tax Credits/Paid Sick Leave
- Employers who deferred withholding of the employee portion of Social Security and Medicare payroll taxes under the presidential memorandum dated August 8, 2020, now have until December 31, 2021 (instead of April 31, 2021) to arrange for withholding from the employees and repay the deferred amounts. Penalties and interest on the deferred unpaid payroll tax will not begin to accrue until January 1, 2022 (instead of May 1, 2021).
- The Act provides a tax credit to support employers who offer paid sick leave to employees. Under the Families First Coronavirus Response Act (FFCRA), enacted in March of this year, many employers were required to provide their employees with two weeks of fully paid leave related to COVID-19, and up to 12 weeks of partially paid family and medical leave. FFCRA leave is no longer required as of December 31, 2020, but if covered employers voluntarily provide these leave benefits through March 31, 2021, they are eligible to take the tax credit for the leave.
- The new Act did not extend the requirement for certain employers to provide FFCRA leave, but it did extend refundable payroll tax credits and employee eligibility for such paid sick and family leave, enacted in the FFCRA, from December 31, 2020, to the end of March 2021. It also modifies the tax credits so that they apply as if the corresponding employer mandates were extended through the end of March 2021. This provision is effective if included in FFCRA.
Other Tax-Related Provisions
- In 2021 and 2022 business meals will be 100% deductible, if the food and beverages are provided by a restaurant
- Certain charitable contributions are now deductible even if you don’t itemize on your personal tax return. For 2020 the maximum amount allowed is $300 regardless of your filing status. This has been increased for 2021 to $300 for single filers and $600 for married couples filing jointly. For businesses, the limits for qualifying charitable contributions have been suspended through 2021
- The medical expense deduction % for unreimbursed medical expenses has been reduced to 7.5% of adjusted gross income permanently
PPP Press Release, January 13, 2021
SBA Re-Opening Paycheck Protection Program to Small Lenders on Friday, January 15 and All Lenders on Tuesday, January 19
SBA Re-Opening Paycheck Protection Program to Small Lenders on Friday, January 15, and All Lenders on Tuesday, January 19. Lenders with $1 Billion or Less in Assets Will be Able to Submit First and Second Draw PPP Applications on Friday – Continuing Dedicated Access for Community-Based Lenders.
On Friday, SBA will continue its emphasis on reaching smaller lenders and businesses by opening to approximately 5,000 more lenders, including community banks, credit unions, and farm credit institutions. Moreover, the agency also plans to have dedicated service hours for these smaller lenders after the portal fully re-opens next week.