On Sunday, December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. A $900 billion emergency Coronavirus tax relief package is included as part of this omnibus spending bill. It is intended to assist individuals and businesses during the ongoing coronavirus pandemic and accompanying economic crisis.Major relief provisions are summarized here, as well as some additional tax provisions.
The legislation provides an extension to expanded unemployment benefit assistance (although at a lower amount):
- An additional $300 weekly benefit to those collecting unemployment benefits, through March 14, 2021
- An additional 11-week extension of federally funded unemployment benefits for individuals who exhaust their state unemployment benefits
- Targeted federal reimbursement of state unemployment compensation designed to eliminate state one-week delays in providing benefits (allowing individuals to receive a maximum 50 weeks of benefits)
- Unemployment benefits through March 14, 2021, for many who would not otherwise qualify, including independent contractors and part-time workers
Recovery rebates for individuals
Most individuals will receive another direct payment from the federal government.
Technically a 2020 refundable income tax credit, the rebate amount will be calculated based on 2019 tax returns filed and sent automatically via check or direct deposit to qualifying individuals.
To qualify for a payment, individuals generally must have a Social Security number and must not qualify as the dependent of another individual.
The amount of the recovery rebate is $600 ($1,200 if married filing a joint return) plus $600 for each qualifying child under age 17.
Recovery rebates are phased out for those with an adjusted gross income (AGI) exceeding $75,000 ($150,000 if married filing a joint return, $112,500 for those filing as head of household).For those with AGIs exceeding the threshold amount, the allowable rebate is reduced by $5 for every $100 in income over the threshold.
Rebate Amounts and Phaseout Ranges
Married Filing Jointly
Head of Household
Business tax relief
The employee retention tax credit has been extended through June 30, 2021.
It is available to employers that were significantly impacted by the crisis and is applied to offset Social Security payroll taxes. As extended, the credit is increased to 70% of qualified wages, up to a certain maximum per quarter.
Paycheck protection program (PPP) loans have been extended and the allowable uses (eligible expenses) of the loan expanded.
$284.5 billion has been appropriated for funding for new PPP loans
A PPP loan amount can be forgiven for paying certain expenses, and such amount is not included in income.
It is clarified that no deduction will be denied, no tax attribute reduced, and no basis increase denied by reason of the exclusion from gross income.
A previous borrower of a PPP loan can apply for and receive another forgivable PPP loan if:
- It has 300 or fewer employees.
- It can demonstrate a loss of at least 25% of revenue during any of the first three calendar quarters of 2020 compared with revenue during the same calendar quarter in 2019. (Slightly different rules apply for applicants which were not operating during one or all quarters in 2019.)
- It has used (or will use) all proceeds of the prior PPP loan before receiving the second PPP loan.
- The maximum amount of the second PPP loan is limited to the lesser of $2 million or 2.5 times the average monthly payroll for the twelve-month period preceding the loan, or during calendar year 2019. Businesses with a NAICS code beginning with 72 (accommodations and food services) can receive up to 3.5 times the average monthly payroll or $2 million, whichever is less.
As with the first round of PPP loans, to maximize loan forgiveness, a borrower must spend at least 60% of loan proceeds on eligible payroll costs
Repayment of employee payroll taxes deferred in 2020 was originally scheduled for the period January 1, 2021, through April 30, 2021. The period for repayment has been expanded to January 1, 2021, through December 31, 2021.
The employer tax credit for providing emergency sick and family leave has been extended through March 31, 2021.
A full deduction is now allowed for business meals provided by a restaurant for expenses paid or incurred in 2021 and 2022.
The legislation allocates funds to state and local governments to provide emergency rental assistance through December 31, 2021.
The legislation extends an eviction moratorium originally issued by the Centers for Disease Control and Prevention, but only through January 31, 2021.
Enhancements to the normal charitable gifts deduction rules in 2020 have been extended through 2021.
For those who itemize deductions, the limit on the charitable gifts deduction has been increased to 100% of adjusted gross income for direct cash gifts to public charities.
For nonitemizers, a $300 charitable deduction for direct cash gifts to public charities is available (in addition to the standard deduction).
Married taxpayers filing a joint return can deduct $600 in 2021
Medical expense deduction
The floor for deducting medical expenses has been permanently lowered to 7.5% of adjusted gross income (it was scheduled to increase to 10% in 2021).
Other tax provisions
Starting in 2021, the deduction for qualified tuition and related expenses has been repealed.
To make up for it, the modified adjusted gross income phaseout range for the Lifetime Learning Credit has been increased to be the same as the phaseout range for the American Opportunity Tax Credit.
A number of provisions that are periodically extended (often a year at a time) have been extended through 2025, including:
- The exclusion from gross income of discharge of qualified principal residence indebtedness
- The employer credit for paid family and medical leave
- The exclusion from income for certain employer payments of student loans
A number of other provisions have been extended (generally through 2021), including:
- The treatment of mortgage insurance premiums as qualified residence interest for purposes of the interest deduction
- The energy efficient home credit
Contact your tax advisor for more information.