To the relief of many, and after some delay, President Trump signed the Consolidated Appropriations Act, 2021 (CAA) on the evening of December 27. The CAA, approved by Congress on December 21, provides $900 billion in relief related to the COVID-19 pandemic. The spending package exceeds 5,500 pages in length and addresses almost every facet of the economy. The following summarizes some of the provisions most pertinent to our client base, including individual rebate checks, Payroll Protection Program (PPP) updates, and extensions of tax credits. We will provide additional communications concerning other provisions over the next week and as guidance from the SBA is issued.
Individual Rebate Checks
Dispute over the final amount individuals would receive as refundable credit on their 2020 taxes delayed the president’s approval of the bill. In the end, Trump resigned his campaign to change the bill’s credit to $2000 per individual, and the CAA provides eligible individuals a rebate of $600 for single filers ($1200 for joint filers), plus a $600 credit per qualifying dependent child (under the age of 17).
Although this is a 2020 tax credit, checks are expected to be distributed shortly. Individuals’ 2019 filing information will initially determine eligibility and rebate amounts; however, taxpayers may receive adjustments and corrections in their favor based on their actual 2020 taxes.
Phase-out thresholds begin at $150,000 of adjusted gross income for joint filers or a surviving spouse, $112,500 in the case of a head of household, and $75,000 for all others.
The potential for an increase in the rebate amount still exists as the House of Representatives approved a measure on Monday, December 28, to increase the stimulus check to $2,000 per individual ($4,000 for joint filers) and $600 per qualifying dependent child (under the age of 17). The bill has moved to the Senate.
Payroll Protection Program Updates
The Payroll Protection Program provided significant aid to many small businesses in order to help supplement potential losses due to COVID-19 restrictions. The CAA expands the popular program’s support through additional funds and expanded options. Provisions related to the PPP include the following.
• Deductibility of Expenses Reimbursed by Forgiven PPP Loans
• PPP Loan Funds Available to New Applicants
• New Expenses Eligible for Use/Forgiveness
• New Options for Covered Periods
• Streamlined Forgiveness for Borrowers under $150,000
• Second Round PPP Loans
Our article “PPP Changes in the Consolidated Appropriations Act, 2021” provides explanation concerning each provision.
Extensions of Tax Credits
The CARES Act provided multiple tax credits, and the CAA extends many of them in response to the continued economic impacts of COVID-19. The two most notable extensions include a continuation of the dollar-for-dollar payroll tax credit for employers following the Families First Coronavirus Response Act (FFCRA) guidelines and the prolonged Employee Retention Credit (ERC).
The pandemic led to unforeseen economic consequences for families as schools discontinued in-person instruction and CDC guidelines required extended quarantines. The FFCRA provided stability to families by requiring small business owners to pay up to two weeks of sick leave to employees who were unable to work due to COVID-19 and up to 10 weeks of qualified family leave for parents and guardians who could not work due to a child at home without school or care options. Employers could receive a fully refundable tax credit equal to the wages paid through December 31, 2020. The CAA extends the credit provisions through March 31, 2021.
Due to added COVID-19 expenses and decreased operations in response to government mandated closures or capacity limits, many businesses faced decisions about whether to reduce payroll expenses. Through the CARES Act, the ERC, originally available for 2020 only, offset employers’ payroll tax liability to encourage organizations to maintain their staffing.
The CAA extends the ERC through July 1, 2021 and loosens some of the restrictions and qualifications to make the program more accessible. Most notably, the CAA allows taxpayers to claim the ERC and receive PPP loan funds. The only qualifier being that the wages utilized to calculate the ERC will not qualify for forgiveness under the PPP.
Other changes in the CAA to the ERC include the following:
- Qualified wage limits per quarter rather than in total: Employers can now claim credit for wages up to $10,000 per employee per quarter.
- Increase in percentage employers can claim: Employers may now claim 70% of qualified wages in the first two quarters of 2021 compared to the 50% allowed in 2020.
- Higher threshold for number of employees: The change in qualified wages that occurred after 100 employees does not kick in until the number of employees exceeds 500.
The over 5,500-page Consolidated Appropriations Act, 2021 contains a wide range of provisions to mitigate the negative economic impacts of the pandemic. Our team will continue to release content to help explain how the CAA can help you and your organization. If you have any questions, be sure to contact a Hantzmon Wiebel team member.
Disclaimer of Liability
Our firm provides the information in this article for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal or other competent advisors. Before making any decision or taking any action, you should consult a professional advisor who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this blog are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose.