The US Senate and House of Representatives passed the $900 billion COVID-19 Relief Bill on Monday, December 21, 2020 and President Trump signed it into law on Sunday, December 27. The bill provides several provisions for individuals and families, such as one-time checks and extended unemployment benefits, as well as several clarifications and updated provisions that are important for your business’s strategic planning – all of which we outline below. We will update you as more information that is specific to your family and your business becomes available.
For You and Your Family
- New Stimulus Checks: The legislation provides individuals who make up to $75,000 with a one-time check of $600, and $1,200 for married couples who make up to $150,000. Further, each dependent child will also be eligible for a one-time check of $600.
- Extension of Unemployment Benefits: Workers receiving unemployment benefits will receive a weekly supplement of $300 from December 26, 2020 through March 14, 2021. The legislation also extends the Pandemic Unemployment Assistance (PUA) program, which provides coverage to the self-employed, gig workers, and others in nontraditional jobs, as well as the Pandemic Emergency Unemployment Compensation (PUEC) program, which provides additional weeks of federal aid to individuals who exhaust their state benefits.
- Extension of Rental Assistance: The legislation sets aside $25 billion to help individuals and families pay for rent, utilities, and other expenses. The eviction moratorium has also been extended through January 31, 2021.
- Vaccine and Healthcare Funding: Since the economy cannot function if the virus is spreading unchecked, we are pleased that this legislation provides $9 billion for the distribution of the COVID-19 vaccine, $22 billion to help states with testing and tracing, and $4.25 billion to aid with substance abuse and mental health.
- Education and Childcare: One of the biggest effects of the stay-at-home orders has been the burden of education and childcare on working parents. The economy cannot get back to functioning properly without help for these overburdened families. Fortunately, this legislation sets aside $82 billion to provide relief to public and private schools, as well as colleges and universities. The bill also provides $10.25 billion for assistance to families and childcare providers.
- Extension of Enhanced Charitable Contribution Limit: For those who are fortunate enough to be able to help others, the legislation suspends the 60% Adjusted Gross Income (AGI) limitation on cash contributions to charities. Therefore, individuals and families may now deduct 100% of these contributions in 2020 and 2021, potentially allowing them to greatly reduce their tax liability in both years.
For Your Business
- PPP Loan Expenses Are Eligible for Tax Deductions: One of the most discussed areas of the CARES Act dealt with the deductibility of expenses paid for with funds from a PPP Loan. In the original legislation, Congress did not give specific guidance on how to treat the expenses and the IRS subsequently ruled that expenses paid for by the PPP Loan funds were not deductible, which would have created substantial increases in taxes for small business owners, many of whom already have reduced cash flow. Fortunately, the COVID-19 Relief Bill addresses this issue and clarifies that PPP Loan expenses are eligible for tax deductions. However, we still encourage every business owner to consult with their accountant and discuss how these rules affect you specifically.
- Net Operating Loss (NOL) and Excess Business Loss (EBL) Carrybacks: With the clarification that PPP Loan expenses are eligible for tax deductions, it becomes more important to discuss the carryback option with your accountant. Businesses that have struggled in 2020 can use the PPP Loan expenses to potentially increase their losses, thus allowing them to reduce or eliminate net income in prior years, which may lead to a refund when you file your 2020 taxes.
- Simplified Forgiveness for Loans Under $150,000: Congress has instructed the SBA to create a one-page application that would allow borrowers to apply for forgiveness by stating how many employees their PPP Loan allowed them to retain, the estimated payroll costs paid by PPP Loan funds, and the total PPP Loan amount. The SBA may not require additional material unless necessary to substantiate revenue loss or regulatory requirements. Please remember that PPP Loan borrowers should keep their employment records for at least 4 years and other PPP Loan records for at least 3 years.
- Repeal of EIDL Advance Deduction: The new bill removes the requirement to deduct the amount of any EIDL Advance from the total amount of your PPP Loan when applying for forgiveness.
- Creates a Second Round of PPP Loan Funding: The bill provides more than $284 billion for the SBA to make additional PPP Loans. If you have already taken a loan but require additional funding, you may apply for a second PPP Loan if you meet these criteria:
- Have 300 or less employees;
- Have used the full amount of your PPP Loan funds; and
- Have a 25% gross revenue decline in any 2020 quarter compared to the same quarter in 2019.
If you are applying for a PPP Loan for the first time, you must meet the following criteria:
- Have 500 or less employees and are eligible for SBA 7(a) loans;
- Are a sole proprietor, independent contractor, or eligible self-employed individual;
- Are a non-profit, including churches; or
- Are a lodging or food service company with less than 300 employees per physical location.
Finally, if you returned all or a portion of your first PPP Loan funds, you can reapply for the maximum amount available to your business.
- Updated Expenses Eligible for Forgiveness: In addition to payroll, utility, mortgage interest, and rent, the second round of PPP Loan funds may also be forgivable if spent on the following:
- Certain worker protection and facility modification to comply with health and safety guidelines;
- Purchases from suppliers for essential goods related to contracts or orders;
- Certain operating costs, such as cloud computing services or accounting; and/or
- Certain costs related to 2020 public disturbances that were not covered by insurance.
However, keep in mind that funds will still need to be spent over either an 8- or 24-week period (at the borrower’s discretion) and at least 60% of the funds need to be spent on payroll costs.
- Updated PPP Loan Calculation for Lodging and Food Service Companies: For companies that fall under NAICS code 72, you will now be able to calculate your maximum PPP Loan amount by multiplying your monthly average payroll costs by 3.5 (as opposed to 2.5 for everyone else). Therefore, if your restaurant had an average monthly payroll or $50,000, you will now be able to apply for a loan of $175,000. Remember that the maximum loan for any single borrower under this round is capped at $2 million (as opposed to $10 million under the first round).
- Increased Business Expense Deduction for Meals: The new legislation allows your business to take a 100% expense deduction for business meals in 2021 or 2022.
- Enhancement of the Low-Income House Tax Credit (LIHTC): The new legislation establishes a 4% credit rate floor, which should help to increase affordable housing construction and provide additional certainty to new and ongoing projects.
- Expansion and Extension of the Employee Retention Tax Credit: As part of the original CARES Act, this provision allows employers to take a tax credit for certain wages paid in 2020. With the passage of this legislation, this tax credit has been expanded and extended.
We will continue to update you as more information that is specific to your family or your business becomes available! As always, please don’t hesitate to reach out if you would like to discuss any of the specifics around the new bill.