On Sunday, December 27, 2020, President Trump signed the Consolidated Appropriations Act, 2021. The bulk of the provisions within this $2.3 Trillion, 5,000 plus page package are part of an annual omnibus spending bill of approximately $1.4 trillion. The remaining estimated $900 Billion is designated for the second round of COVID stimulus, referred to as the “Coronavirus Response and Relief Supplemental Appropriations Act of 2021” (CRRSAA).
This legislation is a giant piece to unpack and will require further review. Before diving into the relevant details of the legislation, it is important to note a few items that were left out:
- While previous COVID relief suspended Required Minimum Distributions (RMDs) in 2020, there is no such relief in 2021, and you can expect RMDs as usual.
- No additional rollover relief for unwanted 2020 RMDs. Notice 2020-51 provided relief for rollovers through August 31, 2020. There was no additional reprieve added.
- While initial student loan relief provided in the CARES Act was extended through January 31, 2021, no additional student loan relief was granted under the CRRSAA.
A refundable tax credit of $600 will be issued for each eligible taxpayer and dependent under age 17. Parents will not receive stimulus for dependents 17 and over, as they are not considered qualifying children. Furthermore, dependents 17 and older will not receive a stimulus check. For example, a 19-year-old college student is claimed by their parents as a dependent. Neither the parents nor the student will receive a stimulus check.
The phaseout will be the same as the CARES Act. The Adjusted Gross Income (AGI) thresholds are:
- $75,000 for single filers
- $112,500 for heads of households
- $150,000 for married filing joint
The phaseout is $5 of credit for every $100 above the indicated AGI figures above.
Payroll Protection Program (PPP)
While there are many similarities to the original PPP, the CRRSAA introduces some important changes, most of which are retroactive:
- Expenses paid with PPP funds are now tax-deductible whether the loan is forgiven or not; this applies to all PPP loans.
- For all PPP loans, recipients may choose an 8 or 24 week covered period, no matter when they received their PPP funds.
- Eligible payroll costs are expanded to include group insurance benefits for life, disability, dental, and vision. This clarification will help many businesses in meeting the 60% payroll threshold for loan forgiveness.
- Four new categories of expenses are introduced to cover items specifically related to the additional expenditures or losses for coronavirus related items (operational expenditures, property damage costs, additional supplier costs, and employee protection expenditures). These expenses fall into the 40% non-payroll related expense category for loan forgiveness.
- A simplified forgiveness form was created for loans under $150,000. The bill specifically states the new form will not be longer than one page, and not require substantiating documentation when filed. The SBA will need to have the form available within 24 days of the bill being signed into law.
- A second round of PPP is being offered. This round is being referred to as PPP2 or second draw loans. To qualify, the business must have received PPP in the first round and spent all said funds. The window for businesses to apply for their first round of PPP will be reopened. Those who did not apply or who might have returned the funds will have the opportunity to re-apply. Changes to PPP2 from the CARES Act include:
- Reduction in employees for most businesses to 300 (previously 500).
- A business must have experienced more than a 25% decline in revenue in any one quarter in 2020 compared to the same quarter in 2019 (new requirement).
- Reduction in max PPP2 funds to $2 Million (previously max $10 Million).
Unemployment benefits are extended for an additional 11 weeks with a federal supplement of $300 per week ($600 with the CARES Act). The CRRSAA also extended the Pandemic Unemployment Assistance (PUA) Program which covers non-traditional workers not typically eligible for unemployment, such as self-employed individuals.
Employee Retention Credit
The Employee Retention Credit was expanded and improved and can now be taken through June 30, 2021. The total amount of eligible wages per employee increased from $10,000 for the year to $10,000 per quarter. The credit was also increased from 50% to 70% per eligible employee. The CRRSAA also provided less significant hurdles for businesses to qualify for the benefit by decreasing the year-over-year gross receipts decline from 50% to 20% and increasing the number of employees counted from 100 to 500.
This bill also contains retroactive provisions allowing employers who received PPP funds also to be able to utilize this credit for wages not covered by PPP. Also, group health plans can now be considered wages when paid to eligible employees even when no other wages are paid.
Above the line charitable deductions that were introduced by the CARES Act were expanded. For 2020, the $300 deduction is still available. However, the benefit was expanded in 2021 to remove the marriage penalty, allowing for joint filers to deduct $600 of cash contributions if they do not itemize their deductions.
The bill extends the ability to deduct 100% of cash contributions to qualified 501(c)3 organizations in 2021, removing the 60% AGI limitation set by the Tax Cuts and Jobs Act.
Please note this provision does not apply to cash contributions to donor-advised funds.
Business Meal Deduction
The bill provides for a 100% deduction for certain meal expenses for businesses in 2021 and 2022 provided by restaurants. The goal of this provision is to provide more stimulus to restaurants and is not retroactive to 2020. Expect additional guidance from the IRS on how this deduction will be implemented.
As discussed above, there is no additional reprieve for student loan payments at an individual level. However, the preferential treatment for student loans paid by employers (up to $5,250 per year) has been extended through 2025. Such payments are not included as a payroll expense and are not included as income to the employee, though it is still deductible by the employer.
Flexible Spending Accounts
There is additional relief for Flexible Spending Accounts (FSAs). This relief applies for both medical FSAs and Child Care FSAs. The relief is available in a few different ways. However, it is up to the employer to adopt how they will enact these available changes within their plans. The most generous option is to roll unused funds into 2021, and unused 2021 balances forward to 2022. Another option employers have permits a 12 month grace period in 2020 and/or 2021. Also, in 2021 employers may provide participants with the option to amend their contributions to the FSA plans.
The AGI limitation for Medical Expense Deductions has been permanently set to 7.5%.
Compardo, Wienstroer, Conrad & Janes will continue to analyze this legislation and provide updates relevant to our clients. Our staff of diverse professionals stays informed to help you make better financial decisions. We serve Family Office, Professional Athletes and Family CFO clients. You can visit our website here.
© 2021 Moneta Group Investment Advisors, LLC. All rights reserved. These materials were prepared for informational purposes only based on materials deemed reliable, but the accuracy of which has not been verified. Given the dynamic nature of the subject matter and the environment in which these materials were prepared, they are subject to change as additional legislation and government analysis come forth. This is not an offer to sell or buy securities, nor does it represent any specific recommendation. You should consult with an appropriately credentialed professional before making any financial, investment, tax or legal decision. These materials do not take into consideration your personal circumstances, financial or otherwise.