Late Monday night, Congress passed a $900 billion Coronavirus relief bill. The President is expected to sign it once it reaches his desk. This bill is massive coming in at 5,593 pages. Following is a quick summary of the items most pertinent to our clients.
PPP expense deductibility. Of primary concern to business clients is the relief that arrived in the form of PPP expense deductibility. You may recall the original intent of Congress under the Coronavirus Aid, Relief, and Economic Security (CARES) Act was to have the receipt of PPP money be tax-free to borrowers. The IRS then stepped in and reminded everyone that this could not be the case based on current law. This bill fixes the IRS stance by allowing PPP expenses used to qualify for loan forgiveness to be fully deductible.
Second round of PPP loans. Under this new program, eligible businesses include those with less than 300 employees who suffered a decline in revenue of 25% or more in any calendar quarter in 2020 when compared to that same quarter in 2019. Just like under CARES, the loan is based on 2.5 times average monthly payroll. For businesses in the accommodation and food service business, the loan is increased to 3.5 times. Loans under this new program are capped at $2 million. In addition, loans are available to first time borrowers as well as previous recipients of PPP funds.
Simplified forgiveness application for PPP loans of $150,000 or less. This new application due from the SBA within 24 days of the bill’s enactment will be a simple one-page form. In addition, the supporting documentation to prove eligibility for forgiveness will need to be retained but not submitted with the application. While we are still reviewing the bill, it does not appear to include any simplification in the forgiveness application for those over $150,000.
Economic Injury Disaster Loan (EIDL) advance. This advance is no longer required to reduce a borrower’s amount eligible for PPP forgiveness. In addition, EIDL advances are not considered taxable income.
Extended Families First Coronavirus Response Act (FFCRA) benefits. Sick leave benefits for employees with COVID-19 related leave are extended through March 31, 2021. These FMLA benefits funded by employer payroll tax relief were due to expire on December 31, 2020.
Stimulus checks. A $600 payment is available to those making up to $75,000 per year, with the amount doubled for a couple filing jointly. In addition, each dependent child qualifies the parents for an additional $600.
Educator expenses. Personal protective equipment (PPE) and other supplies to protect against COVID-19 now qualify for the above-the-line $250 educator expense deduction.
Charitable contributions. The increased limits on deductions for charitable contributions enacted for 2020 are extended to 2021. These include an above-the-line deduction of $300 and an increase in the contribution base to 100% of adjusted gross income (AGI).
Medical deductions. The 7.5% of AGI floor on medical expenses for taxpayers who itemize was made permanent.
As mentioned, this is a snapshot of some of the most relevant items in the bill. As we continue to digest the law, we will keep you informed. In the meantime, please contact your DunlapSLK team member with any questions you may have.