Consolidated Appropriations Act 2021

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As expected in my December 16 blog, new legislation was signed on December 27 into law entitled the Consolidated Appropriations Act, 2021.

‍Stimulus Checks

The act includes additional stimulus payments of $600 per individual, including $600 for dependent children. The payments are credits against 2020 taxes, are nontaxable, and are phased-out for individuals with adjusted gross income exceeding $75,000 and $150,000 for joint filers. The IRS has stated that it intends to send out  payments until January 15, 2021. If payment is not received by then, taxpayers will most likely not be receiving the payment and instead should take a credit on their 2020 tax return if they qualify.

PPP Loans

The act makes expenses that were used to obtain forgiven PPP loans deductible. Meaning the forgiven loans are, in effect, tax free income. This applies to all PPP loans, including those already forgiven.

Also included in the act is an additional $284 billion in additional PPP loans. In order to qualify, the loan must be "necessary for the continued operations of the business", have less than 300 employees, and have had a reduction in gross receipts of at least 25% in any quarter in 2020 as compared to the same quarter in 2019. The amount of the loan is 2.5 times the monthly payroll (3.5 times payroll for the hospitality industry) and can be eligible for forgiveness if used on qualified expenses. Qualified expenses are the same as the first round of PPP loans, including the requirement to spend at least 60% on payroll, with additional expenses such as COVID related leasehold improvements and protective equipment. The SBA is required to come out with additional information on how to apply within 10 days of the law. The program will end March 31, 2021. If business owners think they will be eligible, they should begin compiling information to prove the 25% reduction in gross receipts such as bank records and financial statements.

Other Provisions

Other provisions include:

• Certain financial aid received by college students under the CARES Act are excluded from income.
• The employer credit for paid sick and family leave is extended to March 31, 2021.
• Employee retention tax credit is extended to June 30, 2021.
• Charitable contributions for non-itemizers in 2021 is $300 for individuals and $600 for joint returns. In addition, the 60% limitation on charitable deductions is increased to 100% for 2020.
• For all the foodies out there, qualifying business meals, including beverages, are fully deductible in 2021 and 2022 if spent at a restaurant.