Consolidated Appropriations Act 2021 – Individual Provisions

On Sunday, December 27, 2020, the President signed into law one of the longest bills in US history. This bill, the Consolidated Appropriations Act 2021, is a sprawling 5,593 pages and contains a $900 billion relief package for aid related to the COIVD19 pandemic as well as a $1.4 trillion in annual funding for the federal government in the upcoming year.

Individual Economic Stimulus Payments

Eligible individuals are provided a refundable tax credit of:

  • $600 per taxpayer ($1,200 for married filing jointly)*
  • An additional $600 per qualifying child [dependent adults ineligible]

The credit is subject to the same income thresholds for eligibility as the first stimulus payment, but is based on 2019 income. If the credit amount on an individual’s 2020 tax return exceeds the amount of the advanced payment based on 2019 income, taxpayers will receive the difference as a refundable tax credit. The credit amount is reduced by 5% of the taxpayer’s adjusted gross income (AGI) in excess of:

  • $150,000 for a joint return
  • $112,500 for head of household
  • $75,000 for all other taxpayers

*There is pending legislation that may increase the amount of the second round of economic stimulus payments to $1,200 per individual ($2,400 for an eligible married filing joint couple). 

Unemployment Payments and New Unemployment Program

Pandemic Unemployment Assistance (PUA): The Consolidated Appropriations Act of 2021 extends the  duration of Pandemic Unemployment Assistance to 50 weeks (previously 39 weeks) for those who don’t qualify for regular compensation or extended benefits under State or Federal law or PEUC (see below).

Federal Pandemic Unemployment Compensation (FPUC): The Consolidated Appropriations Act of 2021 restores the Federal Pandemic Unemployment Compensation (FPUC) supplement to state unemployment benefits at  $300 per week (reduced from the federal supplement of $600 per week under the Section 2104 of the CARES Act that ended July 31, 2020 ). This federal supplement applies to weeks of unemployment after December 26, 2020 through March 14,2021. 

Pandemic Emergency Unemployment Compensation (PEUC): Pandemic Emergency Unemployment Compensation has been extended to March 14, 2021 and allows individuals receiving benefits as of March 14, 2021 to continue through April 5, 2021, as long as that individual has not reached the maximum number of weeks. The number of weeks of benefits an individual may claim through the PEUC program has been increased from 13to 24.

Mixed Earner Unemployment Compensation: A new unemployment program provides an additional $100 per week to “mixed earners”, those that have both wage (W-2) and self-employment (i.e. 1099) income and earned at least $5,000 in 2019 and

Individual Income Tax Changes

Decrease to the Medical Deduction Floor. The Consolidated Appropriations Act of 2021 permanently reduces the medical deduction floor for years beginning after December 31, 2020 from 10% to 7.5%. 

Extension of Charitable Contribution Deduction for Non-Itemizers. Taxpayers who do not elect to itemize deductions for any tax year beginning in 2021 can deduct up to $300 ($600 if married filing joint) in cash contributions to eligible not-for-profit organizations.

Changes to the Child Tax Credit and Earned Income Credit. Taxpayers may elect to substitute the earned income for the preceding tax year, if that is greater that the taxpayer’s earned income for 2020.

As always, if you have questions about how this bill impacts you, please contact our office.

CARES Act Part 1 – Business Provisions

On Friday, March 27th, 2020 the President signed into law the CARES Act. This legislation contained very significant tax law changes, the majority of which are temporary and will only be relevant for the 2020 calendar year. We’ve spent the last five days digging through this 880 page legislation to highlight the most relevant changes for you. 

Below is a summary of these provisions, as they relate to businesses:

Paycheck Protection Program (PPP)

PPP loans are available to small business owners (with under 500 employees) or self-employed individuals (sole proprietorships or independent contractors), intended to be only used for the following operating costs:

  1. Payroll costs (including payments to contractors)
  2. Interest on mortgage obligations
  3. Rent
  4. Utilities
  5. Interest on other debt obligations incurred before the PPP

Eligible entities can borrow up to the lesser of $10 million or 2.5 times the average monthly payroll for the 1-year period before loan application, of which a portion can be forgiven subject to the provisions of the CARES Act. The amount of forgiveness is based on the total of costs 1 to 4 above over the 8-week period after loan grant, subject to reduction based on number of employees laid off and employee pay cuts implemented.  No collaterals or personal guarantees are required for application. PPP loans are expected to be made available through all SBA-approved lenders soon and you’ll have until June 30, 2020 to apply.

These loans are best suited for businesses that intend to bring back employees that have been laid off or furloughed, or employers who need additional capital to retain their existing workforce. 

SBA Loan Debt Relief

The SBA will pay all principal, interest and fees on existing 7(a) SBA loans for six months (disaster loans, PPP loans, 504 loans, and microloans are not eligible).

Economic Injury Disaster Loan (EIDL) and Grants

Small businesses and self-employed individuals can also apply for EIDLs, especially now with the CARES Act providing waivers for some stricter requirements (no available credit elsewhere and must have been in business for at least 1 year).  You can borrow up to $2 million and would just have to provide proof of economic injury for the application. Unlike the PPP loan, EIDL provides more leeway in terms of the type of expenses it can be used for. As a working capital loan, you can use the proceeds to pay for all operational costs, as well as any outstanding debts obligations you were unable to meet due to the disaster.

The CARES Act also allows for a $10,000 emergency grant advance that you can receive within 3 days of an EIDL application. And the kicker? You don’t have to pay any of it back, regardless of whether your EIDL was approved or not.

EIDLs are available until December 31, 2020, directly through the SBA website.

Employee Retention Tax Credit (ERTC)

This provision would allow employers to claim a refundable payroll tax credit equal to 50 percent of a maximum of $10,000 per employee of qualified wages paid (i.e. a maximum credit of $5,000 per employee) from March 13, 2020 to December 31, 2020. The credit is restricted to employers who see a full or partial suspension of operations due to a shutdown order or who see gross receipts decline by more than 50 percent relative to the same quarter the previous year. For employers with more than 100 full-time employees, the credit is restricted to wages paid to employees not providing service due to COVID-19. For employers with fewer than 100 full-time employees, it is applicable to all wages. 

This credit is not available to businesses who receive small business interruption loans and is subject to recapture. 

Payroll Tax Payment Deferral
The CARES Act provides for the deferral of paying certain employer payroll taxes through the end of 2020. Applicable payroll taxes include (1) 50% of the self-employment taxes, and (2) 100% of the employer portion of FICA taxes. Payments for the deferred payroll taxes are expected to be due in two equal installments, with one-half paid by December 31, 2021, and the other by December 31, 2022.
It is important to note that the above provisions are not available for any businesses that take advantage of the loan forgiveness program of the PPP.

Qualified Improvement Property

This provision would correct an error in the 2017 Tax Cuts and Jobs Act preventing businesses, particularly in the hospitality industry, from writing off facility improvement costs immediately rather than over 39 years. This change is intended to allow businesses to amend prior year returns to provide liquidity during the outbreak and to correct the technical issue.

Net Operating Losses (NOLs)

The CARES Act allows for a net operating loss carry-back for losses arising in taxable years beginning after Dec. 31, 2017, and before Jan. 1, 2021 to offset income in the preceding five (5) years. 

Should I take the PPP, EIDL, or the payroll tax credits?

Finding out the best program to take advantage of ultimately requires a separate evaluation for each individual business, considering industrial, operational, and financial requirements. We at Launch Consulting are always here to help – whether with assessing which loans or credit to take, or even with applying for the loans. Please feel free to reach out if you need assistance.

Looking for more information? Here’s a link to the Senate Committee on Small Business & Entrepreneurship’s Guide for Small Business Owners.