What’s in the COVID Relief Bill?
On December 27, a new pandemic relief package— the Consolidated Appropriations Act of 2021 — was signed into law. Like the CARES Act that was passed last spring, this bill is designed to provide financial assistance for individuals and businesses that continue to be adversely affected by the coronavirus pandemic.
In addition, the legislation also provides funding for COVID-19 vaccine purchase and distribution. Following is an overview of the main provisions of the Act.
Economic Impact Payments and Jobless Aid
A second round of economic impact payments is being made directly to millions of American families. Qualifying individuals with adjusted gross income (AGI) under $75,000 will receive $600, while qualifying married couples with AGI under $150,000 will receive $1,200. In addition, qualifying families will receive $600 for each dependent child under age 17.
The payments will be reduced by $5 for each $100 that an individual’s or household’s AGI exceeds a certain level. Individuals whose 2019 AGI was between $75,000 and $87,000 and married couples whose 2019 AGI was between $150,000 and $174,000 will qualify for a reduced payment. Individuals and households with AGI above these levels won’t receive a payment.
In addition, jobless individuals will receive an extra $300 per week in federal unemployment benefits between December 26, 2020, and March 14, 2021. Gig workers and some other types of employees who usually don’t qualify for unemployment are now eligible for these benefits.
The legislation also extends the amount of time unemployed workers can claim benefits through state and federal programs to 50 weeks. And it provides an additional $100 per week in Pandemic Unemployment Assistance (PUA) for self-employed individuals.
Small Business Relief
The Act makes a new round of forgivable Paycheck Protection Program (PPP) loans available to businesses that meet the qualification criteria. This includes businesses that previously received PPP loans as well as those seeking their first PPP loan.
Businesses that previously received a PPP loan can apply for a new PPP loan of up to $2 million if they meet specific criteria. First, they must have 300 or fewer employees (per location). In addition, they must have already used or plan to use the full amount of their first PPP loan. And they must be able to show a 25% decline in gross revenue in any quarter last year compared to the same quarter in 2019.
Meanwhile, businesses that did not previously receive a PPP loan can now apply for a loan if they meet specific criteria. First, they must have 500 or fewer employees and be eligible for other SBA 7(a) loans. In addition, they must be a sole proprietor, independent contractor or self‐employed. Non-profits, including churches, are also eligible, as are accommodation and food service operations with fewer than 300 employees at each location.
Note that businesses do not have to show a decline in revenue if they did not previously receive a PPP loan.
In addition to payroll, rent, mortgage interest and utilities, the Act expands the list of covered costs that are potentially forgivable under PPP loans to include the following:
- Worker protection and facility modification expenses, including personal protective equipment.
- Payments for goods that were essential to business operations when the payments were made.
- Operating costs including software, accounting and cloud computing.
- Costs incurred during 2020 related to property damage, vandalism and looting that were not covered by insurance.
At least 60% of PPP loan proceeds must be spent on payroll over an 8- or 24-week period. PPP loan amounts are limited to 2.5 times the business’ average monthly payroll up to $2 million (down from $10 million during the first round of PPP loans). This is increased to 3.5 times average monthly payroll for hotels and restaurants.
The Act will introduce a simplified loan forgiveness application for loan amounts up to $150,000. Also, forgiven PPP loans and EIDL loans can be excluded from income and expenses are deductible.
Tax Relief Provisions
The Act contains a number of tax relief provisions, including the following:
- Student financial aid under the CARES Act is excluded from income.
- The employer credit for paid sick and family leave is extended until March 31, 2021.
- The employee retention tax credit is extended until June 30, 2021.
- Taxpayers claiming the earned income credit or child tax credit can use 2019 income instead of 2020 income if this results in a higher credit.
- The payback period for deferred payroll taxes is extended to December 31, 2021.
- The CARES Act provision that allows for an above-the-line $300 charitable deduction and 100% of AGI limitation is extended to December 31, 2021.
- The 7.5% floor on deductions for medical expenses is now permanent (it won’t revert back to 10%).
- Businesses may deduct 100% of business meals at restaurants (for tax years 2021 and 2022).
Please contact our office if you have more questions about the Consolidated Appropriations Act or would like to discuss your situation in more detail.