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December 29: The Consolidated Appropriations Act 2021 – Coronavirus Economic Stimulus Package

The Consolidated Appropriations Act 2021 – Coronavirus Economic Stimulus Package

After a wild week, the president has signed the much-awaited economic stimulus package: The Consolidated Appropriations Act, 2021, or the Coronavirus Economic Stimulus Package, worth more than $900 billion in relief. While the media has focused on the $600 stimulus checks paid directly to individuals, the bill contains several other provisions important to our small business clients.

Stimulus Checks and Unemployment

The agreement includes $600 per person in direct payments to adults and children for taxpayers who fall below income thresholds. It extends unemployment benefits up to $300 per week through March 14, 2021. Contract workers are also eligible for extended unemployment benefits.

PPP Borrower Tax Relief

The Coronavirus Economic Stimulus Package allows for the deduction of costs paid for using PPP funds.  We’ve been preparing our clients for a potential tax bill related to the receipt of PPP funds. This excellent news results in PPP funds essentially not being taxable to borrowers upon forgiveness.

Simplified Forgiveness of PPP Loans

Borrowers who received less than $150,000 in PPP loans during the first round will have a simplified application. Your bank will circulate the new application when it is available.

Second Round of PPP Loans

Businesses with fewer than 300 employees could be eligible for a second PPP loan. To be eligible, your business must demonstrate at least 25% reduction in total revenue for any quarter in 2020 versus the same quarter in 2019. The loan amount would be 2.5 times the monthly average payroll costs (same calculation as the first round). 

The SBA has 10 days to sort out the details. We suspect you’ll hear from your bank when they’re ready to take applications for round two. (Note that there is money set aside specifically for employers with fewer than 10 employees, which is good news for most of our clients.) 

Employee Retention Tax Credit 

The new agreement allows a tax credit for taxpayers who received PPP funds. Most of our clients were not eligible for the credit since they had received PPP funds. However,  now they’ll be able to get a tax credit for wages paid to employees if their gross receipts are 20% less than prior year.  

Families First Coronavirus Response Act 

The agreement extends the tax credit portion of the Families First Coronavirus Response Act, which covers sick and FMLA leave for virus related reasons, through March of 2021. There is some debate regarding FFCRA provisions, which are set to expire on December 31, 2020. 

While the new bill doesn’t include an extension of FFCRA leave requirements, it allows covered employers that voluntarily provide emergency paid sick leave or emergency paid Family Medical Act leave to take the tax credit through March 31 of 2021. So, while FFCRA is not required, and the hours/balances have not reset, there are tax credits for those providing leave until the end of March. 

Additionally, employers with fewer than 500 employees will not have to provide paid leave under federal law as of January 1, 2021. Keep in mind, however, you may be required to provide paid leave under state or local laws. 

100% Deductibility of Business Meals

In an effort to support the restaurant industry, business owners are no longer being penalized for meals expenses.  Typically, meals are only 50% deductible, but the grant provides for full deductibility of meals provided by a restaurant in 2021 and 2022.

Other Provisions in the Coronavirus Economic Stimulus Package, 2021

Within the 5,000+ pages of the bill are other key provisions, including:

  • $20 billion in targeted EIDL grants for businesses hardest hit
  • EIDL advances now exempt from PPP forgiveness reduction and are also tax free and deductible

We understand 5,000+ pages leaves a lot to digest. So, we’ll continue to push out relevant information about provisions of the act as more details emerge. Visit https://skytalegroup.com/covid-19/ to stay informed.