Congress passed the COVID-19 Economic Relief Bill on December 17th 2020 in light of the ongoing coronavirus crisis. The law includes a variety of financial assistance for both citizens and small businesses. Because the new economic relief measures included such a vast number of items, it can be difficult for the everyday business owner to parse. According to Accounting Web, there are several major changes of which you should be aware.
Economic Stimulus Payments
Perhaps the most discussed provision in the Bill is the second round of stimulus checks. These checks, which are actually advance payments on tax credits, are $600 per qualifying individual (adult or child.) Payments begin to lower for individuals who have an adjusted gross income of more than $75,000 and couples filing jointly who have an AGI of $150,000 or more. Couples with an AGI of $174,000+ and individuals with an AGI of $124,500+ will not receive these funds.
Paycheck Protection Program
The Paycheck Protection Program (PPP) has been extended. PPP loans are still subject to forgiveness if certain conditions are met (read our article here for details.) Contrary to last year’s decision that expenses paid with PPP funds could not be deducted, under the new Bill these types of costs are now eligible.
Payroll taxes can continue to be deferred until Dec 31, 2021, extending the original deadline by eight months.
Employee Retention Credit
The Employee Retention Credit established by the CARES Act extends this credit and increases the maximum to $14,000 for the first two quarters of the year combined.
Family and Medical Leave Credit
The family and medical leave credits provided in the Families First Coronavirus Response Act have been extended through March 31, 2021, and will allow employers to claim tax credits for providing leave to employees affected by COVID-19.
Business Meal Expenses
The Bill increased the deductible amount of business meals from 50%-100% for 2021 to 2022.
Family Tax Credits
Taxpayers can now reference the earned income on their 2019 tax return when calculating the earned income tax credit and child tax credits for 2020.
Medical Expenses and Accounts
Previously, taxpayers could deduct unreimbursed medical expenses that exceeded 10% of the individual’s AGI. The threshold was “temporarily” lowered to 7.5%, but this change has now been made permanent.
Additionally, FSA-holders can roll over their balances from 2020-2021 and 2021-2022.
While the tuition and fees deduction has been repealed, Lifetime Learning Credit and American Opportunity Tax Credit ranges have been increased.
Charitable Donation Deductions
The Bill also established a deduction for monetary contributions to qualifying charities by non-itemizers. For more information, read our article here.
According to Accounting Web, several existing provisions were also given extensions in the bill, including but not limited to “five-year extensions for the Work Opportunity Tax Credit (WOTC), the tax exclusion for mortgage forgiveness and tax incentives for empowerment zones. Various other provisions were extended for one or two years.”