Article Highlights Additional 2020 Recovery Rebates Paycheck Protection Program (PPP) Loans & Small Business Support Clarification of Tax Treatment of Covered Loan Forgiveness Expenses Business Meals Educator Expense Unemployment Assistance Earned Income Tax Credit (EITC) & Child Tax Credit (CTC) Cash Charitable Contributions for Non-Itemizers Cash Charitable Contributions for Itemizers Flexible Spending Arrangements Carryover Reduction in Medical Deduction AGI Floor Volunteer Firefighters and Emergency Medical Responders Benefits Education Credits Phaseouts Consolidated Discharge of Qualified Principal Residence Indebtedness Employer-Provided Educational Assistance Mortgage Insurance Premiums Nonbusiness Energy Credit 2-Wheeled Plug-In Electric Vehicle Credit Solar (REEP) Tax Credit Phaseout After several months of the Republicans and Democrats not being able to agree on additional COVID-related tax relief and other matters, as 2020 was coming to an end, horses were traded, and deals were made so that Congress could put together the much-needed legislation. The result is a nearly 5,600-page omnibus bill, the Consolidated Appropriations Act, 2021, Included in that legislation are the “COVID-Related Tax Relief Act of 2020” (COVIDTRA) and the “Taxpayer Certainty and Disaster Tax Relief Act of 2020”. The bill was signed by the President on December 27. This article provides an overview of the many tax provisions included in the legislation, including the 2nd round of economic impact payments, another round of targeted PPP loans for businesses, favorable tax treatment of expenses paid with forgiven loan proceeds, temporary expanded deduction for business meals, and modifications to charitable contributions—along with an excess of 30 new, altered, and extended tax provisions. Additional 2020 Recovery Rebates An additional round of economic impact payments (EIPs) is included in the legislation but the amount is substantially less than the first round, which was $1,200 per eligible adult and $500 per dependent child under age 17. This new round will be $600 per eligible adult and $600 per dependent child under 17. Also, eligible this time are the so-called mixed-status households, for example where one of the spouses is a noncitizen, which were previously excluded from receiving payments. Maximum Payment Amounts: Each eligible adult: $600 Married couple (both eligible) filing jointly: $1,200 Each dependent child under age 17: $600 Payment Phaseout – The payment is phased out by 5% of the taxpayer’s 2019 AGI that exceeds the filing status threshold. CREDIT PHASEOUT THRESHOLD Filing Status Threshold Unmarried Taxpayers (as well as Married Filing Separately) $75,000 Head of Household $112,500 Married Taxpayers Filing Joint & SS $150,000 Payment Due Date - Although the Act includes a January 15, 2021 deadline for advance payments to be made, President Trump’s delay in signing the bill may delay the payments. No Social Security Number - In general, taxpayers without an eligible Social Security number are not eligible for the payment. However, married taxpayers filing jointly, and otherwise eligible, where one spouse has a Social Security Number and one spouse does not are eligible for a payment of $600, in addition to $600 per child under age 17 with a Social Security Number. Deceased Taxpayers – There was considerable confusion related to the first round when the IRS issued EIPs to deceased individuals. This time around they have specified that anyone that was deceased before January 1, 2020 is not eligible for an EIP. The payments will be treated as a refundable 2020 tax credit and reconciled to the correct amount on the 2020 return. Any excess payment will not be required to be repaid and if the payment was less than qualified for, the difference will be paid as a refundable credit when the 2020 return is filed. Paycheck Protection Program (PPP) Loans & Small Business Support The legislation includes over $300 billion for first and second forgivable PPP loans. Unlike the prior loan program, this round will truly be limited to small businesses that incurred a loss of revenue. Eligibility is limited to: Businesses with 300 or fewer employees that have sustained a 25% revenue loss in any quarter of 2020 as compared with the same period in 2019. Small 501(c)(6) organizations that are not lobbying organizations and that have 150 employees or fewer, such as local chambers of commerce, economic development organizations, and tourism offices. Certain 501(c)(6) nonprofits and Destination Marketing Organizations with 300 or fewer employees that do not receive more than 15 percent of their revenue from lobbying. Local newspapers and T.V. and radio stations previously made ineligible by their affiliation with other stations. Forgivable Expenses – will be expanded to include covered (COVIDTRA Sec 304): Payroll costs – Including additional group insurance payments, including vision, dental, disability and life insurance. Operational Costs Property Damage Costs Supplier costs on existing contracts and purchase orders, including the cost for perishable goods at any time. Investments in facility modifications and personal protective equipment needed to operate safely and technology operations expenditures. The term ‘covered supplier cost’ - Means an expenditure made by an entity to a supplier of goods for the supply of goods that -• Are essential to the operations of the entity at the time at which the expenditure is made; and• Is made pursuant to a contract, order, or purchase order -o In effect at any time before the covered period oro With respect to perishable goods. The term ‘covered worker protection expenditure’— Means an operating or a capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by Federal, State and local governments during the period beginning on March 1, 2020 and ending the date on which, the national emergency related to COVID-19 declared by the President expires. NOTE: The legislation includes a long list of examples of what does and does not apply. The term ‘covered operations expenditure’ - Means a payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses. The term ‘covered property damage cost’ - means a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation. Loan Size - Establishes a maximum loan size of 2.5 times the average monthly payroll costs, up to $2 million. Allows small businesses assigned to the industry NAICS code 72 (Accommodation and Food Services) to receive PPP second draw loans equal to 3.5 times their average monthly payroll costs in order to help these businesses combat onerous State and local restrictions. Maintains existing expansions in eligibility for businesses assigned to the industry NAICS code 72 (Accommodation and Food Services). Loan Forgiveness – Full loan forgiveness is available if the borrower spends at least 60% of the second draw on payroll costs over either an 8-week or 24-week period selected by the borrower. Simplified Loan Forgiveness - The loan forgiveness process is simplified for borrowers with PPP loans of $150,000 or less. (This means another version of the SBA’s loan forgiveness application form will be forthcoming.) Churches and Religious Organizations – Are eligible for loans and prevents future administrations from making them ineligible. Planned Parenthood – Is ineligible Set-Asides - $41 billion is set aside to ensure that smaller borrowers and under-served communities get the help they need, such as: Small businesses with 10 or fewer employees, Small community lenders, Independent live venue operators, including eligible independent movie theaters and museums, affected by COVID-19 stay-at-home orders. Clarification of Tax Treatment of Covered Loan Forgiveness Expenses The CARES Act provides that a recipient of a PPP loan may use the loan proceeds to pay payroll costs, certain employee benefits relating to healthcare, interest on mortgage obligations, rent, utilities, and interest on any other existing debt obligations. If a PPP loan recipient uses their PPP loan to pay those costs, they can have their loan forgiven in an amount equal to those costs. PPP loan forgiveness doesn't give rise to taxable income and the Code generally doesn't allow a taxpayer to deduct expenses that are paid with tax exempt income. The IRS had issued a ruling essentially saying that since businesses aren’t taxed on the proceeds of a forgiven PPP loan, the expenses aren’t deductible. However, members of Congress have been saying all along that was not the Congressional intent.