The Consolidated Appropriations Act, 2021 (CAA) extends some key provisions of earlier legislation, including additional loans under a new Paycheck Protection Program and an additional $300/week unemployment compensation payment (because the previous $600/week allotment expired last July). It also extends a variety of tax provisions set to expire at the end of 2020, including an extension of the Work Opportunity Tax Credit through 2025.
Direct Stimulus Payments Coming
As of this writing, each American taxpayer will receive a direct payment of $600 (including $600 for children claimed as a dependent). This payment is a credit against 2020 taxes and phases out for taxpayers with adjusted gross income above $75,000 (single) and $150,000 (joint filers). Like the previous Economic Impact Payments, these advance payments will be based on your 2019 adjusted gross income.
As you’ve probably heard, the Democrats and President Trump would like to increase that amount to $2,000 per individual, but that measure would need to pass both houses of Congress.
Business Expenses Deductible Under the Paycheck Protection Program
The Act clarifies the treatment of business expenses that were later forgiven under the PPP. While the IRS has said such business expenses were not deductible, the CAA reverses that position, maintaining the original intent of the CARES Act. Taxpayers whose PPP loans are forgiven are allowed deductions for otherwise deductible expenses paid with the proceeds, and the tax basis and other attributes of the borrower’s assets won’t be reduced as a result of the forgiveness.
The provisions under the CARES Act to allow a charitable contribution deduction of 100% of AGI rather than 60% has been extended through the end of 2021, along with the ability for individual taxpayers who do not itemize to make an “above the line” deductible charitable contribution of up to $300 ($600 for married filers).
New: Business Meals Deduction
For 2021 and 2022, business meals provided by a restaurant can be deducted at the full amount including beverages. In general, the deduction for ordinary and necessary food and beverage expenses would be limited to 50%, but this provision provides a two-year exception. It includes not only meals eaten at a restaurant but also takeout and delivery. Remember that in order to be deductible, these expenses can’t be lavish or extravagant, one of your employees must be present when the meal is served, and the meal must include a current or prospective customer, client, supplier, employee, agent, partner, or professional adviser with whom you could reasonably expect to engage or deal with in your business.
Family Leave Provisions
The Families First Coronavirus Response Act (FFCRA) obligations were not extended in the CAA, though there are still provisions for a refundable payroll tax credit through March 2021 for employers who voluntarily offer paid sick and family leave. This means that when employees need to be away from work due to COVID-19 (either for their own illness, to care for a sick family member, or to comply with quarantine restrictions), the employer is no longer required to pay for those absences.
For those employers who want to voluntarily offer leave and claim the FFCRA tax credit, all requirements remain the same as before, including the required notice and maximum 80 hours of sick leave and 12 weeks for family leave per employee.
Employers who are already subject to the Family and Medical Leave Act (FMLA) can allow employees up to 12 weeks of unpaid leave, with the option for employees to utilize any employer-provided paid leave for that time off.
Some states such as Colorado and California have mandated paid sick leave, so employers should be sure to comply with any applicable state or local paid leave requirements.
We’ll continue to keep you updated with additional information.