The latest round of COVID-19 relief was passed by Congress and signed into law by President Trump on December 27, 2020. The $2.3 trillion spending bill, named the Consolidated Appropriations Act, 2021 (CAA), contains several provisions for both individuals and businesses. This article will briefly summarize the highlights of both. First, let’s look at the help for individuals:
Direct Assistance for Lost Wages and Economic Stimulus
- Pandemic Unemployment Assistance payments of an additional $300 per week for those eligible to collect unemployment in their state. This extension applies through March 14, 2021.
- Stimulus checks of $600 per taxpayer ($1,200 for taxpayers married filing jointly) and an additional $600 per qualifying child. The payment phases out beginning at $75,000 of adjusted gross income ($150,000 for married-filing-jointly taxpayers).
- Employee portion of Medicare tax and Social Security tax withheld from paychecks may be deferred until December 31, 2021, and no penalties or interest will accrue until January 1, 2022.
- Educator expense deduction of $250 per year now includes expenses incurred for purchase of personal protection equipment with a teacher’s personal funds.
Income Tax Provisions
- Above-the-line $300 charitable deduction ($600 for taxpayers married filing jointly) is permitted for cash payments made to a public charity in 2021.
- 100% of adjusted gross income charitable limitation continues to apply for 2020 and 2021. This limit previously was 60% for cash contributions.
- Medical expense phase-out limit for claiming as itemized deductions is now permanently set at 7.5% of adjusted gross income.
- For businesses, 100% write off for business meals in 2021 and 2022 if food and beverage are provided by a restaurant and paid or incurred prior to Jan 1, 2023. This provision is specifically aimed at helping the restaurant industry, and has been deductible at only 50% for years.
Additional Business Highlights:
- Additional $3 billion provided to the Health and Human Services (HHS) Provider Relief Fund to assist health care providers in preparing for and responding to the pandemic, including reimbursement for lost revenues.
- Medicare physician fee schedule temporarily increased by 3.75% as another way to reimburse health care providers.
- Economic Injury Disaster Loan (EIDL) advance received by a small business that has a PPP loan is no longer a reduction to the forgiveness amount. The SBA’s EIDL program under COVID-19 has been extended through December 31, 2021. The program continues to offer the EIDL advance of up to $10,000 for businesses that submit an application for disaster assistance. The “advance” portion of the loan is a non-taxable grant that does not require repayment.
- Families First Coronavirus Response Act (FFCRA) tax credits for paid sick and family medical leave are extended through March 2021. The FFCRA provides refundable payroll tax credits for employers in order to assist with the cost of providing Coronavirus-related leave to their employees. It is important to note that the employer-required payments for employees who could not work due to COVID restrictions expired on December 31, 2020. Employers who paid sick benefits from January 1, 2021 to March 31, 2021 would receive a tax credit using the formulas provided in the original relief package.
Small Business (PPP) Loan Program Changes
The Paycheck Protection Program (PPP) is a loan program designed to provide a direct incentive for small businesses to keep their workers on the payroll. The Small Business Association (SBA) will forgive loans if all employee retention criteria are met and the funds are used for eligible expenses.
- Additional eligible expenses that qualify for forgiveness include covered operation expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.
- Borrowers may select the end of their covered period any time between 8-24 weeks from receipt of loan.
- Simplified loan forgiveness process for borrowers with less than $150,000 of loans.
- Deductions for qualified expenses paid by PPP loan proceeds were initially ruled as non-deductible by the IRS. Such deductions will now be permitted.
- Borrowers are permitted to amend their original application to request increased loan amounts due to changes in PPP loan rules, if the original loan amount was less than the amount that would have otherwise applied.
- PPP Second Draw Loans:
- Small businesses with less than 300 employees and a 25% or more drop in revenue (gross receipts for non-profits) are eligible for a second-round of PPP.
- Borrowers can elect to calculate the second-round loan based on 2.5x the average monthly payroll costs during any one year period prior to the date of the loan or the 2019 calendar year. Second draw borrowers will be asked to attest to proper use of the first loan.
Other Miscellaneous Provisions
- No more surprise medical bills. Prior to this legislation, surprise medical bills happened when an out-of-network medical provider unexpectedly got involved in a patient’s care and billed the patient using out-of-network rates. Starting in 2022, hospitals will be required to work with insurers to settle on a fair price, rather than cause patients to be subject to much higher out-of-network rates.
- Rental eviction relief. The bill sets aside $25 billion for rental assistance. A moratorium on rental evictions scheduled to end on December 31, 2020 is extended until the end of January 2021.
- COVID-19 vaccine assistance. The budget legislation also includes $20 billion for vaccine purchases, $9 billion for vaccine distribution, and $22 billion for COVID-19 testing and tracing programs.
This limited summary of changes included in the recently passed legislation is meant to be general and informative in nature. Our goal is to keep you apprised of the changes being made to save you from reading the 5,000+ pages of the new law. Over the coming weeks and months, we will be considering how these changes impact each of our clients’ financial plans and financial well-being.
Please contact your JFS Wealth Advisors team with any questions. As always, we deeply appreciate the trust and confidence that you place in us. We wish each of you a happy and healthy new year ahead.
As Wealth Management Strategist, Gary Dalessandro, MS, CPA/PFS, CFP®, provides integrated tax, financial planning, and estate planning advice for clients and assists lead advisors in developing appropriate strategies to help clients achieve their lifetime financial goals. If you have questions regarding the recent COVID relief package other financial planning topics, contact Gary at firstname.lastname@example.org.