For Individuals

Most news headlines have highlighted the second round of direct payments. Specifically, under the new bill, taxpayers will receive $600 each ($1,200 for married couples filing jointly), plus an additional $600 per qualifying child. The payments begin phasing out at $75,000 of modified adjusted gross income ($150,000 for married couples filing jointly). Eligibility for the payments has been expanded for this round. The law also provides an additional $300 per week in unemployment benefits through March 14, 2021.

The bill also includes changes that could result in larger earned income tax credits and child tax credits and permanently sets the threshold for tax-deductible medical expenses at 7.5% of adjusted gross income. (The threshold had previously been scheduled to rise to 10% for 2021.)

The CARES Act provides a $300 tax deduction for cash contributions to qualified charitable organizations for nonitemizers for 2020. The new bill extends this deduction through 2021, and expands it to $600 for married filers for 2021 only.

For Businesses

One of the most important components of the new stimulus package for businesses is another round of funding for forgivable loans under the popular Paycheck Protection Program (PPP). The funding is available for both first-time borrowers and so-called “second draw” borrowers. The legislation provides for new Economic Injury Disaster Loan (EIDL) grants for businesses in low-income communities, too.

To receive a second PPP loan, a borrower must:

• Have no more than 300 employees,
• Have used (or have plans to use) the full amount of its first PPP loan, and
• Demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 compared to the same quarter in 2019.

PPP loans are limited to 2.5 times average monthly payroll costs in the year prior to the loan or the calendar year, up to $2 million. (Accommodation and food services businesses may receive loans up to 3.5 times average monthly payroll.)

The allowable uses for PPP funds have been expanded under the bill. In addition to eligible payroll costs, mortgage interest, rent and utility payments, borrowers can use the funds to pay for covered:

• Operating expenses,
• Supplier costs, and
• PPE and other costs related to worker protection and facility modifications.

The 60/40 cost allocation between payroll and nonpayroll costs remains a requirement to qualify for full forgiveness.

The new bill also clarifies the proper tax treatment for PPP loans, certain loan forgiveness and other financial assistance provided under COVID-19 legislation. For example, it confirms that:

• Businesses generally can deduct expenses paid for with forgiven PPP funds, and
• Forgiven PPP amounts aren’t included in gross income.

Additionally, the bill calls for a more simplified forgiveness application process for PPP loans of $150,000 or less as well as removes the requirement to reduce an entity’s eligible PPP forgiveness amount by any EIDL advance received.

For more details on how the new stimulus package impacts PPP read our latest blog: COVID Stimulus Package Brings New Round of PPP Funding.

The bill extends the retention tax credit for eligible employers that continue to pay employee wages during COVID-19-related closures or revenue reductions, as well as the tax credit for mandatory paid sick and family leave for qualifying COVID-19-related reasons. It also extends several popular tax breaks not related to the pandemic.

One last-minute addition to the financial relief package was a change in the rules for deducting business meals. Under the bill, business meals purchased from restaurants are 100% deductible for 2021 and 2022.

Stay tuned for more detailed information.

Contact us to help you take advantage of these new tax-saving and cash-flow-generating opportunities and assist as you plan your path forward.