Dear Clients –
As many of you are aware, the President signed the Consolidated Appropriations Act 2021 which includes COVID-related Tax Relief Act of 2020. You can read the entire act here. We are going to focus on the COVID-related portion. We attended a webinar on the new Act and are using some of their presentation slides to provide information. This is a summary list of the changes.
PERSONAL
- Recovery Rebate: There will be another $600 per person and $600 per qualifying dependent (with SSN). These payments have started.
- Earned Income Credit: When preparing personal taxes, if your personal income from 2020 is less than 2019, we will have to do a comparison to see if you qualify to receive the same amount of Earned Income Credit that you received in 2019*
- Educator Expenses: Educators can include the cost of personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID-19 are eligible expenses if paid or incurred after 3/12/2020
- AGI Limit for Charitable Deduction: generally limited to 50% of AGI, cash contributions paid in 2020 and 2021 are now subject to 100% of AGI limit.
BUSINESS – Highlights. You can read a more detailed summary here
- PPP loan forgiveness:
- There will be new streamlined applications for forgiveness for PPP loans under $150000. We will work on PPP loan forgiveness applications starting in February *
- Expenses paid with PPP monies are now allowable deductions. This will make any estimated taxes decrease.*
- The EIDL grant will NOT be excluded from forgiveness. Previously if you had received the EIDL and the PPP, then the forgiveness was reduced by the amount of the grant. *
- For partnerships and SCorporations, the amount excluded will be treated as tax-exempt income and will increase the basis*
- Unless forgiveness is needed to apply for second draw, we will not be processing forgiveness applications until February*
- The uses eligible for forgiveness have been expanded. (guidelines attached) *
- Self Employed Tax Credits: extends the mandate and refundable tax credit period to 3/31/2021*
- Paid sick and family leave credits: extends the mandate and refundable tax credit period to 3/31/2021*
- Tuition and fees deduction is eliminated in 2021
- Lifetime learning credit phase out is increased
- Employee Retention Credit: Previously this credit was not allowed if you received the PPP loan
- PPP loan recipients can use the credit for wages not paid with the forgiven PPP loan proceeds. For example – if you had eligible wages in one period before or after using the PPP, those would be eligible for the ERC.*
- Group health plan expenses are considered qualified wages even if no other wages paid to employee*
- Credit can be applied to 4th quarter 941 report*
- The credit availability is extended to wages paid thru 6/30/21. The following changes apply to quarters from 1/1/21 – 6/30/21:
- Credit rate increases from 50% to 70%*
- Maximum creditable wages increases to 10,000 per employee quarter*
- Qualifying gross receipts decline from prior year quarter reduced to 20% instead 50%*
- Food and beverage expenses: starting in 2021 can be deducted 100%. Same rules apply for deduction.
- PPP new loans: Eligible applicants that never obtained a PPP loan can apply. Some businesses that have already obtained a PPP loan can apply for a PPP second draw.* We are waiting on final guidance on application details.