Consolidated Appropriations Act 2021: COVID Phase 4 - Other Tax Provisions
December 29, 2020 Author: Matt Caras, CPA Compass Pointe CPAs
Due to the many impactful changes located within the Consolidated Appropriations Act, 2021 we felt it appropriate to break the changes into two, more manageable pieces. In this blog, we will cover the expanded payroll tax credits, extenders, stimulus payments, and other tax-related provisions contained within the Act. Please see our other blog for the PPP related provisions of this Act, including the second draw PPP loans.
Payroll Tax Credits
Employee Retention Credit (ERC)
The ERC was initially passed on March 27, 2020 and provides a refundable tax credit against certain employment taxes for qualified wages paid to employees after March 12, 2020. This credit was set to expire on December 31, 2020. However, it was extended through July 1, 2021 with this Act. Prior to this Act, this credit was unavailable to those businesses who received a PPP loan. This is no longer the case and is retroactive to when the ERC was initially passed. Employers who receive PPP loans may qualify for the ERC with respect to wages that are not paid for with forgiven PPP proceeds. Also, be mindful of the definition of an “eligible employer” as it relates to qualifying for this credit. On the surface, it may appear you qualify, but be mindful of the various qualifications.
For 2020, the credit is equal to 50% of up to $10,000 of qualified wages (including certain health plan costs) that an eligible employer pays to employees. Thus, the maximum credit is $5,000 per employee for 2020. For qualified wages paid January 1, 2021 through July 1, 2021 the credit rate is increased to 70% and is available per quarter. This increases the maximum credit to $7,000 per employee per quarter in 2021.
At the time of writing this blog, the IRS FAQs have not been updated for the changes within the Act. However, please visit https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act which goes into great detail on who are eligible employers, what are qualified wages, and how to claim the credit. We encourage you to reach out to your tax advisor with any additional questions on this credit.
Families First Coronavirus Response Act (FFCRA)
The FFCRA paid leave mandates were not extended beyond December 31, 2020. However, employers are able to voluntarily provide this leave through March 31, 2021 and still receive the credit. Please see our previous blog, COVID-19 for Businesses, which provides more details on this leave and the credit available.
The IRS FAQs on the FFCRA can be found here.
Business Meal Deduction
Currently, taxpayers are only able to deduct 50% of their business meals with customers. For 2021 and 2022, that deduction increases to 100% for food or beverages provided by restaurants.
The suspension of the 60% AGI limitation for cash giving to public charities was extended through 2021. Also, individual taxpayers who do not itemize are eligible to take a deduction on top of their standard deduction of up to $300 for cash giving to charities. In 2021, joint filers are eligible for up to $600.
Medical Expense Deduction
The floor for individual taxpayers has been permanently reduced to 7.5% of adjusted gross income (AGI). This was previously 10% of AGI.
Deferred Employee share of Social Security Tax
As previously discussed, employers were eligible to defer withholding the employee’s share of social security tax through December 31, 2020. The repayment of the social security tax was to begin January 1, 2021 and end by April 30, 2021. The repayment window has been extended from to December 31, 2021.
Work Opportunity Tax Credit
This credit was extended through 2025. Please visit the IRS website for more information on this credit.
Economic Impact Payments (Direct Payments)
The second round of direct payments will be going out to individuals. As of the writing of this blog, the House of Representatives has passed legislation to increase the payments as initially established by the Act, and it is set to go before the Senate. Currently, the payments are $600 for individuals with AGI of $75,000 and $1,200 for couples with AGI of $150,000. There are also payments of $600 for each dependent child. The payments begin to phase out for those above the $75,000 or $150,000 thresholds. Your tax preparer will want to know what stimulus money you received in 2020/2021 for your 2020 tax preparation.
Pandemic Unemployment Assistance
The Federal unemployment compensation has been extended through March 14, 2021. This provides unemployed individuals $300 per week of Federal unemployment benefits.
This is only a handful of the items located in the Act. If you have any questions about the above-mentioned items or the tax-related items of the Act, please contact us at Compass Pointe CPAs.
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