With its $900 billion price tag, the second federal stimulus bill includes a multitude of benefits for businesses – so many we couldn’t fit them in one article.
Our first article on the bill focused on the new Paycheck Protection Programs rules and additional allocation (you can read it here if you missed it) but there are other provisions businesses should learn about, including the extension and expansion of the Employee Retention Credit and Families First Coronavirus Response Credit.
Read on below for more details on both credits along with other new and extended tax provisions:
Employee Retention Credit
The ERC, introduced under the CARES Act, is a refundable tax credit equal to 50% of up to $10,000 in qualified wages (i.e., a total of $5,000 per employee) paid by an eligible employer whose operations were suspended due to a COVID-19-related governmental order or whose gross receipts for any 2020 calendar quarter were less than 50% of its gross receipts for the same quarter in 2019.
The bill makes the following changes to the ERC, which will apply from January 1 to June 30, 2021:
- The credit rate is increased from 50% to 70% of qualified wages and the limit on per-employee wages is increased from $10,000 for the year to $10,000 per quarter.
- The gross receipts eligibility threshold for employers is reduced from a 50% decline to a 20% decline in gross receipts for the same calendar quarter in 2019, a safe harbor is provided allowing employers to use prior quarter gross receipts to determine eligibility and the ERC is available to employers that were not in existence during any quarter in 2019. The 100-employee threshold for determining “qualified wages” based on all wages is increased to 500 or fewer employees.
- The credit is available to certain government instrumentalities.
- The bill clarifies the determination of gross receipts for certain tax-exempt organizations and that group health plan expenses can be considered qualified wages even when no wages are paid to the employee.
- New, expansive provisions regarding advance payments of the ERC to small employers are included, such as special rules for seasonal employers and employers that were not in existence in 2019. The bill also provides reconciliation rules and provides that excess advance payments of the credit during a calendar quarter will be subject to tax that is the amount of the excess.
- Treasury and the SBA will issue guidance providing that payroll costs paid during the PPP covered period can be treated as qualified wages to the extent that such wages were not paid from the proceeds of a forgiven PPP loan. Further, the bill strikes the limitation that qualified wages paid or incurred by an eligible employer with respect to an employee may not exceed the amount that employee would have been paid for working during the 30 days immediately preceding that period (which, for example, allows employers to take the ERC for bonuses paid to essential workers).
The bill makes three retroactive changes that are effective as if they were included the CARES Act. Employers that received PPP loans may still qualify for the ERC with respect to wages that are not paid for with proceeds from a forgiven PPP loan. The bill also clarifies how tax-exempt organizations determine “gross receipts” and that group health care expenses can be considered “qualified wages” even when no other wages are paid to the employee.
Families First Coronavirus Response Credit
The FFCRA paid emergency sick and child-care leave and related tax credits are extended through March 31, 2021 on a voluntary basis. In other words, FFCRA leave is no longer mandatory, but employers that provide FFCRA leave from January 1 to March 31, 2021 may take a federal tax credit for providing such leave. Some clarifications have been made for self-employed individuals as if they were included in the FFCRA.
Other New Tax Provisions
Below are some other changes affecting both individuals and businesses:
Charitable donation deduction: For taxable years beginning in 2021, taxpayers who do not itemize deductions may take a deduction for cash donations of up to $300 made to qualifying organizations. The CARES Act revised the charitable donation deduction rules to encourage donations following a decline after the enactment of the Tax Cuts and Jobs Act in 2017.
Medical expense deduction: The income threshold for unreimbursed medical expense deductions is permanently reduced from 10% to 7.5% so that more expenses may be deducted.
Business meal deduction: Businesses may deduct 100% of business-related restaurant meals during 2021 and 2022 (the deduction currently is available only for 50% of those expenses).
Extenders: The bill provides for a five-year extension of the following tax provisions that are scheduled to sunset on December 31, 2020:
- New Markets Tax Credit
- Work Opportunity Tax Credit
- Health Coverage Tax Credit
- Carbon Oxide Sequestration Credit
- Employer credit for paid family and medical leave
- Empowerment zone tax incentives
- Exclusion from gross income of discharge of qualified principal residence indebtedness
- Seven-year recovery period for motorsports entertainment complexes
- Expensing rules for certain productions
- Oil spill liability trust fund rate
- Incentive for certain employer payments of student loans (notably, the bill does not include other student loan relief so that borrowers will need to resume payments on such loans and interest will begin to accrue).
- The look-through rule for certain payments from related controlled foreign corporations in IRC Section 954(c)(6), which was extended to apply to taxable years of foreign corporations beginning before January 1, 2026 and to taxable years of U.S. shareholders with or within which such taxable years of foreign corporations end
Permanent changes: The bill makes several tax provisions permanent that were scheduled to expire in the future, in addition to the medical expense deduction threshold mentioned above:
- The deduction of the costs of energy-efficient commercial building property (now subject to inflation adjustments)
- The gross income deduction provided to volunteer firefighters and emergency medical responders for state and local tax benefits and certain qualified payments
- The transition from a deduction for qualified tuition and related expenses to an increased income limitation on the lifetime learning credit
- The railroad track maintenance credit
- Certain provisions, refunds and reduced rates related to beer, wine and distilled spirits, as well as minimum processing requirements for certain craft beverages produced outside the U.S.
For More Information
Your Concannon Miller team is ready to guide you through this latest legislation and its impact on you and your business. Please contact us with all your needs.