The Consolidated Appropriations Act of 2021 is actually 31 bills rolled into one and includes a variety of relief provisions in response to the COVID-19 pandemic. In our January 14, 2021, live webinar, our team broke down the bill to help individual taxpayers and business owners understand the Act’s contents.
Summary of Consolidated Appropriations Act of 2021 Webinar
Where is my stimulus money?
There are many American’s wondering just how much they will receive and when/how they will receive it. If you’re eligible, you may receive a direct deposit, paper check, or even a debit card in the mail. You can use the IRS Get My Payment portal to check the status of your economic impact payment.
The Act incentivized Americans to make charitable donations by allowing above-the-line deductions for qualifying cash contributions. In 2021, individuals will be able to deduct $300 in qualifying charitable contributions, and married couples filing jointly can deduct up to $600.
For those who itemize, a charitable contribution deduction of up to 100% of adjusted gross income deduction is allowed in 2021. We are seeing increased planning in this area using Donor Advised Funds. Retailers and restaurants can also deduct charitable contributions of food inventory.
Unused FSA Benefits Roll Over
For those with unused health and dependent care funds, FSA benefits are able to be carried over in the full amount from 2020 to 2021, and from 2021 to 2022. This is a notable change coming from the prior 2 ½ month grace period, now allowing a 12-month grace period for the unused benefits. The age for eligible dependents increased from 12 to 13 for dependent care FSAs.
Earned Income and Child Tax Credits
Lower-income individuals who were negatively impacted by COVID may use their earned income from the 2019 tax year to determine their Earned Income Tax Credit (EITC) and the refundable portion of their Child Tax Credit (CTC) for the 2020 tax year. This could produce larger credits for eligible taxpayers who earned lower wages in 2020 due to the pandemic.
Moratorium on Evictions
This moratorium has provided a temporary halt in residential evictions to prevent the spread of COVID, provided those evictions are due to outstanding rental payments from September 4, 2020, through January 31, 2021. The moratorium was set to expire on January 31. President Biden extended the date via executive order until March 31, 2021. Commercial evictions are not covered. See more information on the CDC’s website.
Retirement Plan Withdrawals
The latest Act does not extend the distribution and loan relief provided by the CARES Act, which means that individuals who are 72 and older will need to take their required minimum distributions (RMDs) in 2021.
The qualified disaster distribution has increased from $50,000 to $100,000 and can be re-contributed at any time within a three-year period to receive direct rollover treatment (and therefore be treated as non-taxable). These distributions are also exempt from the ten-year early withdrawal penalty. Another notable point is that the income inclusion is included over a three-year period unless the taxpayer elects to have it all taxed in the first year, or is paying it back over the three year period.
The benefits under the new Act enhance federal unemployment insurance, therefore providing an additional $300 per week for all workers receiving unemployment benefits through March 14, 2021. Self-employed individuals, gig workers, and those with other non-traditional employment arrangements are considered eligible for unemployment benefits.
Round Two of the Paycheck Protection Program (PPP)
Businesses that participated in round one of PPP are now eligible to take another PPP loan, provided they meet certain qualifications (including a demonstrable 25% drop in gross receipts). Borrowers must apply for round 2 by March 21, 2021, and loan sizes are limited to no more than $2 million for businesses with 300 or fewer employees. The new PPP loans include an expanded list of expenses that can be used for forgiveness, and the borrower can select a covered period between 8 and 24 weeks. All round-one funds must be spent prior to applying for round two.
Other PPP Changes
PPP recipients can now take full advantage of other relief programs, including the EIDL grant (PPP forgiveness is no longer reduced by the EIDL grant amount) and the Employee Retention Tax Credit (ERTC). The only caveat is you cannot use the same payroll for PPP forgiveness as you do for the ERTC. Talk to your tax professional, who can help figure out how to best maximize these credits.
The new Act calls for a simple, one-page application for PPP forgiveness of loans under $150,000, which does not require documentation. Borrowers will need to provide the number of employees retained, along with how much of the loan went to payroll. The new Act also clarifies the issue of business deductions for expenses paid with forgiven PPP funds. non-taxable income and deductions. These expenses are now allowed as deductions.
Looking for up-to-date information about the Paycheck Protection Program? Visit our PPP resource center for answers to many of your questions and links to more detailed information.
EIDL Advance Grants
The Economic Injury Disaster Loan (EIDL) program now has additional funding, including the $10,000 grants that do not have to be repaid. These grants are made directly through the SBA, not your local lender. EIDL grants are not subject to tax. The new Act focuses EIDL grants on small businesses located in low-income communities that demonstrate at least a 30% reduction in gross receipts. The program is authorized through December 31, 2021, but applications will close when funds run out. Once you apply, the SBA is required to return a decision on your application within 21 days.
CARES Act Credits Extension
The provisions of the Families First Coronavirus Response Act (FFCRA) have been extended to March 31, 2021. Employers are required to provide sick and family leave for workers who are directly impacted by COVID. The costs are offset with refundable tax credits against employment taxes.
Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) is now available to eligible employers through June 30, 2021. The per-employee wage cap has changed from $10,000/year to $10,000/ quarter for wages paid after December 31, 2020, and a small employer is now defined as having up to 500 employees (previously up to 100 employees).
Meals purchased at restaurants will be 100% deductible in 2021 and 2022 in an effort to support the restaurant industry. This means that all of your business meetings with food items, as well as meals brought into the office to share with clients, will now be 100% deductible (provided they are purchased from a restaurant). While entertainment expenses remain non-deductible, any meals during the entertainment event (e.g. food at a sporting event) are 100% deductible, but must be stated on a separate receipt or invoice. Learn more about meals and entertainment deductions here.
Home Office Expenses
If you are self-employed, you are eligible to claim the home office deduction. W-2 employees, even those using a home office due to COVID, are not eligible for this deduction. When claiming the home office deduction, you must have a space (does not have to be a full/separate room) that is used exclusively for business.
Employers can deduct items they’ve purchased for employees to support working at home; W-2 employees cannot deduct these items (regardless of whether they were reimbursed by the employer).
File Your Taxes Early
This year, more than ever, we are urging our clients to file early and electronically. Doing so can help you avoid scams and expedite future stimulus payments should they be approved. The IRS’ new identity protection PIN program is now available to all taxpayers to help provide additional security for your sensitive personal information.
Congressional Funding Provisions
Other portions of the Consolidated Appropriations Act of 2021 extend beyond COVID relief. Congress approved:
- $350 million for the State Department-managed Migration and Refugee Assistance account. This helps in providing life-saving support in some of the world’s most vulnerable populations.
- $1.3 billion was authorized as available aid for Egypt vial the foreign military financing program.
- $135 million to Burma (Myanmar) for programs to promote ethnic and religious tolerance and to combat gender-based violence.
- $1.48 billion for the Indo-Pacific Strategy and the Asia Reassurance Initiative Act, $300 million of which is specifically to help counter Chinese influence
- $85.5 million to Cambodia
- $453 million to Ukraine
- $500 million for the Israeli Cooperative programs
- $25 million to Pakistan
If you have further questions about the many provisions of the Consolidated Appropriations Act of 2021, or wish to consult with a tax professional before pursuing any of the relief options, please contact us to schedule a consultation. Would you like to join future webinars? Sign up now for our mailing list to receive an invitation.