After months of negotiations, Congress has passed a $900 billion COVID-19 economic stimulus bill that extends relief to small businesses, workers and families reeling from the pandemic. The legislation, which is part of a $1.4 trillion government spending bill, extends several CARES Act aid programs that were due to expire on December 31.
The bill includes the following provisions:
Small Business Loans
- Of the $325 billion in aid to small businesses, $284 billion in new funding will revive the Paycheck Protection Program (PPP) for small business borrowers and those who depleted their first round of relief funds to remain afloat.
- A provision of $20 billion will fund targeted grants through the Economic Injury Disaster Loan (EIDL) program for nonprofits and small businesses.
- An additional $3.5 billion will extend Small Business Administration (SBA) debt relief payments and $2 billion will be used to enhance SBA lending.
- A specific allocation of $12 billion will fund community development financial institutions (CDFIs) and create a new Neighborhood Capital Investment program to assist minority-owned and very small businesses in low-income communities.
- An additional $15 billion is earmarked for live performance venues, independent movie theaters and other cultural institutions that have suffered sharp declines in attendance due to COVID-19 restrictions.
What Businesses Need to Know About PPP2
- A maximum loan amount of $2 million is allowed under the new program. It will use a framework similar to the first PPP round, with loans based on 2.5 months of payroll costs.
- The forgiveness process for loans of $150,000 or less will be simplified and expenses paid with PPP funds will be tax-deductible.
- Forgivable expenses are expanded to include investments in facility modifications, personal protective equipment for employees and additional supplier costs necessary to operate safely through the pandemic.
- The program retains the 60%/40% allocation between payroll and non-payroll costs for full loan forgiveness.
Employee Retention Tax Credit
- The legislation expands and extends the Employee Retention Tax Credit (ERTC) established under the CARES Act. It will help small businesses and nonprofits retain their workers and continue operations through the pandemic.
Cost recovery period for residential rental housing.
- A real property trade or business (RPTOB) may elect out of the new Tax Cuts and Jobs Act (TCJA) limitation on the deductibility of business interest. However, in making the election, the RPTOB is subject to the longer recovery periods that apply under the alternative depreciation system (ADS). TCJA reduced the ADS recovery period for residential rental property from 40 years to 30 years. Congress intended to apply the 30-year period to all residential rental property, not just buildings placed in service or acquired in 2018 and later. However, due to a drafting oversight, the law subjects residential rental property placed in service prior to 2018 to the older 40-year ADS recovery period. This means that a taxpayer owning residential rental property at the end of 2017 who elects out of the new business interest limits is subject to a 40-year recovery period. The COVID-19 agreement corrects this provision and ensures that the 30-year ADS recovery period applies to all residential rental property, regardless of when the property was placed in service by the taxpayer.
Small business loans – deductibility of expenses.
- The bipartisan agreement includes a technical correction clarifying that business expenses paid with forgiven Paycheck Protection Program (PPP) loans (or other SBA and loan repayment assistance created in the CARES Act) are deductible for income tax purposes.
Energy-efficient commercial buildings.
- The enhanced deduction for energy efficient commercial buildings (section 179D) is made permanent. The current deduction was scheduled to expire at the end of 2020. The permanent extension includes updated energy efficiency standards. The updated standards are the American Society of Heating, Refrigerating, and Air Conditioning Engineers (ASHRAE) standards and the Illuminating Engineering Society of North America (IES) standards that are in effect two years before construction of the property begins. A similar change is made for the property covered by the California Nonresidential Alternative Calculation Method Approval Manual. Beginning after 2020, the deduction amounts are indexed for inflation.
New markets tax credit.
- The bipartisan agreement authorizes the allocation of new markets tax credits for an additional 5 years, through 2025. The authority for additional credit allocations was scheduled to expire at the end of 2020.
Mortgage debt forgiveness.
- The tax exclusion for income from the discharge of qualified principal residence indebtedness is extended for 5 years. The agreement reduces the maximum amount of excluded debt forgiveness from $2 million to $750,000. The provision was scheduled to expire at the end of 2020.
- The bipartisan agreement extends the current tax incentives for Empowerment Zones (EZs) for 5 years, through 2025. The increased expensing allowance for EZs, as well as nonrecognition of gain on the rollover of EZ investments, are repealed for property placed in service after 2020. These provisions were scheduled to expire at the end of 2020.
Low-income housing 4% tax credit.
- The bipartisan agreement creates a permanent, 4% floor for the low-income housing tax credit (LIHTC) that is generally used for the rehabilitation and renovation of affordable housing. There are two credits available under the LIHTC program. One is the 9% credit used for new construction. The second is the 4% credit, which is typically used for rehabilitation of older rental housing and the preservation of subsidized rental developments (in conjunction with tax-exempt bond financing). The 9% credit (claimed over 10 years) is designed to subsidize 70% of a project’s qualifying basis. Since 2008, the 9% credit is an actual, statutory floor and the credit amount cannot go below 9%. The 4% credit (also claimed over 10 years) aims to subsidize 30% of a project’s qualifying basis. The 4% credit is not a floor, and in recent years, the actual credit amount has fluctuated between 3.15% and 3.97%. The bipartisan agreement would encourage more affordable housing by providing a permanent 4% floor for the credit used for rehabilitation/renovation projects.
Mortgage insurance premiums.
- The bipartisan agreement extends for one year the treatment of mortgage insurance premiums as deductible, qualified principal residence interest. The provision was scheduled to expire at the end of 2020.
Energy-efficient home improvements.
- The bipartisan agreement extends the tax credit for energy efficient improvements to homes (section 25C) for one year, through 2021. The section 25C credit applies to nonbusiness expenditures on qualifying energy efficiency improvements, including insulation, windows, doors, and roofing. The provision was scheduled to expire at the end of 2020.
Residential solar energy credit.
- The bipartisan agreement also extends the tax credit for residential renewable energy property (section 25D), which includes solar electric, solar water heating, small wind power, fuel cell, and geothermal heat pump property. The section 25D credit is primarily used for residential solar energy projects. The credit was scheduled to phase down from 30% of qualifying expenditures in 2019, to 26% in 2020, and 22% in 2021, expiring thereafter. The bipartisan agreement extends the 26% residential solar energy credit for 2 years, through 2022. It also provides a 22% credit in 2023. The credit would expire at the end of 2023.
Energy-efficient new homes.
- The bipartisan agreement extends the $2,000 credit for new, energy-efficient homes (section 45L) for one year, through 2021. Unlike the section 25C credit for home improvements, the credit for new energy-efficient homes is available to residential rental properties, and it applies per dwelling unit. The credit was scheduled to expire at the end of 2020.
FMLA employer tax credit.
- The bipartisan agreement extends the employer tax credit that offsets a portion of the expenses associated with providing paid family and medical leave to an employee. The bipartisan agreement extends the credit for 3 months, through March 31, 2021 (but see Title I, Subtit. B, Sec. 119, which appears to provide 5-year extension – drafting error?). The credit was enacted in the first COVID relief bill in March 2020. The provision was scheduled to expire at the end of 2020.
Employee retention tax credit (ERTC).
The CARES Act includes a refundable tax credit of up to $5,000 per employee for businesses that continue to pay employees between March 13 and December 31, 2020. An employer could qualify if its business was fully or partially suspended due to orders from a governmental authority related to COVID-19, or the gross receipts of the business declined by 50%. In the case of businesses with more than 100 employees, the ERTC was limited to wages paid to employees who were not able to provide services due to the qualifying circumstances. The credit equals 50% of wages and health benefits, up to $10,000. The credit applies to the employer’s share of quarterly payroll taxes, and any excess credit amount is fully refundable. The bipartisan agreement includes numerous changes and improvements to the ERTC. These include the following:
- Extending the ERTC by 6 months, through June 30, 2021Increasing the credit rate from 50% to 70% of qualified wages
- Expanding eligibility for the credit by reducing the required year-over-year gross receipts decline from 50% to 20% (also includes a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility)Increasing the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter
- Increasing the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees
- Providing rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit
- Retroactive to the CARES Act, providing that employers who receive Paycheck Protection Program (PPP) loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds
Additional LIHTC allocation for disaster zones.
- The bipartisan agreement increases a State’s low-income housing tax credit (LIHTC) allocation in 2021 by $3.50 per resident of a qualifying disaster zone. The allocation can carry over to 2022. Qualifying disasters are those designated by the President between 1/1/20 and 60 days after enactment, but do not include the nationwide COVID-19 disaster declaration.
- The bipartisan agreement provides another round of recovery rebates to taxpayers with incomes below specified thresholds. Individuals with adjusted gross income up to $75,000 ($112,500 for a head of household; $150,000 for a married couple) are eligible for a maximum rebate of $600. Children under the age of 17 also qualify for a $600 rebate. Treasury will use 2019 tax returns to determine eligibility.
Business meals deduction.
- TCJA limited the deductibility of business meals to 50% of qualifying expenses and ended the deductibility of business entertainment expenses. The bipartisan agreement includes a provision temporarily increasing the business meals deduction to 100% for two years (2021 and 2022).
- The federal Pandemic Emergency Unemployment Compensation program will resume providing jobless individuals who have exhausted state unemployment benefits with a $300 per week payment through March 14, 2021.
- Self-employed individuals, part-time employees and gig workers who receive unemployment benefits through the Pandemic Unemployment Assistance program also will receive this supplemental federal benefit of $300 per week through March 14, 2021.
- A $600 one-time payment will be sent to individual adults making up to $75,000 a year. Couples earning up to $150,000 will qualify for $1,200 and if they have dependent children, they also may get $600 for each child.
- The actual amount of the stimulus check may vary, depending on past income reported.
- Most checks will be distributed through direct deposit, following the same procedures as in the spring.
Other Stimulus Funding Provided
- An eviction moratorium has been extended through January 31, 2021.
- States and local governments will receive $25 billion to provide families and individuals with assistance in making rent and utility payments.
- To help American connect remotely during the pandemic, the government will prove $7 billion to expand broadband access.
- Funding of $13 billion will increase Supplemental Nutrition Assistance Program (SNAP) food assistance benefits by 15% for six months. SNAP eligibility remains the same.
- Food banks and food pantries are receiving $400 million through the Emergency Food Assistance Program. Nutrition services for seniors will receive $175 million for programs such as Meals on Wheels.
- The bill provides $82 billion in aid to K-12 schools and colleges. Childcare providers will receive $10 billion in relief funding.
- To make vaccines readily available to everyone at no charge, $20 billion is allocated for the purchase of COVID-19 vaccines and another $9 billion will cover distribution. States also are receiving $20 billion for COVID-19 testing.
- The transportation industry will receive $45 billion in assistance to keep airlines, bus companies and other transit systems afloat.
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