Updated: January 7, 2021
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (“The Act”). This was the fourth stimulus package passed in 2020 and comes after months of protracted negotiations. The Act contains numerous tax and nontax provisions and includes several extensions of popular provisions of earlier COVID relief and stimulus acts passed in 2020. The following is a summary of its most significant tax provisions:
- Direct cash payments of up to $600 for certain individuals ($1,200 for married filing jointly). Similar to the Stimulus payments provided under the CARES ACT, the payment phases out at certain income levels. However, the payment will phase out more quickly i.e. individuals with 2019 adjusted gross income in excess of $75,000 and $150,000 for married couples filing jointly. Dependent children also qualify for a $600 direct payment.
- The Act extends through 2021 the $300 above the line charitable contribution for those taxpayers that do not itemize and the suspension of the limitation on charitable contributions of cash for taxpayers that do itemize. For 2021, the $300 is increased to $600 for married individuals filing a joint return. Furthermore, taxpayers itemizing their deductions can deduct their charitable contributions in full regardless of their adjusted gross income.
- The Act provides that personal protective equipment and other supplies purchased by teachers to prevent the spread of COVID-19 qualify for the above the line tuition and fees deduction.
- Employees that elected to defer their share of payroll taxes under relief granted by President Trump have been granted an extension until December 31, 2021 to pay back these amounts. Previously, these amounts had to be repaid by April 30, 2021.
- The Act clarifies that gross income does not include amounts forgiven under an Economic Injury Disaster Loan and that otherwise deductible expenses paid with the loan proceeds are allowed.
- The Act provides that otherwise deductible expenses paid by a business with proceeds of a loan that is forgiven under the Paycheck Protection Program (PPP) are deductible.
- The Act provides for additional PPP loans for businesses that meet certain more restrictive criteria.
- The employer credit for paid sick and family leave is extended until March 31, 2021.
- The employer retention tax credit has been extended and now applies to compensation paid to a covered employee through June 30, 2021. The credit was originally set to expire with respect to compensation paid after December 31, 2020. In addition, eligible employers that have previously received a PPP loan may now be allowed to claim the Employer Retention Credit as well.
- The full cost of Business Meals provided by a restaurant will be allowed for the 2021 and 2022 tax years. Currently, the deduction was limited to 50 percent.
- The Act extends various tax law provisions that were scheduled to expire at the end of 2020 including the Work Opportunity Credit, the Energy Efficient Commercial Buildings deduction (with modifications), Credit for Paid Family and Medical Leave and the exclusion from gross income of employer payments of student loans.
- Real property trades or businesses that elected out of the business interest deduction limitations were required to change to the Alternative Depreciation System (ADS) and depreciate residential and commercial real property over 40 years for property placed in service on or before December 31, 2017. Residential property placed in service after December 31, 2017 was assigned a 30 year life under ADS. The Act assigns a 30 year ADS depreciation period to residential rental property placed in service on or before December 31, 2017.
The Act contains numerous other provisions. If you have any questions about the legislation and how it may affect you and/or your business, please contact your MWE professional or call us at 516-747-2000.