COVID-related Tax Relief Act of 2020 (COVIDTRA)

As you have probably heard, Congress has passed a major stimulus bill on December 21, 2020.  Here are some of the provisions included in the bill.  This is not an exhaustive list, but these are some of the more relevant items:  Here's the link to the entire bill, CCA

Current Year Individual Items

New Recovery Rebate.  The provision provides a refundable tax credit to eligible individuals in the amount of $600 per eligible family member. The credit is $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child. The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly) at a rate of $5 per $100 of additional income.  The provision provides for Treasury to issue advance payments based on the information on 2019 tax returns. Taxpayers receiving an advance payment that exceeds the amount of their eligible credit will not be required to repay any amount of the payment. If the amount of the credit determined on the taxpayer’s 2020 tax return exceeds the amount of the advance payment, taxpayers will receive the difference as a refundable tax credit.

Treasury Secretary Mnuchin says that checks could be released as early as next week.  Realistically, I would not expect anything before Jan 1st

Charitable Contributions.  For 2020 and 2021, individuals who normally do not itemize deductions may take up to a $300 above-the-line deduction for cash contributions to qualified charitable organizations. (deduction limits of $600 applied to married filers).

Educator Expenses.  Between now and Feb 28, 2021, personal protective equipment, disinfectant, and other supplies used for the prevention of the spread of COVID-19 are allowable expenses for teachers to include in the $250 deduction they are annually allowed.

Unemployment Benefits.  The bill provides an additional $300 per week for all workers receiving unemployment benefits, through March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally-funded unemployment benefits to individuals who exhaust their regular state benefits.

Planning items for Individuals

Medical Expenses.  Individuals can claim an itemized deduction for unreimbursed medical expenses to the extent that such expenses exceeded 7.5% of Adjusted Gross Income.  This threshold was going to increase in 2021, the new bill makes the 7.5% threshold permanent.

Higher Education Expenses.  Beginning in 2021, the deduction for qualified tuition and related expenses from Adjusted Gross Income was eliminated, but the phaseouts for the American Opportunity Credit and Lifetime Leaning Credit was consolidated into a single phaseout.

Mortgage Insurance Premiums.  Amounts paid or accrued before Jan. 1, 2022 by a taxpayer in connection with acquisition indebtedness with respect to the taxpayer's qualified residence were treated as deductible qualified residence interest, subject to a phase-out based on the taxpayer's adjusted gross income (AGI). The amount allowable as a deduction was phased out ratably by 10% for each $1,000 by which the taxpayer's adjusted gross income exceeded $100,000 ($500 and $50,000, respectively, in the case of a married individual filing a separate return). Thus, the deduction wasn't allowed if the taxpayer's AGI exceeded $110,000 ($55,000 in the case of married individual filing a separate return).

Discharge of Principal Residence Debt.  discharge of indebtedness income from qualified principal residence debt, up to a $750,000 limit ($375,000 for married individuals filing separately), was, in tax years beginning before Jan. 1, 2026, excluded from gross income.

Business Items

COVID Sick Leave.  The Families First Coronavirus Response Act required certain small employers to pay up to 10 weeks of qualified family leave when an adult couldn’t work because a child was without school or care, and up to 2 weeks of sick leave for a variety of COVID-related reasons. In turn, the employer would receive a fully refundable dollar-for-dollar payroll tax credit equal to the wages paid.  The bill extends the credit provisions from December 31, 2020 through March 31, 2021.

Employee Retention Credit (ERC).  bill extends the Employee Retention Credit (ERC) through July 1, 2021, and greatly expends several aspects of the credit for amounts paid in the first two quarters of 2021.

Educational Assistance Programs.  Educational assistance provided under an employer's qualified educational assistance program, can include eligible student loan repayments, up to an annual maximum of $5,250, and is excluded from the employee’s income (Does not cover expenses of a spouse or dependent).  Owners and family members of owners cannot participate in qualified plans.

Meal Expenses.  Taxpayers may generally deduct the ordinary and necessary food and beverage expenses associated with operating a trade or business, including meals consumed by employees on work travel, the 50% limit won’t apply to expenses for food or beverages provided by a restaurant that are paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023. 

EIDL Grants and Loans.  Gross income does not include forgiveness of EIDL loans, emergency EIDL grants, and certain loan repayment assistance. The provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income.

PPP Loan Forgiveness.  taxpayers whose PPP loans are forgiven are allowed deductions for otherwise deductible expenses paid with the proceeds of a PPP loan, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness.

Paycheck Protection Program (PPP)

For those who have not received PPP loans. $35 Billion was set aside for businesses who have not yet borrowed. 

Eligible Expenses.  In addition to payroll, rent and utilities covered by the original program, the expenses that can be used for forgiveness have been expanded to include:

Covered Period.  A borrower is no longer locked into an 8 or 24 week period, instead, they can choose any period lasting between 8 and 24 weeks.

Streamlined PPP forgiveness process for loans under $150,000. The new law creates a streamlined process whereby borrowers certify the loan amount, number of employees retained and estimated total spent on payroll.  No further documentation should be required for those who borrowed less than $150,000.

PPP Round 2

Loan Limits.  For these borrowers, the loan is generally determined by multiplying 2.5 by the average monthly payroll for 2019, limited to $2 million.  For borrowers in the restaurant and hospitality business, the loan is generally determined by multiplying 3.5 by the average monthly payroll for 2019, limited to $2 million. 

Number of Employees.  A borrower will have to have fewer than 300 employees (down from 500).

New Revenue Requirement.  A borrower must be able to establish, in general, that they experienced a 25% drop in gross receipts during a quarter in 2020 relative to that same quarter in 2019. 

Eligible Expenses.  Like the first round of loans, proceeds can be used on payroll costs, rent, utilities, mortgage principal interest, and the four new eligible buckets of expenses discussed above.

Coordination with Employee Retention Credit.  Because PPP borrowers may now also claim the Employee Retention Credit, any wages for which a credit is computed will not be treated as forgivable payroll costs for purposes of the PPP.

Coordination with EIDL.  The final forgiveness amount will no longer be reduced by any EIDL grant received.

Grants for Live Venue Operators

The SBA to make grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues quarter-over-quarter comparing 2020 to 2019. The taxpayer had to be fully operational as of February 29, 2020.  The SBA will make an initial grant of 45% of gross revenue earned in 2019, up to $10 million. A second grant of up to 50% of the first grant can also be made, but the total of both grants cannot exceed $10 million.

The grants must be used to pay the following expenses:

 Pursuant to the bill, the grants will not be included in taxable income.