COVID-Relief Bill Provides Clarity to Businesses while Extending Certain Tax Benefits

Rödl & Partner Tax Matters Vol 2020-16, published December 29, 2020

This weekend President Trump signed the COVID-relief bill recently passed by Congress. While the headlines of the bill include additional cash payments of $600 to most Americans, there are provisions in the bill that will impact business taxpayers as well. The chart provides a summary of the most relevant items in the new law.

Category	Taxpayers Impacted	Summary of Change in Law
PPP Loans	Businesses with PPP loan forgiveness	Act clarifies that businesses with PPP loan forgiveness can deduct expenses paid with loan proceeds for tax purposes; CARES Act previously included that loan forgiveness is not taxable income. Additionally, a special rule provides that passthrough entities are to treat the loan forgiveness as tax-exempt income for purposes of basis adjustments and allocation of income.
PPP Loans	Businesses with PPP loans yet to apply for forgiveness	Allowable use of PPP proceeds in determining forgiveness is extended to include group life, disability, vision and dental benefits. Additionally, businesses with PPP loans can choose either an 8-week or 24-week coverage period in calculating use of proceeds for forgiveness.
PPP Loans	Businesses needing additional borrowing	A second round of PPP funding is available for businesses that recevied a PPP loan and used the initial proceeds for eligible forgiveness purposes. These businesses can include not-for-profit organizations and must have fewer than 300 employees and show a reduction of gross receipts from a specified quarter in 2020 to the same quarter in 2019 of at least 25%.
Employee Retention Tax Credit	Business	Credit extended until July 1, 2021; amount of credit is increased to 70% of qualifying wages; amount of credit is amended to include group health insurance benefits in addition to wages; employers receiving PPP loans can claim this credit; the decline in receipts required to claim the credit is reduced from 50% annual decline to 20%; the value of the credit per quarter is increased to $10,000 per employee.
Payroll Tax Deferral	Businesses and Employees	The original deferral due date for the employee portion of payroll taxes was April 15, 2021. The Act extends this date to December 31, 2021.
Employer Credits for Paid Family and Medical Leave	Employers required to provide paid family and medical leave	The credit for paid family and medical leave was set to expire December 31, 2020. The Act extends the credit to March 31, 2021. Additionally, employers that are not required to provide paid leave but do so at their option are still eligible for the credit up to the new effective date, but eligible hours are not reset for these employers. Also added to the credit are self-employed persons to claim the credit in the same manner as if they worked for a third-party.
Qualified Transfers from Pension Plans	Employers with employee pension plans	Employers/sponsors of pension plans can elect to terminate an existing transfer period effective for any taxable year. These self-employed individuals can choose to base their credit on 2019 amounts rather than 2020.
Deduction for business meals increased to 100%	Business	The deduction for business meals is increased from 50% to 100% for 2021 and 2022 for meals provided by a restaurant.
Tax credits and deductions extended or made permanent	All Taxpayers	Certain tax credits set to expire in 2020 were extended or made permanent. This includes the tax credit for energy efficient commercial buildings, the medical deduction exceeding 7.5% of adjusted gross income for individuals, new markets tax credit, and the discharge of indebtedness for principal residences.
Interest expense limitation rules under §163(j) ("earnings stripping")	Real property trades or businesses electing out of §163(j)	Real property trades or businesses electing out of 163(j) can use 30 year ADS depreciation for residential rental property.

Please contact your Rödl & Partner representative for more information on any of these provisions.

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