2021- Update on new tax law changes

Dear Clients and Friends:

Happy New Year to all of you. This month we will update you on some recent tax law changes. President Trump recently signed a bill into law that has tax and other business implications.

Here are the new law’s highlights:

• Stimulus Checks – Eligible taxpayers will receive a stimulus check of $600 per eligible family member ($1,200 for a married couple) and $600 per qualifying child
  • The stimulus check phases out at $75,000 of Adjusted Gross Income for single filer ($112,500 Head of Household and $150,000 married filing jointly)
• Payroll Protection Plan Loans – Expenses paid with PPP funds are now tax deductible. This, together with the fact that PPP loan forgiveness is not taxable make PPP loan forgiveness totally tax-free
• Net Operating Losses – Farmers can retain any two-year Net Operating Loss carryback election. In addition farmers who initially waived the Net Operating Loss carryback election can revoke that waiver
• Payroll Tax Credit – Refundable payroll tax credits for sick and family leave are extended through March, 2021
• Employee Retention Tax Credit (ERTC) –
  • Extended through June 30, 2021
  • Credit rate increased from 50% to 70% for qualified wages
  • Limit on per employee creditable wages increased from $10,000 per year to $10,000 per quarter
  • Year over year gross receipts declined by 50% to 20%
  • A safe harbor allowing employers to use prior-quarter gross receipts to determine eligibility
  • A provision to allow certain governmental employers to claim the credit
  • An increase from 100 to 500 in the number of employees counted when determining the relevant qualified wage base
  • Rules allowing new employers who were not in existence for all or part of 2019 to be able to claim the credit
  • Provides that employers who receive PPP loans may still qualify for the ERTC with respect to wages that are not paid with forgiven PPP proceeds
  • Clarifies the determination of gross receipts for certain tax-exempt organizations
  • Clarifies that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee, consistent with IRS guidance
• Business meals – 100% tax deductible beginning 1/1/2021 through 12/31/2022
• Second round of PPP funding – available, up to $2,000,000 to qualifying businesses.
  • Qualifying businesses include:
    • Businesses that received an initial PPP loan qualify for the second PPP loan if:
      • Have 300 or fewer employees
      • Have used or will use the full amount of their first PPP loan
      • Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019
    • First-time PPP borrowers qualify provided that:
      • Businesses have 500 or fewer employees and are eligible for other SBA 7(a) loans
      • Sole proprietors, independent contractors, and eligible self-employed individuals
      • Not-for-profits, including churches
      • Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location
  • Borrowers may receive loans up to 2.5 times their average monthly payroll costs. Either in the prior year, or current year
    • Restaurants and hotels may receive 3.5 times the average monthly payroll cost
  • Eligible expenses include wages, rent, covered mortgage interest, utilities. In addition the following expenses now qualify:
    • Worker protection and facility modification expenditures
    • Expenditures to suppliers that are essential at the time of purchase to the recipients current operations
    • Covered operating costs such as software, cloud computing and accounting needs
  • 60% of the loan must be spent on payroll
  • Covered period either 8 or 24 weeks
• PPP loans of $150,000 or less now have a simplified forgiveness application
  • 1 page application
  • Borrower certifies to lender description of the number of employees borrower was able to retain because of the loan
  • Estimated total amount of loan spent on payroll costs
  • Total loan amount
• Repeals requirement that EIDL advances are deducted from PPP forgiveness

We strive to give you the most up-to-date information regarding any tax law changes. Feel free to contact any one of our offices for more detailed information. We’d be happy to answer any of your questions.