Top 5 Takeaways from H.R. 133 “Consolidated Appropriations Act (CAA), 2021″
On December 21, 2020, Congress passed its spending bill, the “Consolidated Appropriations Act (CAA), 2021” which includes Division N — Additional Coronavirus Response and Relief (ACRR). On December 27, 2020, President Trump signed the bill into law. Below are important takeaways for consideration.
1. Clarification of Tax Treatment of Paycheck Protection Program (PPP) Loans:
The bill clarifies that forgiveness of PPP loans shall not be included in gross income AND that deductions shall be allowed for otherwise deductible expenses paid with proceeds from a PPP loan that is forgiven. Additionally, the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. Similar treatment is also available for certain other loans, emergency EIDL grants, and certain loan repayment assistance, each as provided under the CARES Act.
Furthermore, PPP forgiveness amounts no longer need to be reduced for any EIDL advance received.
2. Additional Eligible Expenses:
The bill makes the following expenses allowable and forgivable uses for PPP funds:
Covered operations expenditures – payment for any software, cloud computing, and other human resources and accounting needs.
Covered property damage costs – costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
Covered supplier costs – expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
Covered worker protection expenditure – Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.
Allows loans made under PPP before, on, or after the enactment of the bill to be eligible to utilize the expanded forgivable expenses except for borrowers who have already had their loans forgiven.
3. Simplified Loan Forgiveness Application for PPP Loans under $150,000:
The bill creates a simplified application process for loans under $150,000 such that a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the covered loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The borrower must also attest that the borrower accurately provided the required certification and complied with the PPP loan requirements.
The SBA will establish a form within 24 days of enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements.
Additionally, borrowers are required to retain relevant records related to employment for four years and other records for three years.
The SBA may review and audit PPP loans to ensure against fraud.
Applies to loans made before, on, or after the date of enactment.
4. Paycheck Protection Program Second Draw Loans:
The bill creates a second loan from the Paycheck Protection Program, called a “PPP second draw” loan for smaller and harder hit businesses, with a maximum of $2 million.
- Employ not more than 300 employees
- Have used or will use the full amount of their first PPP loan; and
- Demonstrate at least a 25 percent reduction in gross receipts in the first, second, or third quarter of 2020 related to the same 2019 quarter.
- Entities must be businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural cooperatives.
5. Additional 2020 Recovery Rebates for Individuals:
The bill provides a refundable credit 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% of additional income.
The bill provides for Treasury to issue advanced payments based on the information on 2019 tax returns. Taxpayers receiving an advanced payment that exceeds the amount of their eligible credit WILL NOT be required to repay any amount of the payment. If the amount of credit determined on the taxpayer’s 2020 tax return exceeds the amount of the advanced payment, taxpayers will receive the difference as a refundable tax credit.
The preceding information is intended as a general discussion of the subject matter addressed and is not intended as a formal comprehensive tax plan or strategy. The reader should not rely on the information contained herein to support any conclusions without performing sufficient research and analysis of the facts and applicable law specific to his or her own situation and circumstances.
Please contact your Melton & Melton Tax Advisor or email us to discuss your specific tax situation.