News & Insights

The Consolidated Appropriations Act 2021

Tax Development Dec 28, 2020

The Consolidated Appropriations Act 2021

After almost a week of consternation, President Trump signed The Consolidated Appropriations Act (“the Act”), which Congress overwhelmingly passed on December 21, 2020. The Act includes $900 billion in COVID-19 relief stimulus payments to individuals, extended weekly unemployment benefits, and relief to small businesses. The stimulus payments will provide $600 to individuals in the same income brackets as the first stimulus payment, along with $600 per child dependent. Workers receiving unemployment benefits will be eligible for a $300 per week supplement from December 26, 2020 through March 14, 2021. The Pandemic Unemployment Assistance program, with expanded coverage to the self-employed, gig workers, and other nontraditional employees, is also extended. The enactment of this legislation was uncertain as the President stated that he would withhold his signature from the bill unless the stimulus payments to individuals were increased from $600 to $2,000. Still unsatisfied, after signing the Act, the President has advised Congress to remove some of the extraneous spending allocations contained in the government funding portions of the Act.

The national eviction moratorium has been extended through January 31, 2021, with additional funding provided for emergency rental aid. Additional funding is also being provided for emergency food assistance, health-related expenses incurred by state and local governments, and colleges’ and schools’ expenses incurred to mitigate virus transmission through HVAC upgrades or replacement. 

Benefits Directed at Helping Employees

This round of Payment Protection Program (PPP) loans will be available to first-time qualified borrowers as well as to businesses that previously received a PPP loan. Previous recipients may apply for another loan of up to $2 million with the following qualifications:

  • They must have 300 or fewer employees;
  • They have or will use the full amount of their first PPP loan; and
  • They can show that revenue declined by 25% in any 2020 quarter as compared to the same quarter in 2019.

In addition to the expenses covered under the first round—payroll, rent, mortgage interest, and utilities—the second round will also cover the following expenses:

  • Worker protection and facility modification expenditures, including personal protective equipment;
  • Expenditures to suppliers that are essential to the recipient at the time of purchase; and
  • Covered operating expenses, such as software, cloud computing services, and accounting needs.

The legislation also confirms tax deductibility for business expenses paid with forgiven PPP loans. To assist struggling small businesses, additional funding is being provided to the Small Business Association to issue additional PPP forgivable loans and grants to businesses in low-income communities.

The bill extends the employee retention tax credit, which was set to expire on December 31, 2020 to June 30, 2021. The credit is increased from 50% to 70%. The limit on per employee creditable wages increases from $10,000 per year to $10,000 per quarter. The Act also expands the credit to businesses that may have received a PPP loan, but the employees retained were not paid by forgiven PPP proceeds. In addition, the deferred payroll tax provision of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), extends the payback period of the taxes from April 30, 2021 to December 31, 2021.

Under the Act, the cost to an employer of recreational activities or facilities primarily for the benefit of employees is exempt from the entertainment disallowance rules. Therefore, these expenses are fully deductible (e.g., holiday parties, annual picnics, company swimming pools, baseball diamonds, bowling alleys, and golf courses). 

Provisions Directed at Business Relief

The provisions of the Act intended to assist businesses primarily consisted of the extension of certain tax credits and deductions. The ACT makes permanent the energy efficient commercial buildings deduction. The Act extended through 2025 the look through payments between related controlled foreign corporations, the new markets tax credit, the work opportunity credit, the Empowerment Zone tax incentives, and the employer credit for family and medical leave. In addition, several energy credits have been extended with differing expiration dates.

The Act also allows for the full deduction of business meals, normally limited to 50% deduction, provided by a restaurant between January 1, 2021 and December 31, 2023. The provision would also apply to carry-out and delivery meals during this timeframe.

President-elect Biden has called the Act a down payment. He plans to petition Congress to pass another package aimed at assisting essential workers, providing funding for COVID-19 vaccinations, and a new round of stimulus checks. Stay tuned for continuing developments monitored by Ryan.

TECHNICAL INFORMATION CONTACTS:

Mark L. Nachbar
Principal
Ryan
630.515.0477
mark.nachbar@ryan.com

Mary Bernard
Director
Ryan
401.272.3363
mary.bernard@ryan.com

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