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Key Tax and Incentive Provisions of the Consolidated Appropriations Act

Tax Development Jan 06, 2021

Key Tax and Incentive Provisions of the Consolidated Appropriations Act

President Trump signed the Consolidated Appropriations Act (“the Act”), which includes $900 billion in COVID-19 relief stimulus payments to individuals, extended weekly unemployment benefits, and relief to small businesses.

Benefits Directed at Helping Employees and Employers

Paycheck Protection Program
This round of Paycheck 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.

Employee Retention Credit
The bill extends the employee retention tax credit, which was set to expire 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. 

Deferred Payroll Tax
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.

Meals and Entertainment
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). 

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.

Federal Credits and Energy Provisions

The provisions of the Act intended to assist businesses primarily consisted of the extension of certain tax credits and deductions. Several were made permanent, while others were extended either 5, 2, or 1 year(s).

  • The Act makes permanent the energy efficient commercial buildings deduction. 
  • The Act extends 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.
    • Extenders through 2025:
      • Beginning of construction date for energy credits for offshore wind facilities
    • Extenders through 2023:
      • Beginning of construction date for certain qualified carbon dioxide sequestration facilities
      • Beginning of construction date for increased credit to business solar energy property
      • Waste recovery property eligible for energy investment tax credit
    • Extenders through 2021:
      • Beginning of construction date for non-wind renewable power facilities eligible to claim the electricity production credit or investment credit in lieu of the production credit
      • Second-generation biofuel producer credit
      • Credit for qualified fuel cell motor vehicles
      • Credit for construction of new energy efficient homes
      • Incentives for alternative fuel and alternative fuel mixtures
      • Mine rescue team training credit
      • Indian employment credit
      • Accelerated depreciation of business property on an Indian reservation

To learn more about the Consolidated Appropriations Act, register now for our complimentary webinar Friday, January 8, at 11:00 a.m. CST to hear directly from our tax experts.


Ian Boccaccio

Allea Newbold

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