Created: 29 December 202o
Dear Chamber Members,
We have been receiving questions about the COVID Relief legislation that was recently signed into law, specifically about the changes to PPP. We were just informed by the NJ District Director of the Small Business Administration (SBA) that it could take up to 10 days before new application forms for PPP are ready. In the interim, we suggest that any organization interested in applying begin discussions with their bank now so they can be ready to fill out the application as soon as it is available.
Consolidated Appropriation Act of 2021
The Consolidated Appropriation Act of 2021 was signed by the President December 27, 2020, containing the most recent COVID-19 relief provisions as well as many tax provisions.
Following is a summary of the individual and business tax provisions included in the proposed Act.
INDIVIDUAL TAX CHANGES
ADDITIONAL CASH STIMULUS PAYMENTS
CHILD TAX CREDIT AND EARNED INCOME TAX CREDIT
The new law permits use of 2019 income to determine eligibility for the individual’s credit for the 2020 tax year. This rule will also prevent unemployment insurance benefits received in 2020 from reducing credits.
FLEXIBLE SAVINGS ACCOUNTS (FSAS)
FSA balances can be rolled over from the 2020 tax year into 2021, and 2021 balances can be rolled into 2022.
EMERGENCY FINANCIAL AID GRANTS
For a student receiving a Qualified Emergency Financial Aid Grant, the following applies:
PAYROLL PROTECTION PROGRAM EXPENSES ARE DEDUCTIBLE
The law resolves the issue and reverses the Treasury position on the deductibility of expenses paid with PPP loan funds that are forgiven. Under the proposed new law, businesses can deduct expenses paid with forgiven PPP loans. The deductibility is without caps, guardrails, or limitations and applies to all taxpayers.
This confirms the intention of the law to create a two-part subsidy for tax-free income (on debt forgiveness) and deduction of costs. It should be noted that the Joint Committee on Taxation scored the original provision under the CARES Act on this basis. Since this is considered a technical correction, it does not have a budget impact.
This rule is effective for tax years ending after the date of the original CARES Act (March 26, 2020) and is, therefore, retroactive.
OTHER CARES ACT LOAN FORGIVENESS AND FINANCIAL ASSISTANCE
The CARES Act provided for: 1) an emergency grant for an advance of $10,000 on an Economic Injury Disaster Loans (EIDL); and 2) loan repayment assistance for certain CARES Act loans.
The new law provides that gross income will not be increased due to loan forgiveness on these items. In addition, similar to the PPP loan rule above, expenses paid with such amounts are deductible and produce normal basis adjustments.
This rule is also retroactive to tax years ending after the date of the original CARES Act.
DEDUCTIBILITY OF BUSINESS MEALS
The deduction for business meals is increased from 50% to 100% for 2021 and 2022.
DEPRECIATION OF CERTAIN RESIDENTIAL RENTAL PROPERTY
The Tax Cuts and Jobs Act permitted a real property trade or business to elect out of the business interest deduction rules of IRC section 163(j). The cost of the election is the requirement to use the ADR life for nonresidential real estate, residential real property and qualified improvement property.
For residential property placed in service after December 31, 2017, a 30-year life applies. However, for property placed in service before January 1, 2018, a 40-year life was required. The new law provides that a 30-year life applies even for the property placed in service prior to January 1, 2018.
EMPLOYER AND EMPLOYEE PAYROLL TAX PROVISIONS
ELECTIVE DEFERRAL OF EMPLOYEE SOCIAL SECURITY TAXES – EXTENSION OF PAYMENT DATE
The President’s Executive Order permits employers to defer the payment of employee social security taxes on certain eligible salaries (bi-weekly salary less than $4,000) for the period September 1 through December 31, 2020. This new law extends the period for the payment of the deferred taxes from the original cut-off of April 30, 2021.
PAYROLL TAX CREDITS
The new law extends refundable payroll tax credits for paid sick and emergency medical family leave, which expire December 31, 2020, through the end of March 2021.
EMPLOYEE RETENTION TAX CREDIT
This credit has been extended to June 20, 2021, and has been significantly modified.
Certain changes to the Employee Retention Tax Credit were made retroactive to the effective date of the CARES Act in March 2020:
In addition to COVID relief, the legislation contains a number of tax extender provisions.
SEC 179D ENERGY EFFICIENT COMMERCIAL BUILDING DEDUCTION
This provision (which was scheduled to expire 2020) has been made permanent. Under this section of the Tax Code, a taxpayer is able to claim a deduction for energy efficient improvements to lighting, heating, cooling, ventilation and hot water systems of commercial real property. The deduction is based on $1.80 per square foot. However a $.60 deduction is permitted where certain subsystems meet standards if the entire building does not.
The new law adjusts the $1.80 rate based on an inflation factor after 2020, using 2019 as the base year.
QUALIFIED TUITION AND RELATED EXPENSES
The new law removes the different phase-out rules for the American Opportunity Tax Credit and the Lifetime Learning Credit. For 2021 and later, a single phase-out is created.
The deduction for higher education expenses is repealed for tax years after 2020.
WORK OPPORTUNITY CREDIT
The program providing a credit for employers hiring individuals covered by 10 targeted groups is extended through 2025.
PRINCIPAL RESIDENCE INDEBTEDNESS DISCHARGE
The prior law rule excluding from gross income debt discharge on qualified principal residence debt of up to $2 million ($1 million for a married filing separate filer) was scheduled to terminate after 2020 (though it would be applicable under a binding contract exception).
The new law extends the exclusion for discharges between 2021 and 2025. However, the maximum exclusion amount is significantly reduced to $750,000 ($375,000 for married separate filers).
MORTGAGE INSURANCE PREMIUMS TREATED AS QUALIFIED RESIDENT INTEREST
This provision treating mortgage insurance premiums related to acquisition indebtedness for a principal residence as an interest expenses (subject to phase out rules based on AGI) is extended through 2021.
EMPOWERMENT ZONE TAX INCENTIVES
These are extended through December 31, 2025, for the period that the designation of an empowerment zone is in effect.
EXCLUSION FOR EMPLOYER PAYMENT OF STUDENT LOANS
Payment pertaining to a qualified educational assistance program, up to $5,250, will be treated as a nontaxable benefit and is extended for payments through 2025.
EMPLOYER PAID FAMILY AND MEDICAL LEAVE PROGRAM
The Code extends to an employer that provides paid family and medical leave a credit of 12.5% of eligible wages, where the rate of payment is 50% of wages, increased by .25% for each percentage point above 50% of wages paid for a maximum 12-week period. This program was intended to terminate after the 2020 tax year. The new law would extend this credit through 2025.