The Coronavirus Relief Bill, approved by President Trump on December 27, 2020, includes numerous tax provisions for individuals and businesses and extends some important tax benefits that were set to expire at the end of the year. Here is a look at nine of the most impactful tax provisions and tax extenders that are being put into play to help individuals whose health and income have been affected by the pandemic as well as businesses which have struggled to keep their doors open as a result of the effects of the virus.
1. Stimulus Checks
The new Coronavirus Relief Bill provides an additional benefit of $600 in Federal aid for individuals, $1200 for married couples filing jointly, and an additional benefit of $600 per dependent child under the age of 17. Benefits will phase out for individuals with adjusted gross incomes (AGIs) of more than $75,000, married couples filing jointly with an AGI of $150,000, and those claiming themselves as head-of-household with AGI in excess of $112,500. Stimulus payments are not considered part of a taxpayer’s taxable income and do not need to be repaid at any time. According to U.S. Treasury Secretary Steven Mnuchin, the bottleneck experienced during the first stimulus check wave is not expected to be repeated now that the logistics have been refined. Stimulus checks will begin mailing in the coming days.
2. Deferred Payroll Taxes
The Coronavirus Relief Bill extends, through December 31, 2021, the repayment period for employers who previously chose to defer the withholding of the employee portion of social security tax. Employers who exercised this option were previously obligated to increase withholding and pay the deferred amounts by April 30, 2021. The provision also extends the timeframe for when penalties and interest can begin to be assessed to January 1, 2022.
3. Paycheck Protection Program (PPP) Loans
Additional language in the Coronavirus Relief Bill on the tax treatment of the popular PPP loans explains that the forgivable amounts businesses put towards such a loan are exempt from being included as gross income. Deductions are permitted for those expenses that were paid through a forgiven PPP loan. Borrowers are not penalized by having to reduce their assets as a result of their having taken a PPP loan that’s been forgiven, regardless of whether the loan was a first or second draw loan.
4. Business Meal Deductions
For those business meals paid for in either 2021 or 2022, the Coronavirus Relief Bill temporarily increases the expense deduction from 50% to 100% for these years. Business meals include food and beverage from a restaurant obtained by either take-out or delivery.
5. Controlled Foreign Corporations
Look-thru treatment related to controlled foreign corporations who make interest, rent, dividend, and royalty payments to other related controlled foreign corporations has been extended through 2025.
6. Work Opportunity Tax Credit
Also extended through 2025 is a business tax credit to employers who hire workers through one or more eligible Work Opportunity Tax Credit programs.
7. Medical Provisions
- Family First Paid Sick and Family Leave – Refundable payroll tax credits for those on paid sick or family leave (provided by the Family First Coronavirus Response Act) receive an extension through the end of March 2021.
- Medical Expense Deductions – For those individuals who itemize when it comes to unreimbursed medical expenses, the bill makes permanent the threshold of 7.5% of AGI for all taxpayers, regardless of age.
- Employer Tax Credit – For employers with a workforce that is exercising their right to family and medical leave, the Coronavirus Relief Bill offers the opportunity to claim a general business credit of 12.5% of eligible wages if the payment rate is 50% of those wages and an additional 0.25% for each percentage point over the 50%. Extended through 2025, the provision permits employers to include the amount for each employee for a maximum of 12 weeks of leave, in their calculations.
8. Education Provisions
- Qualified Tuition vs. Income Limitation for Lifetime Learning Credit – Starting in 2021, the qualified tuition deduction will be eliminated and replaced by a revised and increased benefit offered through the Lifetime Learning Credit (LLC). Phase-outs of the LLC will be increased from $58,000 to $80,000 for single filers and from $116,000 to $160,000 for those filing jointly.
- Employers and Student Loan Payments – Now extended through 2025, employers are permitted to make a contribution to an employee’s student loans of up to $5,250 each year in exchange for the ability to exclude that amount from the employee’s income. Any student loan payments assumed by the employer on the employee’s half and made through 2025 can be considered.
9. Charitable Contribution Provisions
- Charitable Contribution Limitations – Businesses and those individuals who itemize can benefit from a one-year extension on the limits for deductible charitable contributions that had been increased by the CARES Act.
- Non-Itemized Charitable Contributions – For those who choose not to itemize, a provision within the Coronavirus Relief Bill extends through 2021 and increases the maximum deductible amount for charitable contributions. For married couples filing jointly, a deduction of up to $600 can be taken, while singles or those married couples filing separately can deduct up to $300. These deductions do not reduce AGI.
To learn more about some of the new provisions detailed in the recently-released Coronavirus Relief Bill, contact your Untracht Early advisor.