The following is a summary of some of the items included in the Consolidated Appropriations Act, 2021 signed into law on December 27, 2020.
The Law includes clarifications of tax consequences of PPP loan forgiveness. The COVIDTRA clarifies that the non-taxable treatment of PPP loan forgiveness that was provided by the 2020 CARES ACT also applies to certain other forgiven obligations. Also, the COVIDTRA clarifies that taxpayers whose PPP loans or other obligations are forgiven as described above are allowed otherwise deductible expenses paid with the proceeds, and that the tax basis and other attributes of the borrower's assets won't be reduced as a result of the forgiveness.
The TCDTR extends the CARES ACT credit allowed against the employer portion of the Social Security or the Railroad Retirement payroll tax for qualified wages paid to employees during the COVID 19 crisis. Under the extension, the qualifying wages must be paid before July 1, 2021(instead of Jan. 1, 2021). Additionally, beginning on January 1, 2021, the credit rate is increased from 50% to 70% of qualified wages. Qualified wages are increased from $10,000 for the year to $10,000 per quarter. The TCDTR makes other retroactive clarifications and technical improvements to the credit as initially enacted.
The COVIDTRA extends: (1) the credits provided by the Families First Coronavirus Response Act against the employer portion of OASDI and RR Retirement taxes for qualifying sick and family paid leave, and (2 )the equivalent FFCRA-provided credits for the self-employed against the self-employment tax. Under the extension of employer credits, wages taken into account are those paid before April 1, 2021 rather than January 1, 2021. Under the extension of credits for the self-employed, the days taken into account are those before April 1, 2021 rather than January 1, 2021.
The TCDTR provides that expenses for business-related food and beverage provided by a restaurant are fully deductible if they are paid or incurred in calendar years 2021 and 2022, instead of being subject to the 50% limit that generally applies. Also, the TCDTR temporarily allows (1) carryovers and relaxed grace period rules for unused flexible spending (FSA) amounts and (2) raising of the maximum eligibility age of a dependent under a dependent care FSA from 12 to 13 years.
The TCDTR includes several provisions targeted at "qualified disaster areas". These areas are those for which a major disaster was Presidentially declared during the period beginning on January 1, 2020 and ending February 25, 2021. The incidence period must begin after December 27, 2019 but not after December 27, 2020. Excluded are areas for which a major disaster was declared only because of COVID 19. This includes relief for retirement funds that consist of the following: (1) waiver of the 10% early withdrawal penalty for up to $100,000 of certain withdrawals by individuals living in a qualified disaster area that suffered economic loss because of that disaster, (2) a right to re-contribute to a plan the distributions that were intended for a home purchase but not used because of a qualified disaster, and (3) relaxed plan loan rules for qualified individuals. Changes to plan amendment rules facilitate the relief.
We will be pleased to hear from you with questions about any of the above items or any other matters.