Here is a quick rundown of the top 3 individual and business tax provisions in the COVID-Related Tax Relief Act of 2020 (part of the Consolidated Appropriations Act, 2021).
Economic Impact Payments – You may have already received a pending notification regarding your “second stimulus.” Please note, currently the law only allows $600 per taxpayer, spouse, and dependent child under age 16. The provision passed by the House earlier this week makes changes to this, but it is still just hanging out in Congress. Good news for those married to a spouse with an ITIN! Although anyone without an SSN is still ineligible, a taxpayer with an SSN and any qualifying dependents will be able to receive their portion of the EIP. There is also explicit language stating overpayments cannot be collected.
Charitable Contributions – There will be a deduction available to all taxpayers (no need to itemize) for up to $300 in qualified charitable contributions made during 2020 & 2021. The limitation rules for deductibility of charitable contributions has been removed for 2020 & 2021.
Child Tax Credit & Earned Income Credit – This one is a very long complicated discussion requiring some very technical tax-speak, which I will not subject you to. The simple explanation is your unemployment in 2020 will not mess up your EIC or CTC on your tax return. However, you will be required to provide documentation and make an election. We are working on our specific process for this provision and will have more information for you after the new year.
PPP – We finally have some much-needed answers for this program. Forgiveness is not taxable, expenses are deductible, and the EIDL advance does not have to be paid back. Phew!! This had us biting our nails as we began year-end planning. Now we have “Second Draw PPP.” These loans are only available to those who originally received a PPP. There are several requirements to qualify for the additional funds including reduced income and the use of the first PPP funds. Hospitality and Food Service industries are eligible for a higher loan amount.
Payroll Tax Deferral – Oh what a nightmare this one has been! The best part is we now get to deal with it for an entire year. The repayment of the deferred employee SS tax from September 1, 2020 to December 31, 2020 now allows the entire year of 2021 to be withheld and paid.
Employee Retention Credit – Changes for 2021 include higher reimbursement, lower percentage of lost income, and more wages eligible. There are also retroactive changes to the program allowing employers who received a PPP to claim the credit. We will be reviewing our payroll clients as we reconcile year-end and reach out with more information.
If you have questions reach out to our office. We are in the throws of year-end reconciliations and W-2 preparation and ask that you leave a message under the “General Tax Questions” option in our voicemail system. We will return phone calls the same day or by noon the next day.
Wishing you and your families all the best in the new year!