An Accountant’s Breakdown of the COVID Relief Bill; for Individuals & Small Businesses

Item #1: Second Round of Economic Impact Payments (EIP):

• $600 per individual(s) filing as Single or Married Filing Separate whose Adjusted Gross Income (AGI) does not exceed $75,000.
• $600 per individual(s) filing as Head of Household whose Adjusted Gross Income (AGI) does not exceed $112,500.
• $1,200 per couple filing as Married Filing Joint or Qualifying Widow(er) whose Adjusted Gross Income (AGI) does not exceed $150,000.
  • Individual(s) will also receive $600 per qualifying dependent child under the age of 17. (This differs from the original stimulus payment which added only $500 per dependent child.)
  • If a taxpayers’ AGI exceeds the thresholds stated above, the stimulus payment will begin to phase-out at a rate of $5 for every $100 of Adjusted Gross Income above the stated threshold.
  • Initially, the AGI threshold will be based off of the taxpayers’ 2019 Adjusted Gross Income, however, since these are in actuality an advance payment of a credit which will be computed on the taxpayers’ 2020 Form 1040, if your recomputed credit is higher based on changes in income or qualifying children, the taxpayer will get additional credit on the 2020 Form 1040.

Item #2: Second Round of Paycheck Protection Program Loans (PPP):

• A second PPP Loan is available to small businesses who fit the following criteria:
  • Employs not more than 300 employees
  • Had gross receipts during the first, second, third or fourth quarter 2020 (for applications submitted after 1/1/21) that demonstrate not less than a 25% reduction from the gross receipts of the entity during the same quarter in 2019.
  • The maximum loan is the lesser of:
    • 2.5x the average total monthly payroll payment for calendar year 2019 or the 1-year period before the date the loan was made or,
    • $2,000,000
  • Loan Forgiveness will generally follow if loan proceeds were used during the covered period (24 weeks) for the following costs:
    • Qualified Wages
    • Mortgage Interest
    • Rent
    • Utilities
    • PPE, etc.

Item #3: Tax Treatment of Forgiven Paycheck Protection Program Loans (PPP):

• This bill has clarified the following:
  • No amount shall be included in the gross income of an eligible entity by reason of forgiveness of indebtedness and,
  • No deduction shall be denied, no tax attribute be reduces, and no basis increase shall be denied, by reason of the exclusion from gross income provided in paragraph 1. This means that although the forgiveness of the loan is not includible in taxable income, an entity may still take the deductions for the expenses which the loan covered. This is in contradistinction to the rulings and interpretations of the IRS up until this point of the taxability of the PPP loans under the CARES ACT, and effectively deems the loan forgiveness related to PPP loans (whether in the first or second round) to be tax-exempt.

Item #4: Tax Treatment of Business Meals:

• Section 210 of the bill allows for a temporary allowance of full deduction for business meals for tax years 2021 and 2022.
  • This means that meals which would otherwise be limited to a 50% deduction, will be allowed a 100% deduction in tax years 2021 & 2022.

Item #5: Tax Treatment of Certain Charitable Contributions:

• The CARES Act allowed for a charitable contribution deduction of $300 for those taxpayers which do not itemize in 2020.
  • Section 212 of this bill extends this provision into 2021 and allows for a deduction of up to $600 in the case of a joint return.
• The CARES Act also canceled the limitation of 60% AGI on charitable contributions for tax year 2020.
  • Section 213 of this bill extends this provision into tax year 2021.

Item #6: FSA Arrangement Carryover Allowances:

• Section 214 of this bill allows for a carryover of unused Health & Dependent Care Flexible Spending Arrangement benefits for 12 months.

For more on this evolving situation, reach out to Klein & Co. Tax & Accounting for any further updates.