On December 27, 2020, the President signed the Economic Aid to Small Businesses, Nonprofits, and Hard-Affected Sites Law of 2020 (the “Economic Aid Law”). In addition to expanding the Paycheck Protection Program (“PPP”) for first- and second-time borrowers, the law also included numerous tax provisions, some of which clarified a number of outstanding issues regarding the payroll. Coronavirus Aid, Relief and Economic Security Act. 2020 (the “CARES Act”) and other prior federal stimulus programs in the United States.
While there is too much to unpack from the Economic Aid Act in one update, here is a brief summary of some of the main tax provisions included in the Economic Aid Act:
Welcome to the clarification that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan (and that the tax base and other attributes will not be reduced due to the cancellation of the PPP loan. ). This replaces previous guidelines issued by the IRS that taxpayers who received a PPP loan in 2020 but who had either (i) requested a forgiveness by the end of 2020 and had a reasonable expectation of forgiveness (based on whether payment of their eligible expenses was eligible for a reimbursement) or (ii). Previous IRS guidelines have been widely criticized as inconsistent with the intent of Congress, a position now generally upheld by the Economic Aid Act.
Clarified that gross income does not include remission of Economic Disaster Loans (EIDL), emergency EIDL grants and certain repayment aids under the CARES Act.
The employee payroll tax deferral covered by President Trump’s August 2020 presidential decree, previously applicable only to salaries paid between September 1, 2020 and December 31, 2020, has been extended from April 30, 2021 to December 31, 2021.
Various technical changes were made to the calculation of the Employee Retention Tax Credit (IRTC), including an extension of the applicable salaries covered by the credit until June 30, 2021 (previously it only applied to salaries paid until the end of 2020), an increase in the credit rate from 50% to 70% of the eligible salary, an increase in the amount of salary per employee eligible for the credit from $ 10,000 for the year to $ 10,000 for each quarter and an increase in the eligibility threshold from employers with no more than 100 employees to employers with no more than 500 employees. Importantly, the legislation also clarifies that employers who have received PPP loans may still be eligible for the ERTC with respect to wages that are not paid with canceled PPP products, thus allowing employers to both receive a PPP loan and take advantage of the ERTC (but not for the same wages).
Extend until March 2021 the refundable salary tax credits for sick leave and paid family leave (including for certain self-employed workers) provided for in the Families First Coronavirus Response Act (previously they only applied ‘salaries paid during the period of April 1, 2020). , as of December 31, 2020).
An increase in the deduction for business meals to 100% for 2021 and 2022, suspending the 50% limit which is otherwise applicable to these expenses.
The tax provisions included in the Economic Assistance Act provide many benefits to taxpayers, including a welcome clarification and the widening of the possibility of deducting PPP-related expenses and taking advantage of the tax credit for retention of the taxpayer. employer.
© 1998-2021 Wiggin and Dana LLPRevue nationale de droit, volume XI, number 13