COVID-19 and your taxes
Other provisions of the bill were enhanced unemployment insurance benefits, a second round of Paycheck Protection Program loans, extended eviction moratoriums and housing assistance payments as well as numerous extensions of existing credits and other relief provisions, as follows:
- Unemployment benefits
- Extends unemployment benefits for an additional 11 weeks to those who remain unemployed after state benefits are exhausted.
- Provides an additional $300 per week for each unemployment insurance recipient through March 14, 2021 (but you can receive checks through April 5, 2021).
- Charitable contributions
- Up to $300 cash contributions can be deducted above the line for anyone who uses the standard deduction for 2020 and up to $300 for single taxpayers (or $600 for married joint filers) in 2021.
- For 2020 and 2021 IRA owners over 59-1/2 can directly transfer unlimited amounts to charities.
- Other personal relief
- Medical expenses exceeding 7.5% of adjust gross income will be deductible for those able to itemize deductions.
- Educator expense deduction includes purchases of personal protection equipment.
- Unused flex spending balances may be carried over from 2020 into 2021 and from 2021 into 2022.
- Mortgage debt forgiveness on principal residence is now $750,000 through 2025.
- Qualified tuition expenses were repealed but phase-out limits for lifetime learning credit increased to those of the American Opportunity Credit beginning in 2021.
- Residential energy credits were extended for tax years 2020 and 2021.
- Distributions from qualified pension plans allowed for workers 59 ½ who are still working. Age is 55 for construction and building trade workers.
BUSINESS PROVISIONS
- Paycheck protection program (PPP)
- Eligibility extended to non-profits and other small businesses, but excludes publicly traded businesses and Chinese owned entities.
- Second PPP loans allowed if (1) business has less than 300 employees and (2) has used or will use all of their first PPP loan funds and (3) gross receipts decrease at least 25% in one of the four quarters of 2020 compared to the same quarter in 2019. (Certain gross receipts exceptions apply for seasonal employers or some new businesses.)
- Generally, the second PPP loan is 2.5 times average monthly payroll costs, limited to $2 million. Provision was made, however, to provide an additional 40% for those in the food service industry, using 3.5 times average monthly payroll costs.
- The “necessity” requirement remains undefined. Arguing that a business really needs the loan after surviving a difficult couple of quarters but is now making ends meet may find it difficult to certify the loan is necessary to continue operating.
- Remember names of recipients of the second loan will not be kept confidential.
- Qualifying expenses also include covered operating expenses, worker protection expenditures (PPE), covered property damage and certain supplier costs.
- Loans up to $150,000 can use a simplified forgiveness application.
- Clarification was provided that, for both tax relief acts, expenses paid with PPP funds are deductible and forgiven loans are not taxable.
- Economic Injury Disaster Loan (EIDL)
- EIDL advance will not reduce the amount of PPP loan forgiveness and is not taxable.
- Other business relief
- Business meals and beverages provided by restaurants will be 100% tax deductible for 2021 and 2022.
- Payroll taxes may be deferred until December 31, 2021, without interest and penalties accruing until January 1, 2022.
- Employer credit for paid family and medical leave was extended through 2025.
- The temporary excludable education assistance for employer payment of student loans was extended for payments made through 2025.
- The employee retention credit was expanded and increased for wages paid from March 13, 2020, through June 30, 2021. Qualification and rules are detailed.
- Tax deduction for qualified energy efficient improvements to commercial buildings is now permanent.
- Numerous other industry specific credits and provisions were extended for one to four tax years.
Please be aware that some of these provisions modified and/or clarified the CARES Act; others are in addition to the CARES Act. Further modifications or clarifications are to be expected during the coming months.