Tax Provisions in the New COVID Relief Bill

Tax Provisions in the New COVID Relief Bill

By: Stacey Nickens

On Sunday evening, President Donald Trump signed a new COVID relief bill into law. The package includes additional fiscal stimulus for certain households, an extension of unemployment benefits, and increased funding for the Paycheck Protection Program. The bill also creates, modifies, or extends a number of tax provisions, which I will review below.

Unemployment Benefits

Many federal unemployment benefits were set to expire on December 26. Under the new relief package, unemployment benefits of up to $300 per week have been extended for 11 weeks. Qualifying individuals will thus receive enhanced unemployment benefits through March 14. Similarly, the new bill extends Pandemic Unemployment Assistance, which will provide an additional $100 per week to certain freelancers and contractors.

Paycheck Protection Program

The bill sets aside an additional $285 million for the Paycheck Protection Program. Loans will go to businesses with less than 300 employees who have taken a significant sales hit during the pandemic. Loans will also now be capped at $2 million.

Along similar lines, those who received a loan from the Paycheck Protection Program may have used those funds for otherwise deductible business expenses. The new relief bill clarifies that these business expenses can still be deducted, even if paid for with a PPP loan. Additionally, funds from the forgiveness of a PPP loan do not increase a filer’s adjusted gross income.

Relief Payments

The bill provides for a refundable tax credit of up to $600 per individual. The credit is $600 per taxpayer ($1,200 for married couples), with an additional $600 credit per qualifying child. Individuals earning more than $75,000 or couples earning more than $150,000 will receive a smaller credit. The credit will be reduced by $5 for each $100 earned above these levels. If you recently had a refund issued to your bank account via direct deposit, you will likely receive your credit via direct deposit into the same bank account. Otherwise, your credit will be mailed as a check.

Earned Income and Child Tax Credits

When families see a drop in income, these helpful credits often decline. However, the new relief bill allows individuals to choose to calculate their credit on either their income from 2019 or their income from 2020. Additionally, unemployment insurance benefits cannot reduce credits this year.

Payroll Taxes

In August, President Trump issued an executive order allowing employees to delay paying payroll taxes. However, under this executive order, employees would have to repay those taxes during the first three months of 2021. Under the new relief bill, employees have until the end of 2021 to repay any skipped payroll taxes.

Educator Protective Equipment

Educators who purchased protective equipment to prevent the spread of COVID can deduct those expenses. This provision applies retroactively to March 12, 2020.

Money Purchase Pension Plans

Individuals with money purchase pension plans can now make penalty-free withdrawals for COVID-related expenses, recontribute withdrawn funds, pay the associated tax over three years, and take out larger loans from the plan.

Employee Retention Tax Credit

This tax credit will now last through June 30, 2021. Additionally, the bill makes a number of technical changes to this credit that you can review here.

Business Meals Deduction

The new relief bill allows a 100% deduction for business meals as long as the food and beverages are provided by a restaurant. The deduction applies for business meal expenses in 2021 and 2022.

Charitable Contribution Deduction for Nonitemizers

The relief bill extends the $300 charitable deduction for nonitemizers. Married couples can take a nonitemized charitable deduction of up to $600. This extension lasts through 2021.

These are just a few of the tax provisions in the new COVID relief bill. For an extensive review of additional regulations, click here. Additionally, please reach out with any of your questions or concerns. I can walk you through how the new provisions may impact you, your family, or your business.

Sources: Forbes, The New York Times
By Categories: BlogPublished On: December 28th, 2020