You’ve probably heard or read about the Consolidated Appropriations Act (CAA) passed in early January 2021. At over 5,500 pages, the law presents taxpayers and their advisors with much to digest. Whether you’re an individual looking for some financial relief or a business owner striving to keep your company operational and competitive, the provisions in it are intended to address the ongoing economic hardships caused by the COVID-19 pandemic. Here are just a few of the things the CAA can do for you.
Help for individuals
The provision that gets the most media coverage is one you may have already received, the Economic Impact Payments (EIPs). These funds are typically direct deposited and are $600 for individuals with adjusted gross incomes (AGIs) up to $75,000 and $1,200 for married couples filing jointly with AGIs up to $150,000 (based on 2019 tax returns) — plus $600 per qualifying child. Above these AGIs, the EIPs begin to phase out.
The Act also provides an additional $300 per week in unemployment benefits to qualifying individuals, including the self-employed, gig-economy workers and others in nontraditional employment situations. This boost to unemployment benefits is effective through March 14, 2021, with the maximum period for state-paid benefits extended to 50 weeks.
Other provisions include:
- A permanent reduction in the medical expense deduction floor to 7.5% of AGI
- An extended and expanded charitable contribution tax deduction for non-itemizers through 2021
- An extended exclusion for certain employer payments of student loans
Provisions for employers
For employers and businesses, the biggest news is the continuation and expansion of the Paycheck Protection Program (PPP). The Act allocates new funding for first-time borrowers, and “second draw” forgivable loans to organizations that qualify. There are dedicated set-asides for very small businesses and lending through community-based financial institutions.
In addition, the CAA expands PPP-eligible expenses to include items such as certain operating expenses, property damage costs, supplier costs and worker protection expenses. Further, it clarifies PPP loan tax treatment, certain loan forgiveness and other financial assistance under COVID-19 legislation.
Beyond the PPP, the CAA increases the business meals tax deduction to 100% for 2021 and 2022 for food and beverages purchased from restaurants, and it extends the repayment period for deferred payroll taxes.
When it comes to tax credits, the CAA offers quite a few. It extends and expands a retention tax credit for eligible employers that continue to pay employee wages during COVID-19 closures or after experiencing reduced revenue. Plus, the act extends tax credits for paid sick and family leave, as well as the Work Opportunity tax credit, the New Markets tax credit and Empowerment Zone tax incentives.
For more information
Like the initial bill, this one is a bit complicated as well. But it is important to identify all the ways the CAA may affect and improve your tax situation. Please contact us for more information and with any questions or concerns.