COVID-19 Relief Bill: What’s In It for You?
The Emergency Coronavirus Relief Act of 2020 signed by President Donald J. Trump (R) on Dec. 27 opens the door to approximately $900 billion in COVID-19 aid. Among its general provisions, the bill temporarily (through 2022) extends the $300 charitable deduction for nonitemizers, includes various disaster tax-relief provisions as well as provides funding for unemployment benefits, direct-economic payments to individuals, vaccine distribution and rental assistance. Additional economic stimulus payments for individuals of $600 are already being distributed while lawmakers debate increasing the payout to $2,000.
The COVID-19 Relief Act and the Consolidated Appropriations Act of 2021 passed with it, contain a number of business-related provisions that will impact every linen, uniform and facility services business, including:
- Extension of the refundable payroll tax credit for paid sick and family leave enacted as part of the Families First Coronavirus Response Act (FFCRA), through March 2021. The new bill also allows individuals to use their average daily self-employment income from 2019 rather than 2020 to compute the credit.
- Extension of the Employee Retention Credit (ERC), the fully refundable payroll tax credit for employers, through June 30, 2021. The ERC for wages paid between Jan. 1, 2021 and June 30, 2021 will be equal to 70% of qualified wages, rather than the former 50%. Plus, the ERC cap on qualified wages has increased from $10,000 of wages per employee per year, to $10,000 of wages per employee per calendar quarter.
- Although designed to help the restaurant industry, restoring the deduction for business meals for 2021 and 2022 will allow textile services businesses to deduct 100% of the cost of business meals with clients (i.e., for those willing to venture out from their homes or offices).
- Provides $284 billion to reopen and strengthen the Payroll Protection Program (PPP) for both first-time and second-time borrowers. Among the features of the restored PPP is a process for businesses to receive a second PPP loan if they have fewer than 300 employees and can show a 25% reduction in revenue in any 2020 quarter vs. the same quarter in 2019.
- In general, borrowers are eligible for PPP loan forgiveness if they apply at least 60% of the proceeds to payroll. Partial loan forgiveness may be available to those failing to meet this threshold. PPP loans that aren’t forgiven are subject to an interest rate of 1%.
- Business expenses paid with PPP funding would be tax deductible, despite to an earlier IRS ruling to the contrary. Unfortunately, the states may not go along with allowing these deductions in conjunction with tax-free loan forgiveness which could result in an unforeseen state tax bill.
- The Economic Injury Disaster Loan (EIDL) program, designed to provide economic relief to businesses currently experiencing a temporary loss of revenue due to the Coronavirus Pandemic, has received a second round of funding. The new law also replenished the EIDL Advance Fund, which allows businesses suffering a substantial economic injury to apply for an advance that doesn’t need to be repaid or up to $1,000 per employee limited to $10,000 total. Also eliminated was the requirement that PPP borrowers deduct the amount of an EIDL advance from their PPP forgiveness amount.
- IRAs and other retirement plans can now be used for “disaster mitigation.” Residents in qualified disaster areas can make a distribution of up to $100,000 from an Individual Retirement Account (IRA) or other retirement plan without penalty. Amounts withdrawn may be recontributed to the plan without consequences or included in income over a three-year period.
- The Section 179D deduction for the cost of making commercial buildings energy-efficient has been extended.
- The New Markets Tax Credit, the program encouraging tax-favored investments in economically depressed areas, has been extended for five additional years at 2020 levels.
- The popular Work Opportunity Tax Credit that has proven successful in helping employers add disadvantaged individuals was also extended for five years.
- The new legislation extended Pandemic Unemployment Assistance (PUA) benefits, the federal program covering the self-employed and so-called “gig” workers, from Dec. 31, 2020 until March 14, 2021. Eligible individuals can receive up to 50 weeks of PUA with no one eligible to receive it after April 5, 2021. Payments of retroactive PUA for those who had already exhausted the prior maximum is limited to weeks of unemployment after Dec. 1, 2020.
The new stimulus legislation should provide much needed relief to small and midsized businesses affected by COVID-19. But as with previous COVID-19 stimulus acts, readers should watch for additional guidance, announcements and interpretations to come. Thus, the advice of a tax professional is strongly advised.
Editor’s Note: Mark Battersby, a freelance writer who specializes in tax policy and related legislative and regulatory actions, prepared this summary of highlights of the Emergency Coronavirus Relief Act of 2020 and the Consolidated Appropriations Act of 2021.