Highlights of the COVID Relief legislation includes direct stimulus payments, additional unemployment benefits, funds for another round of PPP funding, and additional funds for schools, vaccine distribution and business relief
Direct Stimulus Payments
The legislation would authorize a second round of economic-impact payments. Households would receive $600 for each adult and $600 for each dependent (no payment is available for an adult-dependent). Mixed-status households, where some people are ineligible noncitizens, would get payments based on the number of eligible people in the households, as opposed to being shut out as they were in the first round.
The payments would be based on income from 2019 and begin phasing out for individuals with adjusted gross incomes over $75,000 and married couples over $150,000. Taxpayers eligible to be claimed as a dependent on another’s return are not eligible to receive a payment. Individuals earning between $75,000 and $99,000 receive smaller payments.
Households whose incomes were too high to qualify or who added dependents in 2020 might not qualify for full payments immediately. But they can request additional money as part of the 2020 tax return they will file in early 2021.
An update to the legislation to increase the direct stimulus payments from $600 to $2,000 is currently pending in Congress.
Extended Unemployment Benefits
Federal Pandemic Unemployment Compensation (FPUC)
Will provide up to 11 weeks of an additional $300 weekly benefit to eligible claimants. A claimant must be eligible through a separate unemployment program to receive FPUC. Once implemented, FPUC will be available to cover weeks of unemployment between Dec. 27, 2020, and the week ending March 13, 2021.
Pandemic Unemployment Assistance (PUA)
(for gig workers, freelancers, independent contractors and self-employed)
Will provide up to an additional 11 weeks of benefits, to a maximum of 50 weeks. Weekly certification will be required. Claimants will be required to provide documentation of eligibility to qualify for PUA beginning Jan. 31, 2021. PUA will be available until the week ending March 13, 2021 (no new applications after that date), with an allowance for three additional weeks of benefits for those who have not reached the maximum number of weeks through the week ending April 3, 2021.
Pandemic Emergency Unemployment Compensation (PEUC)
Will provide up to an additional 11 weeks of benefits, to a maximum of 24 weeks. PEUC will be available until the week ending March 13, 2021 (no new applications after that date), with an allowance of three additional weeks of benefits for those who have not reached the maximum number of weeks through the week ending April 3, 2021.
The bill provides $25 billion of assistance to tenants in arrears on their rent. It also extends until the end of January 2021 a federal eviction prohibition, which the incoming Biden administration may extend again. The Treasury Department would be responsible for dispersing the rental assistance to states via a formula based on population. Landlords and building owners can apply on behalf of tenants meeting the eligibility requirements, generally those who make less than 80% of median income in their area, have at least one person in their households who has lost a job and can demonstrate they are at risk of losing their home.
Paycheck Protection Program (PPP)
Additional Loans for PPP
A second round of loans are available under the Paycheck Protection Program. $12 billion is designated for minority-owned and very small businesses. $15 billion in funding is specifically for live venues, independent movie theaters, and cultural institutions that demonstrate a 25% reduction in revenues quarter-over-quarter comparing 2020 to 2019.
Expenses Paid with PPP fully Deductible
Expenses paid with PPP funds are now completely deductible. PPP forgiveness increases the borrower’s basis. However, this does not occur until forgiveness is actually granted. Therefore, 2020 losses may not be deductible due to basis limitations if the PPP Forgiveness is no processed until 2021.
Streamlined Forgiveness for loans under $150,000
Streamlined one-page form for forgiveness of loans less than $150,000. Borrowers will only be subject to audit if they commit fraud or use the proceeds for improper purposes. The business must retain and provide documentation to prove how the funds were spent.
New PPP Loan Guidance
The maximum loan amount is $2 million with the second round of PPP loans and is available in three categories:
- Qualified businesses that did not apply in the first round
- Qualified businesses that need additional funding above the first PPP loan
- Businesses that returned their first PPP loan or did not get the full amount for which they qualified
Second Draw PPP Loan Eligibility
The new round of PPP loans are meant to assist smaller businesses impacted by COVID-19. As a result, applicants who qualify generally must also meet the following criteria:
- The business may not have more than 300 employees (businesses with multiple locations may not employ more than 300 employees at each location) and
- The business must have at least a 25% reduction in revenues in at least one quarter in 2020 when compared to previous quarters
- Any business that got a first PPP loan must have used, or plan to use, their full PPP loan already received.
Expanded Use of Funds/Expenses Permitted for Loan Forgiveness
The bill gives PPP borrowers who have not yet applied for forgiveness expanded use of proceeds on four new types of expenses. The expenses are subject to the non-payroll costs, have limitations, and therefore cannot exceed 40% of the total costs eligible for the forgiveness. Along with payroll costs, damage from riots, food loss due to lockdown, reimbursing employees for transitioning to remote working are all considered eligible expenses for forgiveness.
Changes to Covered Periods
The bill gives a borrower the right to choose ANY covered period beginning on the date of the disbursement and ending between 8 and 24 weeks later. They can choose any period lasting between 8 and 24 weeks.
PPP borrowers may now also claim the Employee Retention Credit; however, any wages for which a credit is computed will not be treated as forgivable payroll costs for purposes of the PPP.
Other Loan Forgiveness Issues
The receipt of an Economic Injury Disaster Loan advance (EIDL) will no longer be taxable, and any expenses paid with the advance will remain deductible.
Funding for Schools and Child Care
$82 billion in aid for K-12 schools and colleges and $10 billion to child care providers.
$48 billion in funding for vaccine purchase, distribution, and testing as follows: $20 billion for the purchase of vaccines, $8 billion distribution, and $20 billion is to assist states with testing.
Individual and Business Provisions
Clarification of the “above the line” charity deduction is $300 for individual filers and $600 for married filing jointly (MFJ). In addition, 100% business meals deduction returns for tax years 2021 and 2022.
FFCRA Credits Extended
The Families First Coronavirus Response Act (FFCRA) required certain small employers to pay up to 10 weeks of qualified family leave when an employee can’t work due to child care facilities and school closings. Employers are also expected to provide up to 2 weeks of sick leave for various COVID-related reasons.
Employee Payroll Tax Deferral
President Trump used an executive order to allow certain employees to defer the 6.2% share of Social Security tax on wages paid from September 1, 2020, through the end of the year until the first four months of 2021. The bill extends the due date for that deferral to be repaid from April 30, 2021, until December 31, 2021.
In addition to the second round of PPP funding, the bill would extend a tax credit for struggling employers who keep workers on the payroll, and it would let recipients of certain tax credits qualify based on their 2019 incomes; in some cases, lower 2020 incomes could reduce their eligibility.
The bill would also temporarily extend tax breaks for renewable energy, including incentives for wind energy and carbon capture. It also includes deductions for business meals, a provision that President Trump backed but that faced criticism from Democrats as a subsidy for three-martini lunches and indoor dining during a pandemic.
Lower excise taxes on beer, wine and spirits that were set to expire Dec. 31 will be permanently extended, and tax incentives for investing in low-income areas and hiring workers from disadvantaged groups would be extended for five years.