Late in the evening on Monday, December 21, Congress passed a gigantic bill that included (among many other things) several provisions that impact year-end tax planning. The President is expected to sign the bill into law.
The draft of the bill that we were able to review comes in at 5,593 pages and funds the government through next September. Like many of the Senators and Representatives that passed the bill, we have not yet had a chance to review all of its provisions, but some of the highlights include:
Clarification that expenses paid with forgiven PPP loan funds will be deductible for tax purposes. This had been a huge issue, with potential nondeductibility increasing taxable income by the forgiven amount. There had been speculation that deductibility could be limited or contingent for some borrowers, but the final language makes all forgiven expenses deductible. Minnesota has not yet conformed to the federal treatment of PPP loan forgiveness, so currently the forgiveness is taxable for Minnesota purposes.
A new round of PPP loans. The rules for this second round will be slightly different than the first round. To qualify this time, borrowers must be able to show that their gross receipts decreased in any one quarter in 2020 by more than 25% compared to the corresponding quarter in 2019. The list of eligible expenses qualifying for forgiveness is also expanded.
- Simplified PPP forgiveness for loans up to $150,000. PPP loans that do not exceed $150,000 can be forgiven under a simplified procedure that requires no documentation to be submitted to the bank, other than a one-page application.
- Stimulus checks to individuals. Similar to the CARES Act, the new bill provides for direct payments to taxpayers, though the amounts are smaller - $600 per person (taxpayer, spouse, and dependent child). The payment amount phases out as income exceeds a certain level, in the same manner as with the CARES Act.
- Extension of paid leave under the FFCRA. The credit for paid leave under the Families First Coronavirus Response Act (FFCRA) is extended through March 31, 2021.
Full deductibility of business meals. The 50% reduction in the deductibility of business meals has been removed for expenses incurred in 2021 and 2022. Business entertainment expenses remain nondeductible.
- Payments made on SBA loans not taxable. Section 1112 of the CARES Act provided that the SBA would make the principal and interest payments on certain SBA loans for 6 months. The bill says that those payments are not taxable income to the borrower.
- Employee retention credit. The bill makes significant changes to the Employee Retention Tax Credit, extending it through next June and allowing PPP recipients to claim the credit in certain circumstances.
- Tax extenders. Dozens of expiring tax provisions are extended in the bill, some permanently. For example, the §179D deduction for energy efficient commercial property was permanently extended, as was the 7.5%-of-AGI floor for medical expense deductions.
These are only some highlights of the massive new bill. Stay tuned for further details.