New Pandemic Relief Package to Bring Tax Changes, Stimulus Checks

This blog post was originally published on December 28, 2020. It was updated on December 31, 2020.

President Trump signed the long-awaited COVID-19 relief bill into law, suggesting more aid will soon be on the way.

The new legislation includes more than $900 billion in aid for individuals and businesses, and $1.4 trillion in spending to fund federal agencies through September 2021, averting a potential government shutdown.

Although the legislation does not provide new forms of stimulus or relief, it does contain changes to previous provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that extend them past their initial expiration date or, in some cases, permanently. It also includes several tax changes that will impact individuals and businesses, and additional funding to support COVID-19 vaccine production and distribution.

Second round of stimulus checks

The legislation includes $600 stimulus checks for individuals. The House approved a measure that would raise stimulus checks to $2,000, but it was blocked in the Senate. However, future Economic Impact Payments may be considered by Congress.

Not everyone will receive the stimulus in the latest round; payments will begin to phase out for individuals reporting an adjusted gross income over $75,000 in 2019 ($150,000 for joint filers).

Additionally, individuals who qualify for unemployment insurance payments in their state may receive an additional $300 per week in benefits.

Tax changes for individuals

The new bill contains various provisions that may affect tax planning for individuals:

• Charitable contribution provisions enacted under the CARES Act in 2020 are extended through 2021. This includes both the $300 allowance of charitable contributions for non-itemizers, as well as the 100% adjusted gross income (AGI) limitation for itemized deductions.
• The Child Tax Credit and Earned Income Tax Credit are enhanced for low-income families.
• The act clarifies that certain financial aid received by college students under the CARES Act is excluded from income.
• Expenses for personal protective equipment and other supplies used to prevent the spread of COVID-19 qualify for the above-the-line educator expense deduction. .

Tax changes affecting businesses

The legislation has renewed funding for the Paycheck Protection Program (PPP) loans and provides significant tax benefits for businesses who took PPP loans. The act expressly provides that the intent of the original legislation was that such expenses can give rise to a deduction. Businesses who received PPP loans can now deduct payroll costs and other expenses covered by forgiven PPP loans, even though the loans themselves are tax-free income. This is a huge benefit for businesses, who were denied the ability to claim a deduction for these expenses based on previous IRS guidance.

Businesses in the entertainment and hospitality industries, two of the hardest-hit by the mandatory shutdowns, will benefit from $15 billion in dedicated funding. To help the struggling restaurant industry, business meals can once again be deducted at 100% (for 2021 and 2022 only.)

Other beneficial provisions for businesses include:

• The legislation clarifies that forgiveness of Economic Injury Disaster Loans to small businesses are excluded from income.
• The credit for paid sick and family leave enacted as part of the Families First Coronavirus Response Act is extended through March 31, 2021.
• The employee retention credit is extended through June 30, 2021.
• The time allotted for repayment of employee Social Security taxes is extended through the end of 2021.

President-elect Joe Biden has said he will push for additional stimulus aid after taking office in January, but it remains unclear whether Congress would go along with those efforts. We’ll keep watching and update you as we learn more.

Contact your Kaufman Rossin professional to discuss what this new legislation could mean for you and your business.