On December 27th, President Trump signed the COVID-Related Tax Relief Act (COVIDTRA), a $908 billion relief package, into law. Among other provisions, the legislation includes a number of notable tax provisions and extenders for businesses and nonprofit organizations.
One of the biggest wins in this round of legislation affects PPP loan recipients, both from the first round of PPP (PPP1) as well as the upcoming second round (PPP2). COVIDTRA makes business expenses paid for with PPP loan proceeds tax deductible, so the program is now tax-free.
Additionally, PPP forgiveness will not be reduced by the amount of an EIDL loan, emergency EIDL grant, nor by inclusion of certain other loan repayment assistance in gross income. For more details on PPP provisions, check out our previous article, Congress Passes COVID-19 Relief Package: Includes PPP, Unemployment Assistance & Recovery Rebates.
Payroll Tax Deferral
Under Trump’s August memorandum, employers are allowed to defer certain employee payroll taxes, providing they increase employee withholding and pay the deferred amounts ratably from wages and compensation paid between January 1, 2021, and April 30, 2021. COVIDTRA extends the repayment period through December 31, 2021.
Employee Retention Tax Credit (ERTC)
The Act extends the ERTC through June 30, 2021, and increases the maximum for the refundable payroll tax credit to $14,000 for 2021. The Act increases the credit rate from 50% to 70% of qualified wages and increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter. The eligibility for the credit is based on a 20% reduction in gross receipts compared to the comparable 2019 calendar quarter. The Act also modifies the threshold for determining qualified wages based on the number of employees to 500 from 100. Among other modifications, the Act allows PPP loan recipients to take advantage of the ERTC, as long as those wages aren’t also claimed as forgivable costs.
The CARES Act modified the limitation of 10% of taxable income for charitable contributions made by a C Corporation by increasing the limit to 25% of taxable income. The Act extends the increased limit for deductible charitable contributions established by the CARES Act for corporations through 2021.
Extension of Existing Tax Provisions
A number of popular tax extenders provisions were set to expire at the end of 2020 and have been extended by COVIDTRA.
New Markets Tax Credit – COVIDTRA extends the credit by 5 years (through 2025) and the carryover period by 5 years (through 2030).
Work Opportunity Credit – The Act extends the credit by 5 years (through 2025), and makes the credit applicable to workers hired after December 31, 2020.
Empowerment Zone Incentives – While there were other modifications as well, the Act extends these incentives for businesses and residents in such zones by 5 years (through 2025).
Employer Credit for Paid Family and Medical Leave – COVIDTRA extends the credit by 5 years (through 2025), for wages paid in tax years beginning after December 31, 2020.
Deduction for Energy-Efficient Commercial Buildings – While the amount will be adjusted for inflation in years following 2020, the Act makes the deduction for energy-efficient commercial buildings permanent.
Exclusion for Certain Employer Payments of Student Loans – COVIDTRA extends the exclusion of certain employer payments of student loans from gross income by 5 years (through 2025).
Business Energy Property – The Act increases the credit provided for business solar energy for property built before 2024, and the energy percentages associated with solar, fiber-optic solar, qualified fuel cell, and qualified small wind energy properties are phased out over time.
Additionally, the Act provides a one-year extension of the credit for qualified fuel cell motor vehicles, the 30% credit for the cost of alternative/nonhydrogen fuel vehicle refueling property, and the 10% credit for plug-in electric motorcycles and two-wheeled vehicles.
We’re here to help
ARB is dedicated to updating our clients and community as the legislative implications of the COVID-19 pandemic continue to unfold. Stay on the lookout as we release additional information in the coming days. Contact us if you have questions about this information or to find out more about our PPP consulting services.
Download our 13-Week Cash Flow Analysis tool and access our PPP Loan Forgiveness Workbook. Please also visit our COVID-19 Financial Resource and Tax Center for additional information on related matters.
Holly Ferguson joined ARB in 1996 and has been a principal for the firm since 2012. Throughout her career, Holly has provided financial reporting consulting services, assisted with transactional accounting and consulting related to business acquisitions/sales, and analyzed implications and strategic implementation of new accounting standards. As the Practice Leader of ARB’s Accounting & Attest Services Team, she focuses primarily on related services for businesses, manufacturers, credit unions, and nonprofit organizations.
Robin Cyr joined ARB in 2010. She is a Director in Tax, specializing in providing comprehensive tax compliance and consulting services to corporate and individual clients. Robin primarily serves industry leaders in the manufacturing, construction, and nonprofit sectors. As both a CPA and a lawyer, she provides exemplary tax and consulting services related to estate and succession planning.