On December 27, 2020, the Consolidated Appropriations Act (CAA) was signed into law. It’s designed to provide ongoing government, individual and small business support during the COVID-19 pandemic. A large portion of the CAA deals with tax benefits, grants and loans as well as changes to the federal tax law. Tax services in Jamestown, ND can help your business make sense of the new law and determine how it might apply to your situation.
The Paycheck Protection Program (PPP) has been expanded so eligible businesses can receive second-draw loans (PPP2). They’re available to businesses who employ 300 or fewer employees, or no more than 500 for accommodation and food service employers classified in NAICS Code 72. To qualify, they must have had a decline in gross receipts during any of the quarters of 2020, by 25 percent or more, when compared to the same quarter in 2019. If they received a previous PPP loan, they must meet the same criteria and have used the full amount of the loan before the second loan is disbursed.
When it comes to taxes, PPP2 loans function the same as PPP loans: if they made any income as a result of forgiveness, it is not taxable, and the expenses paid for by PPP2 loans remain deductible.
Business tax relief
In addition to PPP2 loans and their expense deductions, the CAA expands some CARES Act programs and extends other (non-COVID-19-related) tax provisions that would have expired in 2021.
First, there are changes to the employer credits for employee retention. The CAA modifies and expands this credit by no longer requiring that employers who obtained PPP loans are not allowed to claim retention credits. Now the employer can choose whether to claim the employee retention credit on eligible wages which were not used to support PPP loan forgiveness. Any wages that could count toward both provisions can be applied to either, but not both. This allows employers to maximize tax credits and PPP loan forgiveness. The retention credit has been expanded from 50 to 70 percent of the first $10,000 in eligible wages paid per quarter, and it expires on June 30, 2021.
There is also an expansion of the employer credits for sick and family leave program, which has been extended through March 31, 2021. If required to provide leave, the 100 percent credit remains in effect, and anything in excess is not FFCRA credits but might qualify for the general paid leave credit.
Business meals also get a boost: 100 percent of business meals are deductible (rather than the standard 50 percent) where the food and beverages are provided by a restaurant, as long as they’re paid or incurred between Jan. 1, 2021 and Dec. 31, 2022.
Finally, the CAA offers a disaster employee retention credit (not including COVID-19). It applies to any area covered by federal disaster declarations between Jan. 1, 2020, and 60 days after enactment of the CAA.
For more information about new business tax credits, or to schedule an appointment with an accountant in Jamestown, ND, call Craig S. Hanson, CPA today—and look for Part 2 of this series soon!