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(Signed by congress, Dec. 21, 2020). FINALOn December 27, 2020, President Trump signed into law the?Consolidated Appropriations Act, 2021 (the “Act”). ?The Act enhances and expands certain provisions of the?Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) (H.R. 748).??Direct payment to individuals and family:a. Individuals with AGI up to $75,000.00, the act provides $600.00 payment, phasing out at a rate of $5.00 for every $100.00 in income above the $75,000.00.b. Marries Individuals with combine AGI of up to $150,000.00 would receive $1,200.00 subject to the same phase out as that applying to individuals.The provisions also provide an additional $600.00 per child, though also subject to the phase-out. (No adult dependents will qualify for the $600 checks, who has attained the age of 17) Eligibility and benefit levels would be based on 2019 income tax filings. Individuals will not be required to repay any overpayment when filing taxes next year.Notes:*Taxpayers receiving more than eligible for will not be required to pay back. *If the amount determine on their 2020 tax return exceeds the amount received taxpayer will receive the difference as a refundable tax credit.*Not subject to administrative offset for federal or state debts. *also protected from any other private creditor or debt collector.Identification Number Requirement:Mixed Status Households.Qualifying Child:Valid Identification Number: Clarification of Tax Treatment of PPP Loans:Second PPP Loan:Retention Credit:Enhanced Retention Credit:*. Old 2020; the cares Act created a new tax credit to encourage businesses to retain their workforce available to the end of the year. The provision provided eligible employers with a refundable tax credit equals to 50% of employee compensation (inclusive of health Insurance) up to $10,000.00 per employee for all quarters. *. New 2021, the CCA substantially enhances the eligibility of the Cares Act credit by increasing the credit percentage to 70% of qualify wages, expanding the wage base to $10,000.00 per employee per quarter ( as opposed to per year). 2020-2021 use blended rate.Example:The Employee Retention Tax Credit (ERC)Example:Facts 2020;X Co. Q2 Q3 Q4Gross Receipts 2020 $100,000 120,000 150,000 2019 210,000 155,000 180,000 ------------ ------------ - ----------- Drop 110,000 35,000 30,000 % of receipts in the same Qtr. in 2019 48% 78% 84%Qualifies Y Y NOLD 2020; the business experienced a quarter in which gross receipts were less than 50% of the receipts in the same quarter in 2019. Subsequent to that is also eligible until the end of the first quarter in which gross receipts exceed 80% of the receipts from the same quarter in 2019. Salaries paid to qualify employees:2020; Q2 Q3 Q4A. 8,000 7,000 10,000 B. 12,000 10,000 11,000 C. 4,000 4,000 4,000 D. 2,000 2,000 2,000OLD 2020; The provision provided eligible employers with a refundable tax credit equals to 50% of employee compensation (inclusive of health insurance) up to $10,000.00 per employee for all quarters. Qualify wages 2020;Q2 (8,000.00+10,000.00+4,000.00+2,000.00) = $24,000.00 Q3 (2,000.00+0+4,000.00+2,000.00) = 8,000.00Q4 (0+0+2,000.00+2,000.00) = 4,000.00 Total qualify wages 2020 $36,000.00Total Employee Retention Credit 2020 50% -------------Total ERC 2020 $18,000.00 Facts 2021; Q1 Q2Gross receipts 2021 140,000 140,000 2019 180,000 210,000Dropt 40,000 70,000% of receipts in the same Qtr. in 2019 23% 34%Qualifies Y YNEW 2021; The test is satisfied for any quarter of the first half of 2021 in which gross receipts is less than 80% of the same quarter in 2019. Thus in the first quarter of 2021 a business would compare its receipts in that quarter to the first quarter of 2019, not the first quarter of 2020. It is obvious that the comparison to same quarter 2019 instead of 2020 is more advantageous because it is more likely that the gross receipts in 2019 will be significantly higher than those of same quarter 2020.If a business did not exist at the beginning of the same quarter in 2019, the same quarter in 2020 is use. Salaries paid to qualify employees:2021; Q1 Q2A. 8,000 7,000B. 12,000 14,000 C. 4,000 4,000 D. 6,000 6,000NEW 2021; the CCA substantially enhances the eligibility of the Cares Act credit by increasing the credit percentage to 70% of qualify wages, expanding the wage base to $10,000.00 per employee per quarter (as opposed to per year).2020-2021 use blended rate.Qualify wages 2021;Q1 (8,000+10,000+4,000+6,000)= $28,000.00Q2 (7,000+10,000+4,000+6,000) = 27,000.00Total Qualify wages $55,000.00Total Employee retention credit 70% -------------Total ERC 2021 $38,500.00 Business Meals Deduction:Under current law, business may deduct 50% of the cost of business-related meals. The CAA temporarily increases this deduction to 100% through the end of 2022.Payroll Tax ReferralThe CAA extends the repayment period through December 31, 2021. Originally employers were required to pay back between January and April 31, 2021. Tax Extenders:The bill makes permanent Section 213(f) reduction in medical expenses that exceed 7.5% of adjusted gross income instead of 10%.The bill provides five-year extensions for certain provisions such as IRC section 108(a) (1) (E) gross income exclusion for discharge of indebtedness on a principal residence. Also Section 127(c) (1) (B), Exclusion for certain employer payments of student loan. IRS Taxpayer Relief Initiatives:The IRS is highlighting reasonable cause assistance available through IRS procedures for failure to file, failure to pay and failure to deposit penalties. First time abatement relief is also available for the first time a taxpayer is subject to one or more of these tax penalties.For individual taxpayers receiving notices (letters about a tax bill) with tax liabilities up to $250,000.00 for tax year 2019 only, the IRS can offer one installment agreement opportunity with no tax lien filed.The IRS is extending the short-term payment plan timeframe to 180 days (normally 120 days).The IRS is easing paperwork requirements to allow individuals more flexibility to get non-streamline installment agreement up to $250,000 without financial verification, if their case is not yet assigned to a revenue officer.Extend guidance to automatically include new tax years balances accrued in existing installment agreements. (Individuals and out of business entities only).The IRS will provide relief for taxpayers having difficulty meeting the terms of previously accepted offers.In short, this are difficult times and the IRS is helping taxpayers who are struggling with their tax bills, but as with any assistance with the IRS it helps to have a reputable tax professional to see what the taxpayer qualifies for. OTHER NOTES:Large employer threshold.?For an employer with more than 100 full-time employees, the CARES Act imposed an additional restriction: the employee retention tax credit is available only with respect to wages paid to an employee who is not providing services due to circumstances described in (i) the suspension test or (ii) the gross receipts test. ?The Act increases the threshold for this rule in 2021 to 500 full-time employees (so that employers with between 101 and 500 full-time employees would no longer be subject to this restriction)Exclusion of Certain Employer Payments of Student LoansThe CARES Act amended Section 127 of the Internal Revenue Code (which permits employers to provide certain educational assistance to employees on a tax-free basis) to allow the payment by an employer of principal or interest on certain employee qualified education loans through December 31, 2020. The Act expands this provision to permit the tax-free payment of principal or interest on qualified education loans by employers through December 30, 2025 (subject to applicable limits under Section 127).Employer Takeaway: There was little employer interest in this special rule in 2020 due to the uncertainties of the pandemic. As the emergency subsides, employers may want to consider amending their Section 127 plans to provide this valuable tax-free benefit.?Temporary Allowance of Full Deduction for Business MealsThe Act temporarily allows a 100% deduction for business expenses for food or beverages provided by a restaurant that are paid or incurred between January 1, 2020, and December 31, 2022.Relief from Certain Certification RequirementsThe CARES Act required that, as part of the application process, PPP borrowers certify “that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient” and that the PPP “funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments.” Title III relieves PPP borrowers from this obligation.With respect to the 25% revenue loss requirement for loan eligibility, Title III allows borrowers of less than $150,000 to expedite the application process by initially certifying to their eligibility. Such borrowers, however, would be required to substantiate this revenue loss on or before submitting a forgiveness application.PPP Loan CapTitle III caps any future PPP loans (including the “second draw” loans discussed below) at $2 million.Second PPP Loan AvailabilityTitle III allows eligible entities to receive a second PPP loan, referred to as a “second draw.”To qualify as an?eligible?entity, a prospective PPP borrower must:Employ?not more than 300 employees; andDemonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to the same 2019 quarter.Special rules apply for the determination of whether entities that did not exist for some or all of 2019 meet this revenue loss requirement.Ineligible entities include entities with certain relationships to the People’s Republic of China or the Special Administrative Region of Hong Kong, including those created, organized or having significant operations in these areas or having directors who are residents of the People’s Republic of China.Generally, the second draw loan amount is calculated on the same basis as the original PPP loans (up to?2.5 times average total monthly payroll costs?in the one year prior to the loan), but is capped at $2 million. Special rules apply to entities that are assigned a NAICS code beginning with 72 (generally, hotels and restaurants); these entities can borrow up to?3.5 times?their average monthly payroll costs, but the loan amount is still capped at $2 million.Change in Covered PeriodThe covered period for a PPP loan is 24 weeks (or 8 weeks for borrowers who received their loans prior to June 5, 2020, and elect to use an 8-week covered period). Title III would allow borrowers to select?any?covered period between 8 weeks after loan origination and 24 weeks after loan origination in length.Faster Forgiveness;Extending your forgiveness?period?from eight to?24 weeks?could lead to the loan forgiveness process extending into next year. If you apply for other loans?or?lines of credit during that?time, you may have a hard?time?qualifying while the PPP forgiveness issue is up in the air.Who is not eligible for a PPP loan?Passive businesses owned by developers and landlords that do?not?actively use or occupy the assets acquired or improved with the?loan?proceeds (except as?Eligible?Passive Companies under 13 CFR § 120.111) are?not eligible.What can PPP loan be used for?You?can?use the?loan?to fund payroll costs, employee salaries, costs related to the continuation of group healthcare benefits during paid leave (sick, family or medical), insurance premiums,?mortgage?interest payments, rent, utilities and interest on any other debt obligation incurred before February 15, 2020.Loan Forgiveness for the New PPP LoansAs with the previous round of PPP loans, the new loans may be entirely forgiven if spent for the proper purposes (primarily payroll) during the proper time period. Currently, there are three PPP loan?forgiveness applications, but these will likely be updated by the SBA once the program officially reopens.To obtain full forgiveness, borrowers will need to spend at least 60% of loan proceeds on payroll.Borrowers may spend up to 40% on other qualified expenses during the covered period. In addition to rent, mortgage interest and utilities, the list of eligible non-payroll expenses has been expanded to include four new categories:Covered operations expenditures;Covered property damage costs;Covered supplier costs; andCovered worker protection expenditures.Covered operations expenditures?include payments for any software, cloud computing, and other human resources or accounting needs.(c)Qualifying child For purposes of this section—(1)In generalThe term “qualifying child” means a?qualifying child?of the taxpayer (as defined in?section 152(c)) who has not attained age 17.Mixed-status' families have different qualifications with this checkIn the?$900 billion stimulus package, a US citizen and their non-citizen spouse are both eligible for a payment as long as they have Social Security numbers. This has been referred to as a "mixed-status" household when it comes to citizenship.In the CARES Act from March, households with a person who was?not a US citizen?were not eligible to receive a stimulus check, even if one spouse and a child were US citizens. ................
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