The Consolidated Appropriations Act, 2021 (CAA) signed into law by President Trump on December 27, 2020, includes the COVID-Related Tax Relief Act of 2020 (Division N) and the Taxpayer Certainty and Disaster Relief Act of 2020 (Division EE) which provide a number of new tax provisions, as well as extensions of certain CARES Act tax provisions and other temporary and permanent tax extensions.
Title II, Subtitle B of the COVID-Related Tax Relief Act of 2020 includes the following tax provisions:
- On August 8, 2020, the President of the United States issued a memorandum to allow employers to defer withholding employees’ share of social security taxes or the railroad retirement tax equivalent from September 1 to December 31, 2020, and required employers to increase withholding and pay the deferred amounts ratably from wages and compensation paid between January 1, 2021 and April 31, 2021. Beginning on May 1, 2021, penalties and interest on deferred unpaid tax liability were to begin to accrue. This provision (Notice 2021-11) extends the repayment period through December 31, 2021. Penalties and interest on deferred unpaid tax liability will not begin to accrue until January 1, 2022. [read more]
- Requires the Secretary of the Treasury to issue guidance or regulations (Rev. Proc. 2021-15) providing that personal protective equipment, disinfectant and other supplies used for the prevention of the spread of COVID-19 are treated as eligible expenses for purposes of the educator expense deduction. Such regulations or guidance shall be retroactive to March 12, 2020. [read more]
- Clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a Paycheck Protection Program (PPP) loan. This provision (Rev. Rul. 2021-02) also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision. [read more]
- Clarifies that gross income does not include forgiveness of certain loans, emergency EIDL grants, and certain loan repayment assistance, each as provided by the CARES Act. The provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income by this section, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income. The provision is effective for tax years ending after date of enactment of the CARES Act. The provision provides similar treatment for Targeted EIDL advances and Grants for Shuttered Venue Operators, effective for tax years ending after the date of enactment of the provision.
- Extends the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act (FFCRA), through the end of March 2021. It also modifies the tax credits so that they apply as if the corresponding employer mandates were extended through the end of March 2021. This Provision does not extend FFCRA-mandated paid sick and family requirements for employers beyond December 31, 2020. Employers who voluntarily offer such leave may utilize payroll tax credits to cover the cost of benefits paid to employees through the end of March. [read more]
The IRS has posted updated FAQs about the extended and amended tax relief available to certain small- and mid-sized employers under the FFCRA.
Title II of the Taxpayer Certainty and Disaster Relief Act of 2020 includes the following new and modified tax provisions:
- Modifies Sec. 401(a) to allow certain qualified pensions to make distributions to workers who are 59½ or older and who are still working. For certain construction and building trades workers, the age is lowered to 55.
- Clarifies, makes amendments and extends the Employee Retention Tax Credit to June 30, 2021. [read more]
- Temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.
- Allows taxpayers to refer to earned income from the immediately preceding tax year for purposes of determining the Sec. 32 earned income tax credit and the Sec. 24(d) additional child tax credit for tax year 2020.
- Extends and modifies the $300 charitable deduction for nonitemizers for 2021 and increases the maximum amount that may be deducted to $600 for married couples filing jointly. However, the Sec. 6662 penalty is increased from 20% to 50% of the underpayment for taxpayers who overstate this deduction. The new law also extends for one year (through 2021) the increased limit from the CARES Act on deductible charitable contributions for corporations and taxpayers who itemize.
- Allows taxpayers to roll over unused amounts in their health and dependent care flexible spending arrangements (FSAs) from 2020 to 2021 and from 2021 to 2022. This provision also permits employers to allow employees to make a 2021 mid-year prospective change in contribution amounts.
The new law also provides disaster tax relief for individuals and businesses in presidentially declared disaster areas for major disasters (other than COVID-19) declared after Dec. 31, 2019, through 60 days after the date of enactment.
Title I of the Taxpayer Certainty and Disaster Relief Act of 2020 also extends the following expiring tax provisions:
The Act makes permanent the following provisions:
- Sec. 213(f) reduction in medical expense deduction floor, which allows individuals to deduct unreimbursed medical expenses that exceed 7.5% of adjusted gross income instead of 10%.
- Sec. 179D deduction for energy-efficient commercial buildings (the amount will be inflation-adjusted after 2020).
- Sec. 139B gross income exclusion for certain benefits provided to volunteer firefighters and emergency medical responders.
- Sec. 45G railroad track maintenance credit; however, the credit rate is reduced from 50% to 40%.
The Taxpayer Certainty Act repeals the Sec. 222 deduction for qualified tuition and related expenses but in its place increases the phaseout limits on the lifetime learning credit (so they match the phaseout limits for the American opportunity credit), effective for tax years beginning after December 31, 2020.
The Act also reduces various excise rates for small brewers and distillers.
The Act provides five-year extensions to the following provisions:
- Sec. 45D new markets tax credit.
- Sec. 45S employer credit for paid family and medical leave.
- Sec. 51 work opportunity credit.
- Sec. 108(a)(1)(E) gross income exclusion for discharge of indebtedness on a principal residence.
- Sec. 127(c)(1)(B) exclusion for certain employer payments of student loans.
- Sec. 168(e)(3)(C)(ii) seven-year recovery period for motorsports entertainment complexes.
- Sec. 181 special expensing rules for certain film, television, and live theatrical productions.
- Sec. 954(c)(6) look-through treatment of payments of dividends, interest, rents, and royalties received or accrued from related controlled foreign corporations under the foreign personal holding company rules.
- Sec. 1391(d) empowerment zone designation.
- Sec. 4611 Oil Spill Liability Trust Fund financing rate.
The Sec. 1397A increased expensing under Sec. 179 and Sec. 1397B nonrecognition of gain on rollover of empowerment zone investments are both terminated for property placed in service in tax years beginning after Dec. 31, 2020.
The Sec. 1394 empowerment zone tax-exempt bonds and Sec. 1396 empowerment zone employment credit, which expire Dec. 31, 2020, were not extended.
The Act provides a two-year extension to the following provisions:
- Sec. 25D residential energy-efficient property credit (the bill also makes qualified biomass fuel property expenditures eligible for the credit).
- Sec. 45Q carbon oxide sequestration credit (through 2025).
- Sec. 48 energy investment tax credit for solar and residential energy-efficient property.
The Act provides one-year extensions to the following provisions:
- Sec. 25C 10% credit for qualified nonbusiness energy property.
- Sec. 30B credit for qualified fuel cell motor vehicles.
- Sec. 30C 30% credit for the cost of alternative (nonhydrogen) fuel vehicle refueling property.
- Sec. 30D 10% credit for plug-in electric motorcycles and two-wheeled vehicles.
- Sec. 35 health coverage tax credit.
- Sec. 40(b)(6) credit for each gallon of qualified second-generation biofuel produced.
- Sec. 45(e)(10)(A)(i) production credit for Indian coal facilities.
- Sec. 45(d) credit for electricity produced from certain renewable resources.
- Sec. 45A Indian employment credit.
- Sec. 45L energy-efficient homes credit.
- Sec. 45N mine rescue team training credit.
- Sec. 163(h) treatment of qualified mortgage insurance premiums as qualified residence interest.
- Sec. 168(e)(3)(A) three-year recovery period for racehorses two years old or younger.
- Sec. 168(j)(9) accelerated depreciation for business property on Indian reservations.
- Sec. 4121 Black Lung Disability Trust Fund increase in excise tax on coal.
- Sec. 6426(c) excise tax credits for alternative fuels and Sec. 6427(e) outlay payments for alternative fuels.
- The American Samoa economic development credit (P.L. 109-432, as amended by P.L. 111-312).
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For additional information on the new stimulus provisions included in the Consolidated Appropriations Act, 2021, as well as other Federal, state and local relief measures, please visit our COVID-19 Resource Center on our website. If you have any questions, please contact your Tronconi Segarra & Associates advisor or a member of our response team at covid19team@tsacpa.com
