Education

Tax PPP Loans

December 2020 Stimulus Bill (Taxpayer Certainty and Disaster Tax Relief Act of 2020)

Scott Patterson

10 months ago · 6 min read

Individuals

Pandemic Relief Stimulus Payments

Taxpayers will receive an advance on a new 2020 tax credit that amounts to $600 per taxpayer (if you’re keeping score, that’s $1,200 for joint filers) plus $600 per “qualifying child.” IRS announced these payments will be delivered by direct deposit beginning on Dec. 30th 2020. (IRS Announcement)

As with the CARES act, this credit will be reduced for households with income exceeding certain thresholds (Single - $75,000; Joint Filer - $150,000; Head of Household - $112,500).

Different from the CARES Act stimulus, this one will pay for each “qualifying child” rather than for each dependent under 17. A “qualifying child” is part of the dependent calculation but not the whole thing. While only one person may claim any given dependent, several different taxpayers may both have the same “qualifying child.” This is an important distinction for single parent households. Parents rejoice that full-time students under 24 also meet the definition of “qualified child.”

Another major change from the first bill is the requirement that both taxpayers (on a joint return have a social security number (SSN) has been removed. Now those on a tax return with a SSN will be eligible for the credit and/or an advance payment. This applies to the first and second round of payments.

If you don’t receive the correct payment amount soon, you will be able to calculate and receive the correct amount on your 2020 tax return.

Unemployment Benefits Expanded

‘Regular’ and Pandemic (including self-employed individuals) Unemployment Compensation was extended eleven (11) weeks. In addition, qualifying individuals will receive an extra $300 for the eleven-week period.

Earned Income & Additional Child Tax Credit Enhancements

The Earned Income Tax Credit (EITC) and Additional Child Tax Credit (ACTC) is available to workers with earned income. The credit is calculated primarily based on the number of “qualifying children” and the amount of earned income a taxpayer has. For 2020 only, taxpayers may elect to use earned income from 2020 OR 2019 while calculating the 2020 credit. This may be a HUGE help to those who’s income has drastically changed from last year.

Educator Expenses Expanded

The above-the-line deduction of up to $250 for classroom related educator expenses is expanded to include the cost of personal protective equipment (PPE) and other supplies used to prevent the spread of COVID-19 purchased after March 12, 2020.

Tuition and Fees Deduction Removed

Before you panic, realize there were 3 main ways to benefit from education related expenses. The American Opportunity Credit (AOC), Lifetime Learning Credit (LLC), and the Tuition and Fees deduction. Now, for tax years beginning in 2021 the Tuition and Fees deduction will no longer be an option. To compensate for this, the income limits on the Lifetime Learning Credit have been raised to match the AOC.

Above-the-line Charitable Deduction extended

The CARES Act added a 2020 only deduction for charitable contributions up to $300 per tax return. This law extends the deduction for 2021 and allows joint filers a maximum of $600 per return (removing the marriage penalty).

Permanent Reduction in Medical Expense Deductions

Medical expense deductions once again must exceed only 7.5% of AGI to be considered an itemized deduction. Previously, Obamacare legislation has raised the bar to 10% of AGI for most. Keep in mind that the standard deduction [https://www.irs.gov/help/ita/how-much-is-my-standard-deduction] was not changed, so this may primarily benefit older taxpayers.

Principal Residence Debt Forgiveness

If you are among the unfortunate who suffer foreclosure or a short sale you find insult is added to injury when you learn you must pay tax on the value of any debt (including a home mortgage) forgiven. Over the years there have been periods of time where the law allows this to be avoided for debt forgiveness based on principal home mortgage (with limits). Unfortunately, these provisions have never been made permanent and have always expired. Once again, this benefit has been extended through 2025, but it’s limit has been reduced to $750,000 for joint filers ($1 million for single filers).

Businesses & Business Owners

PPP expenses are deductible

With this bill Congress puts in writing its original intent and reverses earlier IRS rulings that PPP funds are to be tax free AND expenses paid with those funds are also deductible. Previously IRS released several statements contradicting this, infuriating lawmakers and business owners alike.

Thankfully, Congress also specified that businesses filing as an S Corporation or Partnership will not reduce tax basis upon the forgiveness of the PPP loan. However, astute tax professionals have noticed while deductions have been granted and basis will remain unchanged, certain taxpayers may get caught in a timing issue forcing the tax deduction to be taken in 2021 instead of 2020.

PPP Round 2

PPP loans are available once again to those who missed out the first few times. Hungry for more? Here’s the qualifications:

  • Business has less than 300 employees per location
  • You can demonstrate at least a 25% reduction in revenue for the first, second, or third quarter of 2020 compared to the same quarter in 2019.
  • You have (or will) used all of the first PPP loan
  • You have (or will) used all of the first PPP loan
  • The business was operational before Feb. 25th 2020.
If you qualify you may receive2.5 times (3.5 for food service businesses) average monthly payroll & healthcare costs (capped at $2 million).

Employee Retention Tax Credit (ERTC)

This credit was set to expire with 2020 but was extended until June 30th, 2021. There are TONS of changes to this credit. The major one is the fact that PPP borrowers are no longer disqualified. Qualifications in 2020 were:

  • Shut down (full or partially) by government order OR
  • Experiencing a large drop in year-over-year gross receipts.
Before you get too excited, be aware that money spent using PPP money can NOT also be used for this credit. Still not a bad deal.

Meal Expenses 100% Deductible

For 2021 and 2022, a 100% deduction will be allowed for business related “food and beverages provided by a restaurant.” This should be a welcome incentive for businesses to spend money with a struggling restaurant industry. We’re sure IRS will have some clarifications on the definition of a “restaurant.” We only wish it was retroactively to 2020 expenses.

Exclusion for Student Loan Payments Extended through 2025

Employers have long been able to make tax free payments for employee education. This year the CARES act added the ability for employers to make student loan payments as well. Now this benefit has been extended through 2025.

Notice: This generic information is not intended to be taken as tax, legal, benefits, financial, or HR advice. Since rules and regulations change over time and can vary (by industry, entity type, and locale), consult your accountant, lawyer, and/or HR expert for specific guidance.

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