President Joe Biden’s $1.9 trillion COVID-19 relief bill cleared its final congressional hurdle, with the House passing the bill in a 220 to 211 vote, sending it to the president for his signature. President Biden signed the legislation this afternoon.
Whether you are an individual taxpayer or a business, this stimulus legislation likely contains a provision that applies to you. Many of the most complicated business elements of the bill are written in vague terms, so we expect further IRS and SBA guidance to come out within the next few months.
Key Takeaways for Businesses:
Companies that work with “third-party” gig workers will be required to report more transactions to the IRS, likely resulting in more taxes paid by ride-share drivers and food delivery contractors. Under current law, companies don’t have to report transactions to the IRS unless a contractor is paid more than $20,000 and is a result of 200 or more transactions. The bill would lower that amount to $600, no matter the number of transactions.
The legislation also repeals the worldwide interest allocation provision, which allows companies to choose where to attribute their interest costs.
The bill also extends the excess business loss limitation for non-corporate taxpayers an additional year, through 2026. The 2017 tax law restricts how business losses can be carried forward to offset future-year profits and was initially implemented through 2025, and now has been extended through 2026.
Paycheck Protection Program Funding and Economic Injury Disaster Loans
The bill also includes $15 billion for targeted Economic Injury Disaster Loans and an additional $7.25 billion for forgivable loans in the Paycheck Protection Program. The legislation extends PPP eligibility to include tax-exempt nonprofits whose lobbying activities do not comprise more than 15% of its activities, certain internet publishing companies and 501© (5) labor and agricultural organizations and community locations of larger nonprofits.
Restaurants & Venue Operators
The legislation includes $25 billion to help restaurants struggling from pandemic lockdowns and closures and $1.25 billion for the Shuttered Venue Operators Grant Program.
- There is a $5T initial set aside for restaurants that gross less than $500,000 per year.
- Restaurants will be eligible to be granted their decline in sales from 2019 to 2020, less any PPP money they have received.
- There is a 21-day priority application period that will segregate applicants based on race, sex, and veteran status.
- The formulas for calculating how much a restaurant will be eligible for have not been written. The timing for the applications has not been set; the formulas for how to split up the money amongst applicants have not been written. The law is written with broad strokes and we expect to wait until mid/late April for actual SBA rules and regulations related to the grants.
COBRA Health Coverage and Paid Leave
A late addition to the legislation by the Senate covers 100 percent of the costs of continuing health insurance through September for laid-off workers eligible for so-called COBRA coverage in employer health plans. COBRA premium assistance is an allowable payroll cost under the PPP program.
The bill provides tax credits for employers with fewer than 500 workers to reimburse them for paid leave costs of up to $1,400 per week per worker. The bill does not mandate that employers offer paid leave.
Extension of Employee Retention Credit
The Employee Retention Credit is extended until December 31, 2021. The Employee Retention Credit remains one of the single most important stimulus programs passed in the last 12 months, as employers are eligible for 70% payroll support if they qualify.
Key Takeaways for Individuals:
The legislation would send a third round of stimulus payments — this time at $1,400 per eligible individual. Singles earning up to $75,000 will get the full amount, with the payments phasing out completely by $80,000 in income. Couples making up to $150,000 will get $2,800 — $1,400 per person — with the payments declining at higher incomes and zeroing out altogether at $160,000. Children and adult dependents in those households are also eligible for $1,400 payments. Read more about the stimulus payment eligibility requirements here.
The plan would also allow residents who are married to undocumented residents to receive stimulus payments; they were barred in prior rounds. The IRS is likely to begin sending the first wave of payments out via direct deposit before the end of the month.
The legislation would extend supplemental unemployment benefits that are scheduled to start running out March 14. The bill extends the weekly federal benefit of $300 a week through Sept. 6. That was a last-minute compromise to appease centrist Democrat Senator Joe Manchin of West Virginia. Manchin who was concerned that previous versions of the bill, that called for higher payments or a longer extension, were too costly.
The package also extends benefits for self-employed individuals and gig workers, along with those who have exhausted their regular jobless benefits. It includes tax relief on the first $10,200 in unemployment payments for workers in households earning up to $150,000 a year. The change will prevent many people from receiving surprise IRS bills this spring. Individuals who have already submitted their tax returns this year paying taxes on their jobless benefits can file an amended tax return to claim a refund for that money.
Child and Dependent Care Tax Credits
The bill would expand tax credits for low- and middle- income families and make them refundable for 2021. It would also expand the child tax credit to $3,000 from $2,000 for each child aged 6 to 17. Children five and younger would be eligible for $3,600. The tax credits would be sent to households monthly starting in July, effectively creating a guaranteed monthly income for parents. The phase out limits are $75,000 for a single person, $112,500 for a head of household, and $150,000 for a married couple filing jointly.
Unlike in previous years, the credit will become completely refundable and is going to be eligible to be paid in advance via monthly governmental transfers ($250-300 per child) to taxpaying parents, starting in July. This is written as a one-year change to the law, but is expected to become one of the most substantial expansions of government social payment policy in years when it is likely extended by future legislation.
The child and dependent care credit is expanding substantially for 2021. The credit jumps to 50% of your childcare expenses (formerly 35%) with a credit limit of $4,000 per child, up to a maximum of $8,000, and is now fully refundable. This credit formerly phased out starting at $15,000, but is now available for households making up to $400,000 (the phaseout starts at $125,000). This will materially increase refunds to a large number of taxpayers.
The bill also includes $25 billion for a stabilization fund to help open childcare centers and $15 billion in grants to support essential workers in meeting childcare costs.
The legislation would provide $45 billion to help low-income households that have lost jobs pay rent, mortgages and utility bills. The plan would also provide $5 billion to states and localities to offer emergency housing for families facing homelessness.
Other Items Included in the Legislation:
Vaccinations and Testing
The legislation includes $160 billion for vaccine and testing programs to help stop the virus’s spread and ultimately end the pandemic. The plan includes money to create a national vaccine distribution program that would offer free shots to all U.S. residents regardless of immigration status.
The legislation includes funding to create community vaccination centers and deploy mobile units in hard-to-reach areas. Money is also directed toward testing efforts, including purchasing rapid-result tests, expanding lab capacity and helping local jurisdictions implement testing regimens.
Senate Democrats included more than $360 billion in aid for state, local and territorial governments. Democrats for months have pushed for more money to help state and local governments that have faced higher costs and lower tax revenue during the pandemic. States and cities warn they’ll be forced to make deep cuts to public health, safety and education programs without more funding, because they can’t borrow money in the way the federal government can. Many Republicans chafed at more money for local governments, saying it amounts to a bailout for mismanaged budgets. The package also includes specific pots of money for critical infrastructure, including broadband internet, and money for rural hospitals.
The plan calls for $170 billion to help schools open — something Democrats have argued would allow many parents, especially women, to rejoin the labor force after they dropped out to care for children learning at home.
About $130 billion of that would go to K-12 schools to help them hire additional staff to reduce class size, modify spaces and purchase resources to help meet students’ academic and mental health needs. The plan would also direct $40 billion to colleges and universities. The plan includes a last-minute amendment that would require schools receiving funds to submit plans within 30 days about how they plan to safely re-open.
The legislation also would make student loan forgiveness tax-free. The bill doesn’t include provisions to forgive student loans, but it would put in place tax benefits if Congress or Biden were to forgive student loans in the future.
The legislation includes a 15 percent increase in Supplemental Nutrition Assistance Program, or SNAP, extending benefits through September. The bill also gives money for grocery stores to upgrade their systems to accept SNAP benefits online and extends Pandemic EBT, a program that sends food money to families of children who typically rely on free school meals.
The legislation also provides $4 billion for Black farmers to assist with debt relief.
Airlines and Airports
The bill allocates $14 billion for eligible airlines and $1 billion for contractors to the air carriers to extend a payroll support program set to run out on March 31. The legislation also includes $8 billion for airports to make changes to facilities or personnel to prevent the spread of COVID-19.
Please note many of the most complicated business elements of the bill are written in vague terms, so we expect further IRS and SBA guidance to come out within the next few months.
As we have been doing with all coronavirus legislation and IRS and SBA guidance during these past several months, we will be sure to update you with any additional insight as soon as possible. Continue to check back here for the most up to date tax information and changes in response to coronavirus. Click here for all of your coronavirus resources. If you have questions about this or related topics contact an MCB Advisor at 703-218-3600 or click here.
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