With the Consolidated Appropriations Act, Congress has, among other things, temporarily reversed some of the TCJA rules on meals and has temporarily made certain meals 100 percent deductible. These meals must have occurred after December 31, 2020 and before January 1, 2023. Here's what else is in the Act of note to your clients:
Along with meals, the Consolidated Appropriations Act permanently reduced the medical expense deduction floor from 10 percent to 7.5 percent and extended the Section 455 credit for paid family and medical leave. Student loans payments have also been added to Section 127, which allows deductibility by employers.
Extending and expanding the employee retention credit (ERC) allows certain workers to receive in-service distributions from qualified plans. As for the ERC, CARES Act section 2301 created the ERC for wages paid from March 13, 2020 to December 31, 2020, by employers that are subject to closure or significant economic downturn due to COVID-19 (see Tax Alert 2020-0761).
The CARES Act also created the Paycheck Protection Program (PPP) under which the Small Business Administration and private lenders administer loans available to smaller employers for payroll and other expenses. If certain conditions are met, the debt can be forgiven. The ERC is a refundable employment tax credit for eligible employers paying qualified wages and health plan expenses.
Under CARES Act section 2301(j), an eligible employer receiving a PPP loan may not claim the ERC. The ERC provisions of the CARES Act were due to expire on December 31, 2020. Sections 206 and 207 of the Disaster Relief Act extend and broaden the expiring ERC. Certain changes are retroactive to enactment of the CARES Act, but most apply only with respect to wages paid from January 1, 2021 through June 30, 2021 (the first two calendar quarters of 2021).
The Disaster Relief Act extends the ERC to include wages paid before July 1, 2021 (from January 1, 2021) with the following changes applying to the period after December 31, 2020:
ERC expanded to 70 percent of qualified wages: The credit amount is 70 percent (up from 50 percent) of up to $10,000 per quarter (up from $10,000 total) of qualified wages paid to an employee. Thus, the maximum ERC amount available for 2021 is $14,000 per employee ($7,000 per quarter).
Gross receipts decline decreased to 20 percent: To be eligible for the expanded ERC, an employer must carry on a trade or business during the first or second quarter of 2021 and experience one of the two following COVID-19-related occurrences: (1) operations were fully or partially suspended due to orders from a governmental authority due to COVID-19 (COVID-19 shutdown), or (2) the business experienced a more than 20 percent reduction (from more than 50 percent) in gross receipts (significant decline in gross receipts) when comparing either the calendar quarter or the prior quarter to the corresponding quarter in 2019.
For example, an employer may be an eligible employer for the first quarter of 2021 if either its gross receipts for the first quarter of 2021 fell by more than 20 percent when compared to the first quarter of 2019 or its gross receipts for the fourth quarter of 2020 fell by more than 20 percent when compared to the fourth quarter of 2019. Employers that did not exist in 2019 can use the corresponding quarter in 2020.