Pub. 3 2021 Issue 1

J A N U A R Y / F E B R U A R Y 2 0 2 1 10 nebraska cpas C O U N S E L O R ’ S C O R N E R KEY TAX PROVISIONS IN 2020 YEAR-END CORONAVIRUS RELIEF BILL BY JEFF SCHAFFART AND NICHOLAS BJORNSON, KOLEY JESSEN On December 27, 2020, a year-end legislative package containing $900 billion in coronavirus pandemic relief was signed into law. Among other things, the relief bill allows businesses to deduct expenses paid for with Paycheck Protection Program (PPP) loans, extends and expands the employee retention credit (ERC), extends the payroll tax credits for paid and sick leave included in the Families First Coronavirus Response Act (FFCRA), and makes business meals fully deductible for 2021 and 2022. The coronavirus relief bill extends and modifies several provisions first enacted in the CARES Act, which was passed in March 2020. The package extends relief through mid-March 2021. This article summarizes the major tax provisions in the coronavirus relief bill, which may benefit businesses and business owners. ExpensesPaidWithPPPLoanProceedsAreDeductible The coronavirus relief bill clarifies that recipients of PPP loans can deduct eligible expenses paid with forgiven PPP loans. This clarification applies to both original PPP and subsequent PPP loans. In Notice 2020-32, which is now legislatively overruled, the IRS stated that expenses paid for with PPP loan proceeds were not deductible. This clarif ication results in a two-part subsidy to businesses comprised of deductions and tax-free loan forgiveness. This same tax treatment also applies to Economic Injury Disaster Loan (EIDL) grants and certain loans and loan repayment assistance. Employee Retention Credit The CARES Act granted el igible employers a refundable employment tax credit equal to 50 percent of qualified wages (up to $10,000 per employee) paid after March 12, 2020, and prior to January 1, 2021, to eligible employees during a calendar quarter. To be eligible, businesses must either (i) be subject to a coronavirus government order partially or fully suspending their operations, or (ii) suffer a 50 percent decline in gross receipts from the same quarter in 2019. Under the CARES Act, the employee retention credit was scheduled to expire on December 31, 2020. The coronavirus relief bill extends the availability of the employee retention credit through June 30, 2021, and expands the program. Changes to the program include: • Increasing the employee retention credit from 50 percent of qualified wages to 70 percent of qualified wages for wages paid from January 1, 2021, to June 30, 2021; • Increasing the employee retention credit qualified wages cap from $10,000 per employee per year to $10,000 per employee per quarter for 2021; • Allowing employers with 500 or fewer employees to treat all wages paid to employees regardless of whether or not they are