Provisions Affecting Individuals
ECONOMIC IMPACT PAYMENTS
- You may have already received your second economic impact payment. The amount of the rebate is $600 per eligible family member. The credit is phased out at a rate of $5 per $100 of income over $150,000 for marrieds filing jointly and surviving spouses, $112,500 for heads of household, and $75,000 for single taxpayers. The advance payments will be based on the information on your 2019 tax return.
- If you receive an advance payment that exceeds the amount of your eligible credit (as calculated on the 2020 return), you will not have to repay any of the payment. If the amount of the credit determined on your 2020 return exceeds the amount of the advance payment, you will receive the difference as a refundable tax credit.
- Teachers can include in their $250 educator expense deduction personal protective equipment (PPE), disinfectant, and other supplies used for the prevention of the spread of COVID-19 that were bought after March 12, 2020.
- The 7.5%-of-AGI "floor" on medical expense deductions is made permanent. This floor was to have increased to 10% of adjusted gross income after 2020.
- The mortgage insurance premium deduction is extended by one year (through 2021). This deduction was due to expire at the end of 2020.
- The above-the-line charitable contribution deduction is extended through 2021. Individuals who don't itemize deductions can take up to a $300 deduction for cash contributions to charitable organizations. The Act increases the deduction allowed on a joint return to $600 (it remains at $300 for other taxpayers).
- In response to the COVID pandemic, the limit on cash charitable contributions by an individual in 2020 was increased to 100% of the individual's adjusted gross income. (The usual limit is 60%.) The Act extends this rule through 2021.
EXCLUSIONS FROM INCOME
- Emergency workers who are members of a "qualified volunteer emergency response organization" can exclude from gross income certain state or local government payments received and state or local tax relief provided on account of their volunteer services. This exclusion was due to expire at the end of 2020, but the Act made it permanent.
- If a lender cancels a debt, such as a mortgage, the borrower must usually include the discharged amount in gross income. But under an exclusion that was due to expire at the end of 2020, a taxpayer can exclude from gross income up to $2 million ($1 million for married individuals filing separately) of discharge-of-debt income if "qualified principal residence debt" is discharged. The Act extends this exclusion through the end of 2025, but lowers the amount of debt that can be discharged tax-free to $750,000 ($375,000 for married individuals filing separately).
- Qualifying educational assistance provided under an employer's qualified educational assistance program, up to an annual maximum of $5,250, is excluded from the employee's income. The earlier CARES Act added to the types of payments that are eligible for this exclusion, "eligible student loan repayments" made after Mar. 27, 2020, and before Jan. 1, 2021. These payments, which are subject to the overall $5,250 per employee limit for all educational payments, are payments of principal or interest on a qualified student loan by the employer, whether paid to the employee or a lender. The Act extends the exclusion for eligible student loan repayments through the end of 2025.
- Individuals may elect to substitute their earned income from 2019 in determining their 2020 refundable child tax and earned income credits.
- A refundable credit (known as the health coverage tax credit) is allowed for 72.5% of the cost of health insurance premiums. The Act extends this credit through 2021.
- The New Markets Credit, which provides a substantial tax credit to either individual or corporate taxpayers that invest in low-income communities was due to expire at the end of 2020. The Act extended it through the end of 2025. Carryovers of the credit were extended as well.
- The nonbusiness energy property credit, available for purchases of qualifying energy improvements to a taxpayer's main home, was due to expire at the end of 2020. The Act extended it through 2021.
- The credit for purchases of new qualified fuel cell motor vehicles, which was due to expire at the end of 2020, was extended by the Act through the end of 2021.
- The 10% credit for highway-capable, two-wheeled plug-in electric vehicles (capped at $2,500) was also extended until the end of 2021 by the Act.
- Individual taxpayers are allowed a personal tax credit, known as the residential energy efficient property credit, equal to the applicable percentages of expenditures for qualified solar electric property, qualified solar water heating property, qualified fuel cell property, qualified small wind energy property, and qualified geothermal heat pump property. This credit was due to expire at the end of 2021, with a phase-down of the credit during 2020 and 2021. The Act extends the phase-down period of the credit by two years, through the end of 2023; and terminates the credit as of 2023. The Act also adds qualified biomass fuel property expenditures to the list of expenditures qualifying for the credit, effective beginning in 2021.
- The 10% of adjusted gross income threshold on personal disaster losses in a federally declared disaster area was eliminated for 2020 disasters and the disaster loss gets added to the standard deduction if you do not itemize.
- The 10% early withdrawal penalty does not apply to qualified disaster distributions from retirement plans. The aggregate amount of distributions received by an individual that may be treated as qualified disaster distributions for any tax year may not exceed the excess (if any) of $100,000, over the aggregate amounts treated as qualified disaster distributions received by that individual for all prior tax years.
- The limit for plan loans made from a retirement plan because of a qualified disaster increased from $50,000 to $100,000.
- Gives the right to re-contribute to a retirement plan distributions that were intended for home purchase but not used because of a qualified disaster.
Provisions Affecting Businesses
PAYROLL PROTECTION PROGRAM (PPP) PROVISIONS
- Makes the following costs incurred eligible for PPP forgiveness: covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenses. These are in addition to the payroll costs, interest (but not principal) payments on any covered mortgage obligation (for mortgages in place before Feb. 15, 2020), payments for rent (for leases that began before Feb. 15, 2020), and covered utility payments (for utilities that were turned on before Feb. 15, 2020) previously permitted.
- Clarifies that taxpayers whose PPP loans or other obligations are forgiven as described above are allowed deductions for otherwise deductible expenses paid with the proceeds and that the tax basis and other attributes of the borrower's assets won't be reduced as a result of the forgiveness.
- Clarifies that the non-taxable treatment of PPP loan forgiveness that was provided by the 2020 CARES Act also applies to certain other forgiven obligations.
- Waives information reporting for PPP loan forgiveness.
- Permits businesses who employ less than 300 employees per physical location, have used or will use the full amount of their first PPP loan and demonstrate a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter to take a PPP Second Draw Loan of up to $2 million. Applications submitted in 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020 for demonstration of the 25% gross receipts reduction as well.
- Borrowers in the hospitality or food services industries (NAICS code 72) may receive PPP Second Draw Loans of up to 3.5 (instead of 2.5) times their average monthly payroll costs.
EXTENSIONS AND MODIFICATIONS OF EARLIER PAYROLL TAX RELIEF
- Extends the CARES Act credit allowed against the employer portion of the Social Security payroll tax for qualified wages paid to employees during the COVID-19 crisis. Under the extension, qualified wages must be paid before July 1, 2021 (instead of January 1, 2021). Additionally, beginning on January 1, 2021, the credit rate is increased from 50% to 70% of qualified wages. and qualified wages are increased from $10,000 for the year to $10,000 per quarter. Many other rules are also relaxed and the Act makes some retroactive clarifications and technical improvements to the credit as initially enacted.
- Extends the credits provided by the Families First Coronavirus Response Act (FFCRA) against the employer portion of Social Security taxes for qualifying sick and family paid leave and (2) the equivalent FFCRA-provided credits for the self-employed against the self-employment tax. Under the extension of the employer credits, wages taken into account are those paid before April 1, 2021 (instead of January 1, 2021). Under the extension of the credits for the self-employed, the days taken into account are those before April 1, 2021 (instead of January 1, 2021).
- Directs the IRS to extend the Presidentially ordered deferral of the employee's share of Social Security taxes. As first provided by IRS, the deferral was of taxes to be withheld and paid on wages and other compensation (up to $4,000 every two weeks) paid in the period from September 1, 2020 to December 31, 2020 so that the taxes were instead withheld and paid ratably in the period from January 1, 2021 to April 30, 2021. Under the deferral, the period over which the deferred-from-2020 taxes are ratably withheld and paid is extended to all of 2021 (instead of the four-month period ending on April 30, 2021).
- Provides that expenses for business-related food and beverages provided by a restaurant are fully deductible if they are paid or incurred in calendar years 2021 or 2022, instead of being subject to the 50% limit that generally applies to business meals.
- Allows carryovers and relaxed grace period rules for unused flexible spending arrangement (FSA) amounts, whether in a health FSA or a dependent care FSA and raises the maximum eligibility age of a dependent under a dependent care FSA from 12 to 13.
- Provides to employers in the harder-hit parts of a qualified disaster area an up-to-$ 2,400-per-employee employee retention credit, subject to coordination with certain other employer tax credits.
- Relaxes charitable deduction rules for qualified-disaster-related contributions.
- Relaxes rules that would otherwise cause a partial qualified retirement plan termination if the number of active participants in a retirement plan decreases.
- Relaxes, if certain conditions are met, the funding standards that, if met, allow a defined benefit pension plan to transfer funds to a retiree health benefits account or retiree life insurance account within the plan.
- Retroactively amends The CARES Act's relaxed rules for ''coronavirus-related distributions'' to additionally provide that a coronavirus-related distribution that is a during-employment withdrawal from a money purchase pension plan meets the requirements.
- Lowers to 55 years, from the usually applicable 59½ years, the age at which certain employees in the building or construction trades can, though still employed, receive pension plan payments under certain multiple employer plans.
- For tax years beginning after December 31, 2017, assign a 30-year ADS depreciation period to a residential rental property even though it was placed in service before January 1, 2018 (when the 2017 TCJA first applied the more-favorable 30-year period) if the property (1) is held by a real property trade or business electing out of the limitation on business interest deductions and (2) before January 1, 2018 wasn't subject to the ADS.
- Allows farmers who had in place a two-year net operating loss carryback before the CARES Act to elect to retain that two-year carryback rather than claim the five-year carryback provided in the CARES Act. Also allows farmers who before the CARES Act waived the carryback of a net operating loss, to revoke the waiver.
- Provides a 4% per year credit floor for buildings that qualify for the low-income housing credit that are not eligible for the 9% per-year credit floor.
- Changes the interest rate assumptions that determine whether a life insurance contract meets the cash value and premium caps for qualifying as a life insurance contract.
TAX PROVISIONS MADE PERMANENT
- The Act makes permanent without other changes the railroad track maintenance credit and the exclusion of the aging period in determining the mandatory interest capitalization period in producing beer, wine, or distilled spirits.
TAX PROVISIONS EXTENDED
- The exclusion from employee income of certain employer payments of student loans.
- The 3-year recovery period for certain racehorses.
- The favorable cost recovery rules for business property on Indian reservations.
- The 7-year recovery period for motorsports entertainment complexes.
- The expensing for film, television, and live theatrical productions.
- The empowerment zone tax incentives except for the increased section 179 expensing for qualifying property and the deferral of capital gain for dispositions of qualifying assets.
- Excludes from being personal holding company income certain payments or accruals of dividends, interest, rents, and royalties from a related person that is a controlled foreign corporation.
- Adds ''waste energy recovery property'' to the types of property that qualify for the business energy credit and assigns a credit rate of 30%. ''Waste energy recovery property'' is property (1) the construction of which begins before 2024, (2) that has a capacity of no more than 50 megawatts, and (3) generates electricity solely from heat from buildings or equipment if the primary purpose of that building or equipment isn't the generation of electricity.
- Relaxes the rules for wind facilities that are ''qualified offshore wind facilities,'' which can, by election, be eligible for the credit for electricity produced from renewable resources instead of the business energy credit.
- Makes permanent the energy-efficient commercial buildings deduction. Indexes for inflation the per-square-foot dollar caps on the full and partial versions of the deduction. And provides that to the extent that deductibility depends on specified recognized energy-efficient standards, the referred-to standards will be standards issued within two years of construction (rather than the standards bearing outdated dates that applied under prior law).
TAX CREDITS EXTENDED
- New markets tax credit.
- Work opportunity credit.
- Employer credit for paid family and medical leave that was provided by the 2017 Tax Cuts and Jobs Act.
- Carbon sequestration credit.
- Business energy credit, also changing its termination dates and phase-downs of credit amount.
- Credit for electricity produced from renewable resources.
- American Indian employment credit.
- Mine rescue team training credit.
- American Samoa development credit.
- Second-generation biofuel producer credit.
- Qualified fuel cell motor vehicle credit as applied to businesses.
- Alternative fuel refueling property credit as applied to businesses.
- Two-wheeled plug-in electric vehicle credit as applied to businesses.
- Credit for production from Indian coal facilities.
- Energy-efficient homes credit.