In a bit of a late Christmas present, President Trump on Sunday night decided to sign a $900 billion stimulus bill that he had only a few days previously indicated that he would not sign. According to a statement from the White House, the president now plans to ask for the elimination of wasteful spending in the legislation while waiting for a separate bill that would increase stimulus payments to individuals from $600 to $2,000. In the meantime, the Consolidated Appropriations Act, 2021, at nearly 5,600 pages, eclipsing the previous CARES Act stimulus of over 850 pages seemingly has something for everyone, including small businesses, colleges universities and K-12 schools, nursing homes and Americans struggling with unemployment. Here’s a high-level look at what both individuals and small businesses can expect:
Will I receive a stimulus check?
The rules for recovery rebate checks under the Consolidated Appropriations Act are like those outlined in the CARES Act earlier this year, but the new Act authorizes a base credit of $600 per eligible individual. Those considered “eligible” include the taxpayer or taxpayers (in the case of a couple filing jointly), as well as any children under the age of 17 for who a Child Tax Credit cannot be claimed.
As with the CARES Act earlier in 2020, taxpayers must meet certain thresholds for Adjusted Gross Income, or AGI, as follows:
Single Filer: $75,000
Joint Filer: $150,000
Head of Household Filer: $112,500
Taxpayers who exceed the threshold can expect to see smaller checks. For every $100 of AGI over the threshold, $5 will be phased out. So, for example, if you are a single filer with one dependent child under 17 and an AGI of $80,000, you could calculate your payment by taking the base amount for you and your child ($600 + $600 = $1,200). Next, because your AGI is $5,000 above the $75,000 threshold, you would need to calculate a reduction of $5 for every $100 over the $75,000 ($5,000 /$100 x $5 = $250). In this case, you would receive $950.
Additionally, the size of your AGI in 2019 (vs. 2020) will affect how much you receive. For example, if your 2019 AGI was high enough to push you above the AGI threshold, but your 2020 AGI is below the threshold, you’ll receive the difference between the two amounts as a credit when you file your 2020 tax return. However, if the opposite is true — you were below the AGI threshold in 2019 but had a higher AGI in 2020 that would have triggered the phase out, here’s some good news: you won’t have to pay anything back!
The Consolidated Appropriations Act extends a couple of programs to help unemployed workers. The enhanced federal jobless benefits that unemployed individuals received under the CARES Act are back for another 11 weeks, albeit at a lower amount — $300 per week instead of the previous $600 per week. Freelancers and independent contractors also received an extension of the Pandemic Employment Assistance program for 11 weeks, enabling them to get an extra $100 per week. Both programs are set to end March 14.
The Act sets aside $285 billion (including $12 billion for minority-owned businesses) for additional loans to small businesses under the Paycheck Protection Program (PPP) and contains some revisions to previous rules, such as capping loans at $2 million and making them available only to businesses with fewer than 300 employees that saw at least a 25-percent decline in sales over the previous year in at least one quarter. Publicly traded companies are not eligible to apply for PPP loans under the Act.
For businesses still struggling as a result of the COVID-19 pandemic, the Act provides an opportunity to receive a second loan, and businesses that did not apply for PPP loans in the first two rounds will be able to apply for the first time.
As I wrote earlier this year, the CARES Act provided that loan recipients who received forgiveness would be able to exclude the forgiven amount from their taxable income. However, the IRS released guidance in April indicating that business owners would not be able to deduct the expenses they used to qualify for loan forgiveness. The Consolidated Appropriations Act explicitly authorizes deductions for these expenses, overriding the IRS’s previous guidance.
The Consolidated Appropriations Act also includes four new categories of expenses that can be used under the Paycheck Protection Program. They include:
- Covered Operations Expenditures: A payment “for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.”
- Covered Property Damage Costs: Costs “related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.”
- Covered Supplier Costs: A business expense involving paying a supplier for items that (i) are essential to the operations of the entity at the time at which the expenditure is made; and(ii) is made pursuant to a contract, order, or purchase order (A) in effect at any time before the covered period with respect to the applicable covered loan or (B) with respect to perishable goods, in effect before or at any time during the covered period.
- Covered Worker Protection Expenditures: Operating or capital expenditures that comply “with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency declared by the President under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to the Coronavirus Disease 2019 (COVID–19) expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.”
These new categories are subject to the same limitations on non-payroll expenses as before: no more than 40% of a PPP loan’s forgiven amount can be dedicated to non-payroll expenses. Also, anyone who received a loan after June 5, 2020, including businesses that apply for a loan now, can choose a “covered period” of either eight or 24 weeks.
Second Draw Loans
If you applied for a PPP loan earlier this year and would like to apply for another loan, you have to have already spent your first loan, and you’ll have to meet the requirements for number of employees (fewer than 300) unless your business can be classified as providing “Accommodation and Food Services.” Your business must also have experienced a revenue drop of more than 25 percent in any quarter in 2020 (as compared to the same quarter in 2019). If your business didn’t exist in 2019, other rules apply. Finally, as mentioned earlier, loans this time around are capped at $2 million.
The Consolidated Appropriations Act is both lengthy and complex. If you have questions about how it affects your family or your business, please contact us. We’d be glad to help.