COVID-19 Tax Updates
Coronavirus Tax Relief
Following are highlights of government assistance programs related to COVID-19 as well as links to additional information and resources for available programs and benefits. There are detailed summaries on the various COVID-19 related laws passed under the Tax Alerts section in our home and newsletters page.
Programs and support available to Individuals/Employees
Recovery Rebate checks – Two rounds of payments were offered in 2020 with final reconciliation and a last chance for taxpayers to claim the benefit on 2020 tax filings based on 2020 AGI. Eligible individuals should visit the IRS’s Get My Payment page to check payment status.
- Round 1 through the CARES Act (Spring 2020) – Payment of $1,200 per adult taxpayer and $500 per child under age 17 as of 2020. Eligibility for payment is based on staying under certain AGI income thresholds with phase out beginning at $75K for Single filers, $150K for Joint filers, and $112.5K for Head of Household filers. Qualification was based on either 2018 or 2019 AGI depending on what was available with the IRS when checks were issued.
- Round 2 through the Consolidated Appropriations Act, 2021 (Early 2021) – Payment of $600 (potentially $2K pending current legislation) per adult taxpayer and $600 per child under age 17 as of 2020. AGI phase out limits mirrored those of Round 1 (see details above) but qualifying AGI was based solely on 2019 tax filings.
Increased Unemployment Benefits – Originally enacted under CARES and extended through the Consolidated Appropriations Act, 2021, both the Pandemic Unemployment Assistance program and the Pandemic Emergency Unemployment Compensation program have been extended through Mid-March of 2021 with the federal enhancement payment set at $300 per week for the 10 weeks beginning December 26, 2020. Please note that unemployment benefits are taxable income for federal taxes and state taxation varies from state to state. (California does not tax unemployment insurance benefits.) If no taxes have been withheld on unemployment benefits received, there may be additional taxes owed with your tax filing.
- The Pandemic Unemployment Assistance program allows independent contractors, the self-employed, freelancers and gig workers to qualify for up to 39 weeks of payments. Benefits are also paid for reduced hours or inability to work due to school closures, lack of childcare, or the need to quarantine.
- The Pandemic Emergency Unemployment Compensation program provides an additional 13 weeks of federally paid benefits to those who run out of state payments, which typically last 26 weeks.
- State-by-state unemployment contact information
Relief for withdrawals from certain retirement plans and IRA’s
- Taxes on withdrawals before December 31, 2020 can be spread over three years.
- Funds can be re-contributed within three years to avoid income taxes but would require filing amended tax returns.
- If under age 59.5, allowed to withdraw up to $100,000 from IRA’s and certain retirement plans without incurring the 10% early withdrawal penalty (income taxes will still apply).
- If subject to Required Minimum Distributions (inherited IRA’s are also included), 2020 withdrawals may be skipped without penalty.
- If RMD’s were taken in 2020, rollovers were extended to August 31, 2020 per IRS announcement IR-2020-127.
- Additional information available at the IRS website. (https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers)
Emergency Paid Sick Leave through Families First Coronavirus Response Act (FFCRA)
- Certain employees impacted by COVID-19 are eligible for 2 weeks of paid sick leave, plus an additional 10 weeks of emergency leave. See the following posters: Federal Employee Rights and Employee Rights. More detailed information available below under businesses.
Programs and support available to Businesses
Emergency Paid Sick Leave through Families First Coronavirus Response Act (FFCRA)
- Mandated through December 31, 2020, the FFCRA provides up to two weeks paid sick leave plus an additional 10 weeks emergency leave for certain employees impacted by COVID-19. The Consolidated Appropriations Act, 2021 extended this on a voluntary basis through March 31, 2021. Details including Q&A are available at:
Paycheck Protection Program (PPP) through Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and subsequently modified by Paycheck Protection Program Flexibility Act (PPPFA), and expanded under the Consolidated Appropriations Act, 2021
- With the first round of PPP loans eligible for forgiveness, the Consolidated Appropriations Act, 2021 clarified Congress’ position allowing the deduction of business expenses paid with proceeds of a forgiven PPP loan. This is in direct opposition to IRS Notice 2020-32 which explicitly disallowed the expense deduction. While a welcomed clarification, additional guidance is still needed for accurate accounting of loan proceeds and debt forgiveness. State conformity or non-conformity to Federal treatment is also still pending.
- Forgivable amount - the amount the borrower would expend during the covered period (24 weeks beginning on date of loan) on sum of payroll (maximum of $100k/year per employee), mortgage interest, rent, and utilities – payroll includes retirement and health benefits. Payroll for self-employed individuals is net earnings up to same maximum of $100k/year of compensation but does not include retirement and health benefits.
- Borrowers with PPP loans in existence prior to passing of the PPPFA can choose between the original 8 week period or the new 24 week period for forgiveness.
- The payroll portion of the PPP loan proceeds must be at least 60% to allow the loan to be forgivable.
- Second round of PPP loans available through the Consolidated Appropriations Act, 2021. $284.5 billion is available through March 31, 2021 with expanded eligibility to include not-for-profit organizations, $15 billion in aid specifically targeted to live venues, movie theatres and cultural institutions, and “second draw” for qualified borrowers who can show a loss of at least 25% of gross receipts in any quarter during 2020 as compared to the same quarter in 2019. Eligible uses of PPP funds include payroll, rent, covered mortgage, and utilities but have also been expanded to include:
- Worker protection and facility modification expenditures, including personal protection equipment (PPE), physical barriers, ventilation or filtration systems, and drive-through windows.
- Operating costs for software, cloud computing services, and accounting needs.
- Property damage costs due to vandalism or looting in 2020 not covered by insurance or other compensation.
- Expenditures to suppliers essential to the recipient’s operations.
- Second round additional guidance and application details are needed from the SBA and should be forthcoming within 10 days of enactment of the Act.
- Can NOT be used for wages considered for the Employee Retention Tax Credit (see below).
- SBA details for Paycheck Protection Plan (PPP) Loans
- SBA PPP Loan Forgiveness Application
- PPP Round 2 Highlights
- Up to $10,000 emergency grant cash advance (subject to funding) that is forgiven if spent on paid leave, maintaining payroll, or several other obligations. SBA low-interest loan due to Coronavirus (COVID-19).
- Consolidated Appropriations Act, 2021 states that EIDL’s do not reduce PPP loan forgiveness and do not need to be subtracted in the forgiveness application. Borrowers who have already received forgiveness and had their EIDL Advance deducted can file an amended forgiveness application. Further guidance is expected.
- Refundable tax credit against certain employment taxes, for wages paid to employees in businesses who have experienced either a full or partial suspension of operations in any calendar quarter due to government orders to limit COVID-19 or a significant decline in gross receipts.
- Can NOT be used for wages paid with forgiven Paycheck Protection Program proceeds (see above).
- Details on expansion of the credit under the Consolidated Appropriations Act, 2021 is here.
Deferral of employees’ portion of payroll tax
- In August, President Trump issued a memorandum allowing employers to defer their employee’s share of payroll taxes from Sept 1, 2020 through Dec 31, 2020. Employers were then required to increase withholding and pay the deferred amounts between Jan 1, 2021, and April 30, 2021. The repayment period has now been extended through Dec 31, 2021.
100% business deduction for meals is allowed for 2021 and 2022.
Additional information/links helpful to taxpayers:
- IRS – Relief for taxpayers Affected by Ongoing Coronavirus 2019 Pandemic
- California FTB announcements