Tax Monitor

Some Interesting Tax Provision of the Consolidated Appropriations Act of 2021

December 29, 2020

By: Robert G. Tweel

There were some long awaited tax changes contained in the Consolidated Appropriations Act of 2021 (the “CAA”), but there were also some interesting additions.

For example, the CAA clarified that taxpayers can deduct expenses paid with PPP Loan proceeds overturning the IRS guidance on this issue. This benefit is substantial for taxpayers and effectively increases the PPP Loan proceeds by the amount of the tax benefit obtained from deducting these expenses. While we are on the PPP Loans, the Act has authorized a new round of PPP Loans. The basic requirements are the same with two significant changes: First, the business must have less than 300 employees (500 on original PPP), and second, the business must demonstrate that gross receipts for 1 calendar quarter of 2020 were not less than a 25 percent reduction from the gross receipts of the business during the same quarter in 2019.

The CAA extends the payback period for certain deferred payroll taxes through December 31, 2021, expands and extends the employee retention credit through July 1, 2021, and extends the credit for paid family and Medical leave provisions through 2025.

The CAA also included the following benefits:

Business Meals - Under the CAA, the 50% limit for deductibility of business meals won’t apply to expenses for food or beverages provided by a restaurant that are paid or incurred after Dec. 31, 2020, and before Jan. 1, 2023.

Corporate Charitable Deduction - The CAA expanded the limitation on corporate deductions for qualified disaster relief contributions from 25% to 100% of taxable income for 2020 for Corporations.

Individual Charitable Deduction - The CAA extends the removal of the 50% limitation on individual charitable contributions to public charities through 2021.  This change will permit individuals to deduct cash contributions to public charities up to 100% of their taxable income.

Rollover of FSA Accounts - The CAA extends the grace period for extend the grace period for plan years ending in 2020 and 2021 to 12 months after the end of such plan year for unused benefits and contributions to health flexible spending and dependent care flexible spending arrangements.

The CAA also extended several expiring provisions such as permanently setting medical expense threshold at 7.5% and extended the $5.0b funding for New Markets Tax Credits.

There are many other provisions to the CAA specific to certain industries, but this is a brief overview of some of the key changes.