The Consolidated Appropriations Act (CAA) was approved by Congress and signed by the President on December 27, 2020. This COVID relief bill contains direct spending relief for businesses and individuals affected by the pandemic; extends expiring tax provisions, credits and incentives; and funds the Federal government for the remainder of fiscal year 2021.
Several provisions in the CAA were included in the Coronavirus Aid, Relief, and Economic Stimulus Act (the CARES Act) of 2020 and modified to extend into 2021. Here are deeper dives into provisions we feel you should know about:
Employee Retention Credit
Originally included in the CARES Act, the ERC provided an incentive for business owners to maintain employee payroll. This incentive came in the form of a payroll tax credit of 50% of qualified wages (up to $10,000 per employee per year) from March 12, 2020 to December 31, 2020, and applied against the employer’s 6.2% Social Security payroll tax for eligible taxpayers. For a business to be eligible, they needed to show either full or partial suspended operations due to a government order to stop the spread of COVID-19; or show their business sustained a significant reduction in gross receipts from the previous year.
The CAA both modified the ERC for the 2020 year and extended the credit to apply in the first two quarters of 2021.
Under the CAA, the ERC extends through June 30, 2021 and modifies the tax credit to:
- increase the payroll tax rate to 70% of qualified wages
- expand the gross receipts test by reducing the decline in gross receipts from more than 50% to more than 20%
- increase the $10,000 per employee, per year wage cap in 2020 to $10,000 per-employee, per quarter 2021
- boost the full-time employee threshold from 100 to 500 employees
- eliminate the rule in the CARES Act that an employer is not eligible to claim the employee retention credit if the employer received a PPP loan, as long as the employee does not claim PPP loan forgiveness for payroll costs to which the retention credit applied
These modifications to the existing ERC will take place on January 1, 2021.
Economic Impact Payments
One of the provisions within the CAA is the Economic Impact Payments (EIP), or stimulus payments. On Tuesday evening, December 29, 2020, Treasury Secretary Steven Mnuchin, commented, “This second round of payments will be distributed automatically, as early as tonight (Dec. 27), with no action required for eligible individuals.”
The recovery payments are in addition to the $1,200 payments ($2,400 for married) issued earlier in 2020. Here’s what you need to know about these additional payments:
- Amount of payment: Up to $600 to eligible taxpayers or up to $1,200 to married couples filing joint returns. Parents will receive an additional $600 for each dependent child under age 17. Thus, a couple with 2 children under the age of 17 (at end of 2020), will receive a $2,400 payment. Payments are nontaxable, meaning the payment you receive won’t be included in your income for tax purposes.
- Who is eligible: US citizens and residents are eligible for a full payment if their Adjusted Gross Income (AGI) is under $75,000 for singles or married couples filing separately, $112,500 for Head of Household, and $150,000 for married filers and surviving spouses. The recipient(s) must not be the dependent of another taxpayer and must have a social security number.
- Phaseout: For taxpayers whose AGI exceeds the above thresholds, the payment is phased out at the rate of $5 for per $100 of additional income.
- How to receive payment:
- If you filed your 2019 return, the IRS will use the AGI and dependents from your 2019 return to calculate the payment. The IRS will direct deposit the recovery payments, similar to your first recovery payments if you received one in 2020. There is a developed web-based tool called “Get My Payment” for taxpayers to provide banking information, so the payments can be received electronically rather than by mail.
- If you aren’t required to file: If you receive social security, supplemental security income, social security disability, railroad retirement or veteran’s compensation and pension benefits, and you are not required to file a tax return, you don’t have to file to receive a payment. The IRS will generate an automatic payment using information from the SSA and the Department of Veterans Affairs.
We are awaiting more information from the Treasury to address how to apply the retroactive changes and improvements of these provisions going forward. If you have questions or concern about how these provisions will affect you or how they will impact your business, please contact a KerberRose Trusted Advisor today for assistance.