January 8, 2021
The recently passed Consolidated Appropriations Act, 2021, has attracted plenty of attention. But most of that has centered on a new round of Paycheck Protection Program (PPP) payments to aid businesses. However, there’s plenty more to digest for both individuals and businesses.
From a new round of Recovery Rebate Payments to Employee Retention Credits, read on below to learn more about the tax relief you can take in 2021.
Recovery Rebate Payments
The new bill provides for individuals and families to receive rebate payments of $600 per person to help them through the economic crisis. A family of four, for instance, would receive $2,400 in payments from the U.S. government. Taxpayers with up to $75,000 in 2019 taxable income for individuals or $150,000 for joint filers will receive the full rebate. Payments will phase out for higher-income taxpayers.
Although business meal deductions had been limited to 50%, the Act allows for companies to deduct 100% of all food and beverage spending at restaurants until December 31, 2022.
The $300 charitable deduction for joint filing taxpayers who don’t itemize their taxes has increased to $600 in 2021. On the corporate side, the charitable contribution limitation of 25% has been extended through to the end of 2021.
Employee Retention Credit
The Employee Retention Credit has been extended to July 1, 2021. With qualified wages up to $10,000, companies will now be allowed to take a 70% credit (up from 50%).
More importantly, the CARES Act did not allow companies that had taken PPP loans to also receive an Employee Retention Credit. The Consolidated Appropriations Act, 2021, however, allows companies to both have a PPP loan and benefit from the credit. Better yet, the change is retroactive to the 2020 passing of the CARES Act.
More companies, therefore, should qualify for the Employee Retention Credit. For those taking the credit on 2020 wages, any company with fewer than 100 employees will qualify. In 2021, companies with up to 500 employees can take advantage of the credit. However, only companies that can demonstrate a 50% drop in gross receipts in 2020 or 20% in 2021 can qualify.
The Consolidated Appropriations Act, 2021 extends the employer credit for paying employees’ student loans to December 31, 2025. Employers can deduct up to $5,250 per year in student loans they pay on behalf of employees.
A 10% floor on qualified medical deductions had been planned for 2021. However, the Consolidated Appropriations Act, 2021 extends the 7.5% floor for 2021.
Payroll Tax Deferrals
Companies will now have the option to pay voluntarily deferred payroll taxes on the employee portion of Social Security taxes by December 31, 2021. The CARES Act previously required employers to pay back the taxes by April 30, 2021.
As always, Perlson LLP is here to help you in all of your tax situations. If you have questions or need assistance navigating these tax law changes, please contact a Perlson LLP professional at 516-541-0022.