On December 21, 2020, the U.S. House and Senate passed a new COVID-19 Stimulus package worth $900 billion. Inside the 5,593-page bill are provisions for new individual stimulus checks, tax cuts, and a wide range of other initiatives. It is one of the largest legislative bills Congress has ever enacted. Unsurprisingly, many believe it is not the final COVID-19 relief bill to be needed and passed. President-elect Biden sees the current COVID-19 relief bill as a “down payment” on more to come when he takes office.
How big is the bill? The $900 billion COVID stimulus package is only a portion of the much larger $1.4 Trillion Consolidated Appropriations Act, 2021 (CAA). In total, the CAA contains 72 separate tax-related provisions, though most are routine extensions or clarifications.
Highlights of the COVID Relief Bill
The big CAA news is the $900 billion economic stimulus package, which contains significant help for small businesses. The $325 billion in business relief includes $275 billion for another round of the Paycheck Protection Program (PPP) to help small businesses keep employees on payroll (including the self-employed). Additionally, there is help to get more money flowing in the economy. Most individuals will receive a $600 payment and increased federal unemployment benefits will continue.
Individuals making under $75,000 in the previous tax year will receive $600, while couples earning less than $150,000 will get $1,200. An additional $600 is per child. The amount starts to phase out for individuals and couples who exceed the annual income thresholds.
The COVID relief bill only partially restores enhanced federal unemployment benefits that expired over the summer. It gives those who lost their job an additional $300 a week for nearly three more months (on top of state benefits). The weekly benefits will start after Dec. 26 and expire by March 14.
COVID Relief & Real Estate
It’s estimated that by January the combined rent owed to landlords nationwide could reach $24 billion (according to a study by Global Investment Bank). The CAA includes $25 billion in rent payments. This help can be applied to past or future rent (and other housing-related expenses). But renters need to take action to receive this help. They must apply to organizations selected by state and local officials that administer the program.
Once a renter qualifies for assistance, the administering organization would send the payment directly to the landlord. Renters can be eligible for 12 months of rental assistance to make them whole with their landlords. Smaller landlords are a major source of rental housing for low-income people. Therefore providing rental assistance to low-income households is well-targeted to help them and their landlords. The aid package also extends an eviction moratorium for some renters through January 2021.
COVID Relief Bill: PPP Round Two
Under the renewed PPP, $285 billion targets particularly hard-hit businesses to get a second loan. The new COVID relief bill offers a second cash infusion for those who meet stricter terms. Borrowers with fewer than 300 employees that had a 25% drop in sales from a year earlier in at least one quarter could qualify for an additional loan of up to $2 million.
Under the CARES Act, $523 billion went to 5.2 million borrowers. The springtime loans, guaranteed by the Small Business Administration, saw the four biggest lenders (Bank of America, JPMorgan Chase, Cross River Bank, and Wells Fargo) collectively make more than 1 million of the program’s loans — all 4 have say they intend to participate again. It’s unknown exactly how fast these loans will begin. Given the gravity of the current economic situation, many expect it to be within days or a few weeks.
Known Details About the New PPP
PPP Loans are intended to be forgiven if business owners comply with the program’s rules. The first time around, there was considerable confusion about the forgiveness rules. At the highest level, loans forgiveness occurred if:
- Funds are used for payroll costs, utilities, rent, and mortgage interest. (Includes expenses for a home office to the extent of your home office tax deduction.)
- At least 60% of the loan went toward payroll costs.
- While the loan is being used, employers must attempt in good faith to maintain similar levels of employment and pay that they had before the pandemic.
The renewed PPP expands the list of included expenses for loan funds. Businesses can now use the money to buy supplies from their vendors, buy protective equipment for their staff, and fix property damage “due to public disturbances”. According to a House Small Business Committee summary the latter is a reference to this year’s protests.
Importantly, business owners who received loans in the program can still claim deductions for expenses paid for with loan proceeds. This includes deductible payroll expenses.
Previous PPP Coverage
The renewed PPP should include clarification of the loan rules. But, that will take some time before it fully rolls out. It might be helpful to review Nabers Group’s previous information about how PPP could apply to your Solo 401k:
- Paycheck Protection Program Loans and the Solo 401k (April 9, 2020)
- PPP Round 2 Approved (April 23, 2020)
- PPP for the Sole Proprietor (May 17, 2020)
- Paycheck Protection Program Loan Extended (June 10, 2020)
- PPP Repayment Guidance – Revised and Final Rules (August 4, 2020)
- PPP Forgiveness for Loans Under $150k (September 22, 2020)
- Simpler PPP Forgiveness for Loans Under $50,000 (October 19, 2020)
This new money will go fast. Therefore, it may be wise to submit a PPP application immediately. Consider consulting with a tax professional while you wait.
Other business-related funding (not part of PPP) includes a $15 billion grant fund for closed theaters, museums, zoos, and live event venues. There is also $12 billion for Community Development Financial Institutions. These make loans and grants to people and communities that are often unable to get traditional bank loans.
Previously, businesses could deduct 50% of the cost of business-related meals. The CAA temporarily increases this deduction to 100% through the end of 2022.
Payroll Tax Deferral
This summer, President Trump issued a memorandum allowing employers to defer employee’s payroll taxes until January of 2021. Under the previous provisions, employers were required to increase withholding. They also had to pay the deferred amounts between January 1, 2021 and April 31, 2021 (after which, penalties and interest on deferred unpaid tax liability would begin to accrue). The CAA extends the repayment period through December 31, 2021.
Among other things, the COVID relief bill provides billions in funding for COVID-19 testing and vaccine distribution. Additionally, there is more money to help K-12 schools and colleges to reopen. Other provisions include:
- $13 billion for farmers and agriculture. This includes money under the Coronavirus Food Assistance Program for growers and livestock, dairy, and poultry producers.
- $10 billion for childcare centers to help them safely reopen.
- $7 billion to increase access to broadband Internet.
- $16 billion for airlines. $14 billion for mass transit agencies. $10 billion for highways. $1 billion for Amtrak.
- A provision to end surprise medical billing. Patients will receive a “true and honest cost estimate” three days before any scheduled procedure and billing disputes will be subject to arbitration.
Expect some parts of the stimulus package to kick in within days after President Trump signs. Treasury Secretary Mnuchin said in an interview that Americans who qualify for direct deposit will start seeing the stimulus checks in their bank accounts by early the next week. Also, lawmakers, particularly Democrats, maintain that more aid will come in the months ahead.