Both the House and the Senate voted last night to pass the House Amendment to the Senate Amendment to H.R. 133 which is expected to be signed into law as soon as today. This is the funding and stimulus bill that Congress has taken up after months of negotiations. With nearly 6,000 pages, the bill is long so I will not go into all of the details. However, we wanted to bring a few of the key tax related items to your attention.
The bill contains the “Covid-Related Tax Relief Act of 2020” which includes the following provisions, among others:
- New round of stimulus for individuals in the form of a credit – The credit will be claimed on the 2020 tax return but, similar to the first round of stimulus included in the CARES Act, the IRS will be tasked with sending out advance payments. The payments will be $600 per individual plus another $600 per qualifying child. The amount phases out at 5% of the excess of AGI over $150,000 for joint filers, $112,500 for head of household and $75,000 for all others. The advance payments, which the IRS must send out no later than January 15, 2021, will be phased out based upon 2019 income and filing information. Similar to the prior stimulus, any amount received as an advance payment will not need to be paid back if the 2020 return reflects a smaller credit.
- Deferred payroll taxes – The payment period provided for in IRS Notice 2020-65 will be revised to January 1, 2021 through December 31, 2021 (currently January 1, 2021 through April 30, 2021).
- Educator expenses – The IRS is instructed to issue regulations clarifying that, for purposes of the maximum $250 educator expense deduction, personal protective equipment and other COVID-19 prevention supplies are deductible. This would apply to expenses paid or incurred after March 12, 2020.
- Paid sick and family leave credits – The credits, which were enacted as part of the Families First Coronavirus Response Act and which are set to expire on December 31, 2020, would be extended through March 31, 2021.
- PPP loan expenditures – Last but certainly not least, the act would amend Section 7A(i) of the Small Business Act (which would have formerly been Section 1106(i) of the CARES Act) to provide that no deduction shall be denied by reason of the exclusion of the PPP loan forgiveness from gross income. This will override the IRS’s position in Notice 2020-32 which indicated that such expenses would be disallowed. The act also makes clear that the amount of the loan forgiveness will be treated as tax-exempt income by a partnership or S corporation, thus increasing the partner’s or shareholder’s basis in the entity.
In other tax-related news, the bill also contains the “Taxpayer Certainty and Disaster Tax Relief Act of 2020” which makes certain expiring provisions permanent and extends the expiration date on others. More information will be forthcoming.