Please note that this blog is based on laws effective on December 28, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
On December 27, 2020, President Trump signed the COVID-Related Tax Relief Act of 2020 (COVIDTRA). Below are the main, non-time sensitive provisions of COVIDTRA. Click here to read Part One of this series about the time-sensitive provisions.
Expansion of Employee Retention Credit
Before COVIDTRA, the employee retention credit (ERC) was set to expire on December 31st, 2020. Effective January 1, 2021 through June 30, 2021 the credit is available and is even more valuable to qualified employers. Qualified employers are those that either 1) have had their business suspended due to the COVID-19 pandemic or 2) have a 20% reduction in gross receipts in 2021 as compared to the same period in 2019. The credit is enhanced with an increased credit percentage from 50% to 70% of qualified wages of up to $10,000 per employee per quarter.
Business Meals Fully Deductible in 2021 and 2022
In an assumed effort to assist the food and beverage industry, COVIDTRA provides that business meals will be fully deductible in calendar years 2021 and 2022, as opposed to the current 50% limit on deductibility.
Deduction for Qualified Cash Charitable Contributions
The 2020 provision that qualified cash charitable contributions are not subject to an income limitation has been expanded to the 2021 tax year as well. The ability to claim up to a $600 cash charitable contribution deduction for those taxpayers claiming the standard deduction has also been extended.
Extension of Credits for Paid Sick and Family Leave
The refundable payroll tax credits were set to expire on December 31st, 2020. However, COVIDTRA extends the payroll tax credits through the end of March 2021.
Base Credits on Preceding Year’s Earned Income
Both the child tax credit and the earned income credit are computed based on taxpayer’s earned income. For tax year 2020, taxpayers may elect to compute the credit based on 2019 earned income if it is greater than the taxpayer’s earned income for 2020.
Qualified Principal Residence Indebtedness
Extended to December 31st, 2025 is the exclusion from income of cancellation of principal residence indebtedness. Up to $750,000 of qualified debt discharged will be excluded from taxable income.
While the COVID-Related Tax Relief Act has been passed, it is now up to other governmental agencies (the Treasury and SBA, notably) to write the regulations associated with the Act. As these regulations are written we will keep you informed of additional developments. In the meantime, please contact us today with any questions.