CORONAVIRUS TAX RELIEF

Canada's Economic Response to COVID-19

Canada's response to COVID-19 can be viewed here.

United States Consolidated Appropriations Act, 2021

Stimulus Payments - Additional 2020 Recovery Rebates for Individuals 

As part of the massive Consolidated Appropriations Act, 2021, Congress has included another round of stimulus payments. Eligible individuals will receive $600 ($1,200 for joint filers) plus $600 for each dependent child.

Similar to the stimulus payment under the CARES Act, the amount of each payment is phased out by $5 for every $100 in excess of a threshold amount. This threshold amount is based upon 2019 adjusted gross income. The phaseout begins at $75,000 for single filers, $112,500 for heads of households, and $150,000 for joint filers. Thus, the payments are completely phased out for single filers with 2019 adjusted gross income over $99,000, heads of household with $136,500, and joint filers with $198,000. 

In order to be eligible for a stimulus payment, the individual must not be:
-a nonresident alien,
-able to be claimed as a dependent on another taxpayer’s return,
-an estate or trust, and
-must have included a Social Security number for both the taxpayer, the taxpayer’s spouse, and eligible children (or an adoption taxpayer identification number, where appropriate). 

The advance credit is based on the adjusted gross income reported and the qualifying children claimed on the eligible individual’s 2019 return. The IRS will make the payment via electronic funds transfer to the bank account that the payee authorized, on or after January 1, 2019, for the delivery of a refund,or payment of taxes. However, if an individual has not filed a 2019 return by the time the payments are determined, the payment is based on information provided by the Social Security Administration, Railroad Retirement Board, or Secretary of Veterans Affairs for calendar year 2019.

As soon as practicable after the IRS distributes any payment to an eligible taxpayer, the IRS will send a notice by mail to the taxpayer’s last known address. The notice will indicate the method by which the payment was made, the amount of the payment, and a phone number to contact at the IRS to report any failure to receive such payment.


Payment Protection Program (PPP) Loans -  for those who have not yet applied for forgiveness:

  1. More expenses are eligible for forgiveness (must still meet the guidelines of 60% or more of funds must be used for payroll, only up to 40% for non-payroll expenses):
    1. Covered operations expenditures such as software, human resources, and various accounting operations,
    2. Covered property damage costs incurred as a result of looting or vandalism not covered by insurance,
    3. Covered supplier cost that are essential to the operations of the business incurred during the covered period, or
    4. Covered worker protection which covers the costs of complying with sanitation standards, social distancing, or other worker and/or customer safety requirements.
  2. Any covered period which begins when the funds are received to any period between 8 and 24 weeks.
  3. Streamlined forgiveness for borrowers under $150,000
     

Second round of PPP Loans (§7(a)(37) of the Small Business Act)expands the program and some business may be eligible for both PPP loans:

  1. Fewer than 300 employees,
  2. Must have been in operation as of February 15, 2020,
  3. Experienced a 25% drop in gross receipts in comparison to the same quarter in 2019,
  4. The maximum loan amount is $2 million,
  5. The allocation of at least 60% on payroll costs and no more than 40% on non-payroll costs remains,
  6. Eligible for the Employee Retention Credit, however, the same wages used for the credit are not eligible for PPP loan forgiveness,
  7. The final forgiveness amount will not be reduced by the EIDL grant monies received, and
  8. Expenses paid with the EIDL grant monies will remain deductible (and additionally, tax basis and other attributes of the borrower’s assets will not be reduced).
     

Forgiveness of the PPP Loans – deductions are now allowed for expenses paid with the proceeds of a forgiven PPP loan which is retroactive to the date of enactment of the CARES Act.
 

Employee Payroll Tax Deferral – the repayment period for those employees who deferred the payment of the 6.2% Social Security tax has been extended to December 31, 2021 (from the original due date of April 30, 2021).

Families First Coronavirus Response Act (FFCRA) – the provisions of the FFCRA, due to expire on December 31, 2020, have been extended through March 31, 2021 for both the paid sick leave and paid family leave provisions of the Act.

Unemployment Insurance Benefits – an additional $300 per week for all workers receiving unemployment benefits has been included through March 14, 2021 and includes self-employed persons.

Employee Retention Creditthe following changes have been added:

  1. Eligibility for the credit has been extended through July 1, 2021,
  2. Credit percentage is increased from 50% to 70% of qualified wages,
  3. Qualified wages are based on quarterly wages of $10,000 instead of the original annual limit of $10,000 per employee,
  4. Changes the number of employees from 100 to 500 for the determination of eligible wages,
  5. The drop in gross revenues, for the eligible quarters, drops from 50% to 20% on a quarter-by-quarter comparison between 2019 and 2020, and
  6. An employer can now be eligible for the Employee Retention Credit even if they have the PPP loan, just not on the same wages.
     

Business Meals Deduction – Section 274(n)(2) has been modified to allow for a 100% deduction of business meals purchased in both 2021 and 2022.
 

Charitable Donations – extends several provisions of the CARES Act:

  1. Extends the additional deduction for non-itemizers of up to $300 of cash to an eligible charity through 2021 and increases the deduction to $600 for a married filing joint return, and
  2. Extends the AGI threshold of 100% for deductible cash contributions to a public charity through 2021.

Lookback provisions for EITC and CTC -  allows those eligible for the refundable credits to use their earned income from 2019 for those whose income dropped in 2020. This would allow for a larger refund that is consistent with their earnings from prior tax filings.

Extenders –

  1. The AGI threshold for unreimbursed medical expenses is permanently set at 7.5% (this was originally due to increase to 10% in 2021).
  2. The adjustment for qualified tuition and fees will expire at the end of 2020, however, will be replaced with increased income thresholds for the Lifetime Learning Credit.
  3. The following have been extended for five years, due to expire on December 31, 2025:
    1. The New Markets Tax Credit of Section 45D,
    2. Work Opportunity Credit,

 

Families First Coronavirus Response Act (FFCRA):

If you received sick pay or family leave pay from your employer for reasons due to the coronavirus, your Form W2 will reflect the amounts paid by the employer in a separate notice. The FFCRA benefits of 10 days for the sick leave provisions and the 10 weeks of family leave benefits are interpreted to be per taxpayer, not per place of employment.

For self-employed taxpayers who also received a Form W2 for employment during the year; any payments received from the employer will be reconciled with the FFCRA benefits claimed as a sole proprietor on a new IRS Form 7202, Credit for Sick Leave and Family Leave for Certain Self-Employed Individuals.

The guidelines for who is eligible for the FFCRA benefits, which is provided by the employer is as follows:

Emergency Paid Sick Leave – Covered employers are required to provided covered employees with two weeks of paid leave (i.e., 10 days) where the employed:

1.   Is subject to a federal, state or local quarantine or isolation order related to COVID-19

2.  Has been advised by a healthcare provider to self-quarantine.

3.  Is experiencing COVID-19 symptoms and seeks medical diagnosis.

4.  Is caring for an individual subject to an order described in (1) or (2) above.

5.  Is caring for a child whose school is closed or whose childcare provider is unavailable for reasons related to COVID-19.

6.  Is experiencing any other substantially similar condition specified by the Secretary of Health and Human Services, along with the Secretaries of Labor and Treasury.
 

Emergency Family and Medical Leave (EFML)

Covered employers are required to provide up to an additional 10 weeks of job-protected leave to covered employees. However, the sole reason for which EFML is allowed is to care for a son or daughter under age 18 if their school is closed or whose childcare provider is unavailable for reasons related to COVID-19.
 

Coronavirus Aid, Relief, and Economic Security (CARES) Act:

In March 2021, Congress enacted the CARES Act in response to the COVID-19 pandemic. The Act includes many provisions, of which we are only going to address those related to individuals. There have been subsequent guidance released by Congress and the Internal Revenue Service, but no additional substantive legislation.

A nationwide emergency was declared on March 13, 2020 which allowed for all states to be eligible for federal assistance. Declaring the entire country a disaster area produced several federal tax temporary changes which allowed for the relief of the filing and payment of taxes for individuals and businesses.

Individual provisions as a result of the CARES Act includes (but is not limited to):

  • Economic Income Payment (EIP) of up to $1,200 per individual and $500 per child which are tax-free to the individual. The payment is reconciled on the 2020 income tax return. Taxpayers who did not receive the EIP, or were limited due to income reported on the 2018 or 2019 tax return, may be eligible to receive a refundable credit with the filing of their 2020 income tax return.
  • Required minimum distributions  (RMDs) were waived for 2020. For inherited IRAs, 2020 is not counted in the five-year payout period; the initial RMD payment which had been deferred until April 1, 2020 is now waived until April 1, 2021; and while it waived the initial payment until April 1, 2021 the 2021 required minimum payment would then be due by December 31, 2021.
  • The early distribution penalty of 10% (for those distributed before the age of 59 ½ ) from an IRA or qualified plan is waived for coronavirus-related distribution up to $100,000.
  • Coronavirus related distributions from an IRA or qualified plan up to $100,000 have the option of either 1) subject to income tax over a three-year period, or 2) can be repaid to the plan over a three-year period.
  • If you do not itemize, you can claim up to $300 in charitable donations on the tax return. The donation does not have to be to a coronavirus related charity.
  • For those who do itemize, they will be able to claim up to 100% of adjusted gross income in charitable donations.
  • There are some additional provisions, that were implemented with the Tax Cuts and Jobs Act (TCJA), affecting the ability of individuals to deduct business losses which were eased with the CARES Act.

 

THE SECURE ACT:

In December 2019, Congress passed The Setting Every Community Up for Retirement Enhancement Act (the SECURE Act). The legislation may affect how you will be able to plan for your retirement years. Many of the provisions went into effect as of January 1, 2020 and now may be a good time to discuss if there are any year-end tax moves you should be considering.

Following are some of the key provisions of the SECURE Act – contact us if  you have any questions as to the effect on your tax liability and/or tax planning:

1.   Repeal of the maximum age for traditional IRA contributions: prior to 2020, traditional IRA contributions were not allowed to be  made once the taxpayer had reached the age of 70 ½ . The new rules, which started January 1, 2020, allow an individual of any age to make contributions to a traditional IRA as long as they had earned income from wages or self-employment.

2.  The age for the required minimum distribution (RMD) from an IRA or qualified plan was raised from age 70 ½ to age 72. Eligible individuals are those who reach age 70 ½ after December 31, 2019. (Note: the CARES Act eliminated the RMD for 2020 so all required distributions were pushed back one year.)

3.  Changes to the designated beneficiary of IRAs and qualified employer plans: Prior to January 1, 2020 designated beneficiaries were allowed “stretch-out” the tax-deferred advantages of the pension plan or IRA. Under the new rules, with a few exceptions, distributions to non-spouse beneficiaries are generally required to be distributed within ten years following the date of death. 

4.  Expansion of the §529 Education Saving Plan now covers registered apprenticeships and distributions to repay certain student loans. Student loans of up to $10,000 for either the designated beneficiary or a sibling of the designated beneficiary can be paid from the Education Saving Plan.

5.  Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child up to $5,000 per taxpayer so a couple would be eligible up to $10,000. The 10% early withdrawal penalty would not apply; however, the distribution would still be subject to ordinary tax.