Relief Measures for California

Governor Gavin Newsom, Senate President pro Tempore Toni G. Atkins and Assembly Speaker Anthony Rendon today announced that they have reached an agreement on a package of immediate actions that will speed needed relief to individuals, families and businesses suffering the most significant economic hardship from the COVID-19 Recession.

Please note that this is NOT law yet and we will keep you updated when the law is actually passed.

High Level Summary

Immediate Relief for Small Businesses Quadrupled

The agreement reflects a four-fold increase – from $500 million to more than $2 billion – for grants up to $25,000 for small businesses impacted by the pandemic, and also allocates $50 million for cultural institutions.

The agreement also partially conforms California tax law to new federal tax treatment for loans provided through the Paycheck Protection Plan, allowing companies to deduct up to $150,000 in expenses covered by the PPP loan. All businesses that took out loans of $150,000 or less would be able to maximize their deduction for state purposes. Larger firms that took out higher loans would still be subject to the same ceiling of $150,000 in deductibility. More than 750,000 PPP loans were taken out by California small businesses. This tax treatment would also extend to the Economic Injury Disaster Loans as well.

Fee Waivers for Most Impacted Licensees

The agreement provides for two years of fee relief for roughly 59,000 restaurants and bars licensed through the state’s Department of Alcoholic Beverage Control that can range annually from $455 to $1,235. The agreement also reflects fee relief for more than 600,000 barbering and cosmetology individuals and businesses licensed through the Department of Consumer Affairs.

For a copy of the Governor’s press release go to: Governor Newsom, Legislative Leaders Announce Immediate Action Agreement for Relief to Californians Experiencing Pandemic Hardship | California Governor

What is Form 1099-NEC

We’re towards the end of January meaning tax reporting season! The deadline to submit Form 1099- NEC to independent contractors and the IRS is February 1st.

In the prior years payments to independent contractors were reported using Form 1099-MISC. For the current reporting season, you will need to use Form 1099- NEC if you’ve made payments totaling $600 or more to a non employee service provider (eg independent contractor). Similarly if you are self- employed, you’ll likely to receive these if you were paid more than $600. The deadline for submission of these forms for this year is February 1st 2021 and there are no extensions unless your business meets certain hardship conditions which you can find on extension form 8809.

Filing out the form

The IRS gives four conditions under which you must generally report a payment as nonemployee compensation:

1.      You made the payment to someone who is not your employee.

2.      You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).

3.      You made the payment to an individual, partnership, estate, or, in some cases, a corporation.

4.      You made payments to the payee of at least $600 during the year.

You’ll need the payee’s:

• Name

• Address

• Taxpayer identification number (you can use their social security number or employer identification number)

• The amount that you paid them, as well as any federal or state tax withheld.

The easiest way to keep this information on file is by using Form W-9. We suggest asking your contractor to complete and submit this form when they start working for you, as long as there’s any chance you’ll be paying them more than $600 per year.

While helpful, a W-9 is not required. You may incorporate a substitute Form W-9 into other business forms you customarily use. However, the certifications on the substitute Form W-9 must clearly state (as shown on Part II of the official Form W-9) that under penalties of perjury:

1.      The payee’s TIN is correct,

2.      The payee is not subject to backup withholding due to failure to report interest and dividend income,

3.      The payee is a U.S. person, and

4.      The FATCA code entered on this form (if any) indicating that the payee is exempt from FATCA reporting is correct.

State filing requirements

In addition to filing Form 1099-NEC with the Internal Revenue Service (IRS) , several states also require 1099-NEC filings for non-employee compensation (contractor payments). Verify your responsibilities by checking your state's website or speaking with your accountant.

Second Draw PPP Loans – Guidance

The SBA announced late last night an Interim Final Rule (IFR) related to the Second Draw PPP Loans.

As with the First Draw PPP loans, funds are limited and Congress has approved $284 billion in new loans. The IFR is effective immediately and the last day to apply for and receive a PPP loan is March 31, 2021.

Eligibility requirements

To qualify for a Second Draw PPP loan, you will need to meet five requirements:

·       You're a business, independent contractor, eligible self-employed individual, sole proprietor, nonprofit organization, eligible for a First Draw PPP Loan, veteran’s organization, Tribal business concern, housing cooperative, small agricultural cooperative, eligible 501(c)(6) organization or eligible nonprofit news organization that was in operation on or before February 15, 2020 that:

·       Has 300 or fewer employees, unless you're a business that satisfies the North American Industry Classification System (“NAICS”) code beginning with 72 (including hotels and restaurants) or an eligible news organization with more than one physical location.

·       Experienced a revenue reduction of 25% or greater in 2020 relative to 2019 (more on this below).

·       Received a First Draw PPP Loan

·        Have used, or will use, the full amount of the First Draw PPP Loan on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower

The 25% reduction requirement

This can be calculated in two ways :

·       Compare quarterly gross receipts for one quarter in 2020 with gross receipts for the corresponding quarter in 2019. If a reduction of 25% or greater is experienced, the Company is eligible for the Second Draw PPP loan, or

·       If you were in operation in all four quarters, compare the annual receipts of 2019 versus that of 2020 to determine if you met a 25% reduction

Defining Gross Receipts

The SBA defines gross receipts as ‘all revenue in whatever form received or accrued’ from whatever source including sales of products or services, interest, dividends, rents, royalties, fees or commission, reduced by returns or allowances. Forgiven First Draw PPP loans are not included in the 2020 gross receipts. For sole proprietorships, independent contractors or self-employed individuals your calculations are generally the same as documents required for First Draw PPP loans.

Payroll Cost Calculation

The maximum loan amount for a Second Round PPP Loan is equal to the lesser of two and half months of borrower’s average monthly payroll costs or $2million. If employees earn more than $100,000 per annum the amounts in excess of $100,000 needs to be deducted in the payroll calculation.

For borrowers assigned a NAICS code beginning with 72 (hotels and restaurants amongst others), the Economic Aid Act provides that the maximum loan amount is equal to three and a half months of payroll costs.

The Economic Aid Cat also provides that businesses that are part of a single corporate group shall not received more than $4,000,000 of Second Draw PPP Loans in the aggregate.

Sole Proprietorships

If the borrower has income from self employment and filed a Form 1040, Schedule C, the maximum loan amount is calculated as the lesser of :

-          The sum of (i) net profit of the borrower in 2019 or 2020 (as reported on IRS Form 1040 Schedule C) that is not more than $100,000, divided by 12 (ii) the average total monthly payment for employees payroll costs incurred or paid MULTIPLIED  by 2.5 or

-          $2 million

Partnerships

The maximum amount of a Second Draw PPP loan to a borrower that files taxes as a partnership is calculated as the lesser of

-          The sum of (i)  self-employment of individual general partners in 2019 or 2020 (as reported on IRS Form 1065 K-1), that is not more than $100,000 divided by 12, (ii) the average total monthly payment for employees payroll costs incurred or paid MULTIPLIED  by 2.5 or

-          $2 million

What qualifies as payroll costs

Payroll costs consist of compensation to employees, in the form of salary, wages, commission, tips, payments for vacation, parental, family, medical, or sick leave, payment for the provision of employee benefits consisting of group health care or group life, disability, vision or dental insurance including insurance premiums and retirements, payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earning from self-employment, or similar compensation

Second Draw PPP Loan Application and Documentation Requirements

The applicant must submit to the lender SBA Form 2483-SD or the lender’s equivalent form.

Companies have an option of using either their 2020 or 2019 payroll numbers for their Second Draw PPP loan application. However, no additional documentation to substantiate payroll costs will be requires if the applicant

(i)                  Used calendar year 2019 figures to determine its First Draw PPP loan amount

(ii)                Used Calendar Year 2019 figures to determine its Second Draw PPP loan amount (instead of 2020

(iii)               The lender for the applicant’s Second Draw PPP loan is the same as the lender that made the applicant’s First Draw PPP loan

The lender may request additional documentation, but this will vary depending on the lender.

For loans greater than $150,000 the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019. For loans less than $150,000 such documentation is not required at the time the borrower submits its application for a loan but must be submitted on or before the date the borrower applies for forgiveness.

Terms of loans

The terms of the loan are similar to the First Draw PPP loan

·       Guarantee percentage is 100%

·       No collateral will be required

·       No personal guarantees will be required

·       Interest rate will be 1%

·       Maturity is 5 years

Forgiveness and eligible costs

PPP borrowers can have their first- and second-draw loans forgiven if the funds are used on eligible costs. As with the first round of the PPP, the costs eligible for loan forgiveness in the revised PPP include payroll, rent, covered mortgage interest, and utilities. In addition, the following costs are now eligible:

·       Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.

·       Covered property damage costs related to property damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation.

·       Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.

·       Covered operating expenditures, which refer to payments for any business software or cloud computing service that facilitates business operations; product or service delivery; the processing, payment, or tracking of payroll expenses; human resources; sales and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.

To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period between eight or 24 weeks.

Simplified forgiveness

Borrowers that receive a PPP loan of $150,000 or less shall receive forgiveness if the borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA has yet to create the simplified application form but must do so by Jan. 20. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud. 

Those are some of the highlights of the Second Draw PPP Loans. As always, consult us for guidance on your specific situation. We will continue to provide updates as they are available.

The Consolidated Appropriations Act brings COVID-19 relief (and more) to individuals

President Trump signed into law billions of dollars in long-awaited COVID-19 and economic relief. The relief package is part of the nearly 5,600-page Consolidated Appropriations Act (CAA), which also contains numerous other tax, payroll and retirement provisions. Here are some of the provisions most likely to affect individual taxpayers.

Recovery rebates

The most headline-grabbing component of the CAA is the second round of direct payments. The law calls for nontaxable “recovery rebates” of $600 per eligible taxpayer ($1,200 for married couples filing jointly) plus an additional $600 per qualifying child.

The payments begin phasing out at $75,000 of modified adjusted gross income (MAGI) for single filers, $112,500 for heads of household and $150,000 for married couples filing jointly. Payments are reduced by $5 for every $100 of income above these thresholds, and phaseouts reduce the total payment amount, including the amounts for qualifying children.

The CAA expands eligibility for the payments to so-called mixed-status households, meaning those where not every family member has a Social Security Number (SSN). This change is retroactive to the CARES Act. Eligible families who didn’t receive a payment in the first round because one spouse lacked an SSN can claim a credit for that payment on their 2020 federal tax returns.

Because the rebates are based on your 2019 tax returns, you could receive a payment that’s less than you’re entitled to under the law. If your income was lower in 2020 or your family grew, you may be able to claim an additional credit for the difference on your 2020 tax return. But, if you receive a payment and it turns out your actual 2020 income is high enough that your payment should have been phased out, you won’t have to repay the difference.

Unemployment benefits

The CAA provides an extra $300 per week in unemployment benefits, over and above state unemployment benefits, for 11 weeks. It also extends for 11 weeks the Pandemic Unemployment Assistance program, which makes unemployment benefits available to workers who typically don’t qualify, including the self-employed, gig economy workers and others in nontraditional employment.

Housing relief

The new law includes multiple types of relief for those struggling with their housing costs. For example, the federal eviction moratorium is extended through January 31, 2021. The CAA also offers rental assistance for families affected by COVID-19. Eligible households can apply the funds to rent, utilities and energy costs — including amounts in arrears. And mortgage insurance premiums remain deductible through 2021 (subject to phaseout limits).

Retirement relief

The CARES Act provides several forms of temporary relief related to retirement plan requirements. For example, it permits penalty-free withdrawals from certain retirement plans for expenses related to COVID-19 and lifts the limit on retirement plan loans. The CAA clarifies that money purchase pension plans are included among the retirement plans subject to the temporary relief measures under the CARES Act.

Unfortunately, the pandemic wasn’t the only disaster to befall taxpayers this year, and the CAA recognizes that. It includes tax relief for taxpayers in federally declared disaster areas for major disasters (not related to COVID-19) declared from January 1, 2020, through February 25, 2021.

The relief under the CAA mirrors some of the relief afforded under the CARES Act. For example, it provides that residents of qualified disaster areas can take distributions of up to $100,000 from retirement plans without the normal 10% early withdrawal penalty. A “qualified disaster distribution” must be made no later than June 25, 2021. The CAA also contains special rules for the recontribution of retirement plan distributions applied to a home purchase in a qualified disaster area and raises the limit for retirement plan loans made following a qualified disaster.

Be aware that the CAA doesn’t extend the CARES Act’s temporary waiver of required minimum distributions. Affected taxpayers should plan on resuming those distributions for 2021.

Earned income and child tax credits

The CAA includes a temporary change that could result in larger earned income tax credits (EITCs) and child tax credits (CTCs). It allows lower-income individuals to use their earned income from the 2019 tax year to determine their EITC and the refundable portion of their CTC for the 2020 tax year. This could produce larger credits for eligible taxpayers who earned lower wages in 2020 due to the pandemic.

Medical expense deductions

For tax years beginning before January 1, 2021, you could claim an itemized deduction for unreimbursed medical expenses that exceeded 7.5% of your adjusted gross income (AGI). The threshold was scheduled to jump to 10% of AGI for 2021, which would make it more difficult to qualify for a medical expense deduction. The CAA permanently sets the threshold at 7.5% of AGI for tax years beginning after December 31, 2020.

Charitable contributions

Under the CARES Act, taxpayers who don’t itemize their deductions on their tax returns can nonetheless claim a $300 “above-the-line” deduction for cash contributions to qualified charitable organizations in 2020. The CAA extends that deduction through 2021 and doubles the deduction for married filers to $600. Contributions to donor-advised funds and supporting organizations don’t qualify for the deduction.

The CARES Act also loosened the limitations on charitable deductions for cash contributions made in 2020, boosting it from 50% to 100% of AGI. The CAA carries that over for 2021. Cash contributions remain limited to the excess of AGI over the amount of all other charitable contributions. Any excess cash contributions are carried forward to later years.

Student loans

Under the CARES Act, employers can provide up to $5,250 annually toward employee student loan payments on a tax-free basis before January 1, 2021. The payment can be made to the employee or the lender. The CAA extends the exclusion through 2025. The longer term may make employers more willing to offer this benefit.

The CARES Act also temporarily halted collections on defaulted loans, suspended loan payments and reduced the interest rate to zero through September 30, 2020. Subsequent executive branch actions extended this relief through January 31, 2021. The CAA leaves in place that expiration date.

Education tax credits

Qualified taxpayers generally can claim an education tax break with the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Previously, though, the two credits were subject to different phaseout rules, with the AOTC available at a greater MAGI than the LLC. In addition, before the new law, taxpayers could claim a “higher education expense deduction” for qualified tuition and related expenses.

The CAA adopts a single phaseout for both the AOTC and the LLC, effective for tax years beginning after December 31, 2020. The credits will phase out beginning at $80,000 for single filers and ending at $90,000. For joint filers, they will begin to phase at $160,000 and disappear at $180,000.

The new law also repeals the higher education expense deduction. Instead, taxpayers can apply the LLC credit.

Discharged mortgage debt

The tax code provision allowing taxpayers to exclude the discharge of qualified debt on their principal residence up to $2 million (or $1 million for married individuals filing separately) from their gross income was scheduled to expire at the end of 2020. The CAA extends the exclusion to such debt discharged through 2025. But it also reduces the maximum acquisition debt limits to $750,000 for individuals — and $375,000 for married individuals filing separately — for debt discharged after 2020.

Flexible Spending Accounts

The CAA loosens certain rules related to health and dependent care Flexible Spending Accounts (FSAs) that could lead to taxpayers forfeiting unspent funds. It allows unused amounts from 2020 FSAs to roll over to 2021and unused amounts from 2021 FSAs to roll over to 2022. Grace periods for plan years ending in 2021 or 2022 may be extended to 12 months after the end of the plan year. For 2021, employees can make mid-year prospective changes in their FSA contribution amounts without a change in status.

These changes are voluntary for employers. If you have an FSA, check with your employer to see if it’s adopting the available relief.

Repayment of deferred payroll taxes

In August 2020, President Trump issued an executive order allowing employees to defer their share of Social Security taxes. Subsequent IRS guidance allowed, but didn’t require, employers to suspend withholding of such taxes. If your Social Security taxes were deferred, the CAA includes a change that could affect your expected cash flow for 2021.

Originally, the IRS issued guidance requiring employees to pay any deferred employment taxes on a prorated basis from January 1, 2021, through April 30, 2021. The CAA gives employees the entire year in 2021 to make up those deferred payments. That means you could have modestly more cash flow than you would have without the law.

There’s more

The CAA is one of the longest pieces of legislation in congressional history, and the provisions outlined above are only a sampling of those that could affect you. Contact us to make sure you make the most of the changes.

© 2021

How can your business benefit from the Consolidated Appropriations Act?

The Consolidated Appropriations Act of 2021 (CAA) was signed into law in late December. The sprawling legislation contains billions of dollars in additional stimulus funding in response to the COVID-19 pandemic, as well as numerous unrelated provisions. Let’s take a closer look at the provisions that are most likely to affect your company’s bottom line.

Paycheck Protection Program

The CAA includes another $284 billion in funding for forgivable loans through the Paycheck Protection Program (PPP), for both first-time and so called “second draw” borrowers. New loans can be made through March 31, 2021, or until the funding is exhausted. The new law expands the allowable uses for PPP funds, provides a simplified forgiveness process for smaller loans, and clarifies the proper tax treatment of loan proceeds and forgiven amounts.

The second draw loans are intended for smaller and harder hit businesses. Eligible borrowers include businesses, certain nonprofits, self-employed individuals, sole proprietors and independent contractors.

To qualify for a second draw, a borrower must have no more than 300 employees and have used (or will use) all of the proceeds of its first PPP loan. Borrowers generally also must demonstrate at least a 25% reduction in gross receipts in one quarter of 2020 compared with the same quarter in 2019. For loans of $150,000 or less, a borrower can submit a certification attesting that it meets the revenue loss requirements on or before the date it submits its loan forgiveness application.

Loans are limited to 2.5 times average monthly payroll costs in the year prior to the loan or the calendar year, up to $2 million. Accommodation and food service businesses may receive loans for up to 3.5 times their average monthly payroll. Businesses can obtain only a single second draw loan, and businesses with multiple locations that are eligible under the initial PPP requirements can have no more than 300 employees per physical location.

The CARES Act, which created the PPP, limited the funds to payroll, mortgage, rent and utility payments. The CAA allows businesses to also apply the funds to:

• Covered operating expenses, including software or cloud computing services that facilitate business operations, product and service delivery, payroll processing, human resources, sales and billing, accounting or tracking supplies, inventory, records, and expenses,

• Uninsured costs related to property damage, vandalism or looting during 2020 public disturbances,

• Supplier costs according to a contract, purchase order or order for goods, in effect before taking out the loan, that are essential to the borrower’s operations, and

• Worker protection expenses incurred to comply with federal or state health and safety guidelines related to COVID-19 (for example, personal protective equipment, ventilation systems and drive-through windows).

As with the first round of PPP loans, full forgiveness requires a 60/40 cost allocation between payroll and nonpayroll costs. In other words, you must spend at least 60% of the funds on payroll over your covered period, which may range from eight to 24 weeks.

The CAA creates a simplified forgiveness application for loans up to $150,000. Such loans will be forgiven if the borrower signs and submits to the lender a one-page certification form from the Small Business Administration (SBA). The certification requires a description of the number of employees retained due to the loan, the estimated total amount of funds spent on payroll and the total loan amount. Borrowers must retain relevant records regarding employment for four years and other records for three years.

The CAA also eliminates the previous requirement that borrowers deduct the amount of any SBA Economic Injury Disaster Loan (EIDL) advances from their PPP forgiveness amount.

Additionally, the CAA addresses some of the confusion that had arisen regarding PPP tax issues. It specifies that a borrower need not include any forgiven amounts in its gross income. And — contrary to the position taken earlier by the IRS — it states that borrowers can deduct otherwise deductible expenses paid with forgiven PPP proceeds. The CAA also provides that tax basis and other attributes aren’t reduced by loan forgiveness (special rules apply to partnerships and S corporations). These tax provisions apply to second draw loans, too.

Other financial assistance

The CAA provides $20 billion for new EIDL grants for businesses in low-income communities and $15 billion for live venues, independent movie theaters and cultural institutions.

On the tax front, it states that a borrower’s gross income doesn’t include forgiveness of certain loans, emergency EIDL grants and certain loan repayment assistance provided by the CARES Act. As with PPP loans, you can deduct your otherwise deductible expenses paid with such forgiven amounts, and forgiveness won’t reduce your tax basis and other attributes (special rules apply to partnerships and S corporations). Similar treatment applies to targeted EIDL advances and Grants for Shuttered Venues.

Employee Retention Credit

To encourage businesses to maintain their workforces, the CARES Act created the Employee Retention Credit, a refundable credit against payroll tax for employers whose:

• Operations were fully or partially suspended due to a COVID-19-related governmental shutdown order, or

• Gross receipts dropped more than 50% compared to the same quarter in the previous year (until gross receipts exceed 80% of gross receipts in the earlier quarter).

Employers with more than 100 employees could receive the credit if they closed due to COVID-19. Those with 100 or fewer employees received the credit regardless of whether they were open for business.

The credit equaled 50% of up to $10,000 in compensation — including health care benefits — paid to an eligible employee from March 13, 2020, through December 31, 2020. The CAA extends the credit for eligible employers that continue to pay wages during COVID-19 closures or reduced revenue through June 30, 2021.

Notably, as of January 1, 2021, the CAA hikes the credit from 50% of qualified wages to 70%. It also expands eligibility by reducing the requisite year-over-year gross receipt reduction from 50% to only 20% and raises the limit on per-employee creditable wages from $10,000 for the year to $10,000 per quarter.

In addition, the threshold for a business to be deemed a “large employer” — and thus subject to a tighter standard when determining the qualified wage base — is lifted from 100 to 500 employees.

The CAA includes some retroactive clarifications and technical improvements regarding the original credit, as well. For example, it provides that employers that receive PPP loans still qualify for the credit for wages not paid with forgiven PPP funds.

Deferred payroll taxes

Businesses were given the option to withhold their employees’ share of Social Security taxes from September 1, 2020, through December 31, 2020. Those that did were originally directed to increase the withholding and pay the deferred amounts on a prorated basis from wages and compensation paid between January 1, 2021, and April 30, 2021.

Under the CAA, such employers now have all of 2021 to withhold and pay the deferred taxes.

Non-COVID-19 disaster relief

The CAA also acknowledges the recent disasters not related to the pandemic (for example, wildfires). Among other things, it provides a tax credit of up to $2,400 (40% of up to $6,000 of wages) per employee, to employers in qualified disaster zones.

The credit applies to wages paid, regardless of whether services were actually performed in exchange for those wages. The CAA also modifies the CARES Act to allow corporations to make qualified disaster relief contributions of up to 100% of their 2020 taxable income.

Business meals deduction

For 2021 and 2022, you can deduct 100% (up from 50%) for food and beverages as long as they’re “provided by a restaurant.” The IRS will likely issue guidance on the deduction, particularly the meaning of the term “provided by a restaurant.”

Retirement plans

The tax code allows “qualified future transfers” of up to 10 years of retiree health and life costs from a company’s pension plan to a retiree’s health benefits or life insurance account within the plan. These transfers must meet certain requirements (for example, the plan must be 120% funded) that pandemic-related market volatility has made too difficult to meet in some cases.

In response, the CAA allows employers to make a one-time election on or before December 31, 2021, to end any existing transfer period for any taxable year beginning after the election in certain circumstances.

The law also includes a partial termination safe harbor for retirement plans in light of 2020’s pandemic-related workforce fluctuations. Plans won’t be treated as having a partial termination (which would trigger 100% vesting for affected participants) if the number of active participants on March 31, 2021, is at least 80% of the number covered by the plan on March 13, 2020. The safe harbor applies to plan years that include the period beginning on March 13, 2020, and ending on March 31, 2021.

Charitable deductions

The CAA extends, through 2021, the CARES Act provision that increases the limitation on corporations’ cash charitable contributions from 10% of taxable income to 25%. Any excess corporate cash contributions will be carried forward to subsequent tax years. The limitation on deductions for donations of food inventory, which the CARES Act increased to 25% for 2020, is similarly extended through 2021.

Tax extenders

The CAA incorporates several “extenders” of tax breaks. For example, it extends both the New Markets Tax Credit and the Work Opportunity Tax Credit through 2025. The employer credit for paid family and medical leave is extended through 2025 for wages paid in tax years after 2020.

The law extends through 2025 the period for which an empowerment zone designation is in effect. But the enhanced expensing rules and nonrecognition of gain on rollover of empowerment zone investments are terminated for property placed in service in tax years beginning after December 31, 2020. Empowerment zone tax-exempt bonds and employment credits also weren’t extended beyond December 31, 2020.

A loaded law

At almost 5,600 pages, the CAA contains many more components that could impact your business and personal taxes. Please contact us if you have any questions about these or other provisions.