Important takeaways for businesses and their owners
Revenue raiser
Excess business losses deductible: The Tax Cut and Employment Act 2017 (TCJA) limited the ability of non-corporate taxpayers to deduct excess business losses – the excess of total business deductions over total business gross income – from $ 250,000 per year (or $ 500,000 for joint applicants). with unused excess business losses carried forward as net operating losses. Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, Congress delayed the restriction until 2021, so the restriction would apply to tax years 2021-2025. Now the rescue law has extended the limit by one year, so that the limit applies to the tax years 2021-2026.
Abolition of the worldwide choice to apportion interest expenses: In 2004, Congress enacted Section 864 (f) of the Internal Revenue Code, 1986, as amended (Code). Section 864 (f) allows taxpayers to apportion interest expenses worldwide, which can affect foreign tax credit calculations. Although Section 864 (f) was enacted in 2004, its effective date has been postponed several times, and it should come into effect from tax year 2021. The Rescue Act repealed Section 864 (f), which may affect the future approach of multinational groups to financing transactions and intra-group agreements.
Remuneration of employees of listed companies: Under applicable law, a publicly held company has a limit of $ 1 million per annum on the compensation of an “insured employee” that includes the company’s chief executive officer, chief tax officer, the three other highest paid employees, and anyone else who is a publicly owned company The tax law extends the definition of the term “insured employee” to the eight other best-paid employees instead of the three other best-paid employees for tax years after December 31, 2026. With this additional upper limit for a company’s compensation deduction, listed companies can see a higher tax burden.
Expansion of loans and grants
Tax Treatment of Targeted Loans for Disaster in Economic Violation: As part of the Law on Economic Assistance to Hardly Affected Small Businesses, Nonprofits and Venues, passed on December 27, 2020, Congress provided “Targeted EIDL Advances” to provide additional funding to small businesses in low-income areas Municipalities. The Rescue Act contains additional guidelines on the income tax treatment of targeted EIDL. In particular, the Rescue Act provides that such advances are not included in gross income. In addition, grants from partnerships and S-companies are treated as tax-exempt income within the meaning of sections 705 and 1366 of the Code, which increases the basis of partners and shareholders in their business interests.
Restaurant Revitalization Fund: The Rescue Act establishes the Restaurant Revitalization Fund for eligible small business restaurants, food trucks, taverns, and similar businesses. Similar to Targeted EIDL, grant amounts are not included in gross income. As with partnerships and S-companies that receive Targeted EIDL, such grants are treated as tax-exempt income for the purposes of Sections 705 and 1366 of the Code. Please see our separate comprehensive customer notification on the Restaurant Revitalization Fund (published March 10, 2021).
Changes that affect employees
COBRA Premium Subsidy: Eligible Individuals may receive a 100 percent grant on COBRA Awards paid between April 1, 2021 and September 30, 2021. Employers are granted a quarterly Medicare payroll tax credit equal to the amount of premiums not paid by those eligible persons. If the loan amount exceeds Medicare quarterly payroll tax, the excess is treated as an overpayment. Such amounts are not considered forgivable “wages and salaries” for the purposes of the Paycheck Protection Program (PPP) loan.
Nursing assistance provided by the employer: Generally, an Eligible Employee’s gross income does not include amounts paid by an employer for dependent care assistance granted to the employee under a qualifying program up to $ 5,000. For 2021, the Rescue Act increased the exclusion to $ 10,500.
Employee retention tax credit: The Employee Retention Tax Credit (ERTC) would have expired on June 30, 2021, but has been extended to December 31, 2021 under the Rescue Act. The Rescue Act extends the tax credit in the case of a “financially heavy employer” (i.e., an employer whose gross income was down more than 90 percent from the year-ago quarter). Such an employer can control all wages paid to employees regardless of the Treat number of full-time employees as qualified wages (similar to how a small employer is treated under the version of the ERTC before the Bailout Act). In addition, start-up companies operating after February 15, 2020 with gross annual revenues of up to US $ 1 million -Dollars who otherwise fail the ERTC proficiency tests, are now eligible for the ERTC.
Important takeaways for individuals
Unemployment benefit: For 2020, taxpayers earning less than $ 150,000 can exclude the first $ 10,200 from unemployment benefits from taxable income. The $ 150,000 limit applies to jointly filed returns, heads of household, and individual returns. In the event of a joint return, the exclusion of $ 10,200 applies to each spouse separately for a total exclusion of $ 20,400.
Individual recovery discount: The Rescue Act includes a $ 1,400 refund credit ($ 2,800 for married taxpayers filing together) and $ 1,400 for each dependent taxpayer for 2021. Prepayments of the credit will be sent as economic impact payment checks to individuals.
Child tax credit: The Rescue Act temporarily expands the child tax credit from $ 2,000 to $ 3,000 for children ages 6-17 (previously 6-16) and sets the tax credit for children under 6 years of age at $ 3,600. The loan amount will gradually be adjusted for those earning more than $ 75,000 and for couples earning more than $ 150,000 per year. In addition, the Rescue Act makes the child tax credit fully refundable.
Tax credit for children and people in need of care: The Rescue Act makes the child and care dependent loan refundable and increases the dollar limit to $ 8,000 (from $ 3,000) for one dependent and $ 16,000 (from $ 6,000) for two or more dependents.
Earned Income Tax Credit: The Rescue Act increases the benefit of the tax credit for people without children. Earned Income Tax Credit can now be claimed by people aged 19 and over who were previously available to people between the ages of 25 and 64. In addition, the Rescue Act increases the tax credit and exit percentages for eligible taxpayers without children.
Student loan forgiveness: Certain student loans taken out between December 31, 2020 and January 1, 2026 are tax-free and will not be treated as taxable income. In the short term, this may affect borrowers who have income-based repayment plans who have chosen to repay their loans over a period of 20 or 25 years but have a balance at the end of the repayment period. Before the Rescue Act, the remaining balance would have been awarded and taxed at the borrower’s normal income tax rate.
The global pandemic caused by the COVID-19 virus has left many businesses and individuals on financially shaky ground.