The Coronavirus Aid, Relief, and Economic Security (CARES) Act and the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 provide fast and direct economic assistance for American workers, families, and small businesses, and preserve jobs for American industries.
The $900 billion Consolidated Appropriations Act of 2021 (2021 CAA) was recently signed into law. While the focus has been on a second round of relief payments to most Americans, there is plenty more in the 5,000-plus pages of the stimulus package.
The goal of this bill is to continue to offer assistance to individuals and businesses struggling during the COVID-19 pandemic and to stimulate an economy that has persevered through much volatility over the past 10 months.
Here are several additional key takeaways from the new legislation that you should know:
Individuals:
Flexibility with FSAs
Typically, a flexible spending account can be used as a tax-advantaged vehicle to meet certain health care expenditures each year. However, FSAs are generally a “use it or lose it” account, which means expenses and distributions need to occur by the end of the year. The new bill allows for any unused FSA funds to be rolled over from 2020 to 2021 and allows 2021 funds to be rolled over to 2022. These rules apply to both health- and dependent-care FSAs.
Deductible Medical Expenses
Additionally, the deductibility of medical expenses as an itemized expense is normally set at expenses above 10% of adjusted gross income but was lowered to 7.5% as part of the CARES Act for 2020 and was extended for 2021. As such, individuals can deduct unreimbursed medical expenditures that exceed 7.5% of AGI in 2021. This is an important note as you prepare your 2020 taxes.
Vaccine Distribution
The bill sets aside $20 billion for individual coronavirus vaccinations and $8 billion for vaccine distribution. The CARES Act addressed the cost of COVID-19 testing, and this seeks to provide similar aid for those getting vaccinated.
Emergency Rental Assistance Program
The Emergency Rental Assistance program makes available $25 billion to assist households that are unable to pay rent and utilities due to the COVID-19 pandemic.
The Emergency Rental Assistance payments will be made directly to States (including the District of Columbia), U.S. Territories (Puerto Rico, the United States Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa), local governments with more than 200,000 residents, the Department of Hawaiian Home Lands, and Indian tribes (defined to include Alaska native corporations) or the tribally designated housing entity of an Indian tribe, as applicable (collectively the “eligible grantees”)
Business:
Aid for Entertainment Venues
The new bill also provides $15 billion in assistance for live entertainment venues, independent movie theaters and other cultural organizations as many in-person entertainment activities took a major hit during the pandemic.
PPP Deduction Clarity
There was a debate brewing over whether small businesses could deduct expenses paid with the Paycheck Protection Program funds received. In a big win for business owners, Congress declared that those expenses are deductible and the loan is not included in gross income.
In addition, the Economic Injury Disaster Loans are also tax-free and expenses can be deducted.
PPP Loan Simplification
For businesses that may need a smaller loan, the process just got a lot easier. For loan applications under $150,000, a business will now need to submit a certification to the lender with just three things: the number of employees you are able to keep due to the loan, how much of the loan will be used to cover payroll costs and an attestation that you’re going to do what you say you will with the money (and that you’ll keep records to prove it).
This simplification is designed specifically to help small businesses with the hope that they continue to retain employees despite pandemic-related struggles. Full information on loan forgiveness eligibility and required costs allocated to employee payroll is available on the U.S. SmaIl Business Administration website.
Expansion of PPP Loan Program
Under the new bill, PPP loans can be used to cover additional eligible expenses, which includes: business operational expenses; property damage costs from public disturbances; costs related to protecting employees in alignment with national or local health mandates; supplier costs that were essential to business operations; along with group life, disability, dental and vision insurance.
The CARES Act provided coverage for only payroll, mortgage or rent and utilities. These are still covered under the new bill.
In addition, some businesses will be eligible for a second PPP loan. While Congress expanded the application timeline and allocated more money to the program after the CARES Act, the new bill allows for businesses with fewer than 300 employees to apply for a second PPP loan. The business must have suffered a 25% drop in at least one quarter’s revenue from 2019 to 2020. Other provisions do apply, so if you’re interested in a second PPP loan, reach out to your financial advisor to discuss more.
It is expected that we will hear more discussions about further stimulus and Covid-19 relief in the months to come.
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