The COVID-Related Tax Relief Act of 2020

The 2021 new year will start with a new tax law - the COVID-Related Tax Relief Act of 2020 (“COVIDTRA”), which was signed into law by President Trump on December 27, 2020. Here are a few of its tax incentives to help business deal with the current economic turmoil caused by COVID-19.

Deductibility of PPP-funded expenses. COVIDTRA reverses the IRS and allows businesses to deduct expenses even if they were funded with a forgiven PPP loan.

Payroll tax credits. The Act extends the refundable payroll tax credits established by Families First Coronavirus Response Act for paid sick and family leave. The period for which the tax credit can be used now runs to March 31, 2021.

Employee Retention Tax Credit (“ERTC”). COVIDTRA made many changes to the ERTC, including:

1.     Extending the availability of the credit to wages paid after March 12, 2020 but before July 1, 2021

2.     Increasing the number of employees counted when determining the relevant qualified wage base from 100 to 500;

3.     Increasing the credit rate from 50% to 70% of qualified wages;

4.     Increasing the limit on per employee creditable wages from $10,000 for the year to $10,000 for each quarter;

5.     Decreasing the required year-over-year gross receipts decline from 50% to 20%.

An employer can now take a PPP whole also using the ERTC.

Miscellaneous. The Act also contains several new temporary modifications to the Internal Revenue Code, including a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant (for expenses incurred after December 31, 2020 and before December 31, 2022). Corporations can make qualified disaster relief contributions of up to 100% of their taxable income to extending the availability of the Work Opportunity Credit.

Employers should check with their tax advisors about the new tax provisions and their implications to their business.