Staying abreast of a tax landscape constantly in flux may seem like a Sisyphean task for businesses already strained by a nearly year-long pandemic. With a $2.3 trillion omnibus spending and stimulus relief package ushering in many changes in the waning days of 2020, along with others already on the books, change remains the theme in 2021.
In December 2020, the Consolidated Appropriations Act, 2021, which included the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSA” or the “Act”), was passed and signed into law. The Act contains many tax provisions, one of the most anticipated being clarification of the Paycheck Protection Program (“PPP”) established under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). PPP loans are completely forgivable under certain conditions. However, the IRS issued two pronouncements in 2020 providing that no deduction would be allowed for expenses paid with forgiven PPP loans and, further, expenses could not be deducted in tax year 2020 if there was a reasonable expectation of loan forgiveness. The Act, however, will allow deductions for expenses paid forgiven PPP loans retroactive to the enactment of the CARES Act.
“Second Draw” PPP loans for certain small businesses and non-profits that suffered a 25% or greater reduction in gross receipts in any quarter during 2020 when compared to the same quarter in 2019, while expanding the types of entities eligible for PPP loans. The Act also increased the size of PPP loans for small businesses in restaurant and hospitality industries, simplified the forgiveness application for smaller loans, and expanded the list of eligible expenses to include software and cloud computing, property damage mitigation, supplier costs, and costs for personal protective equipment necessary to comply with health and safety guidelines.
Under the Act, the Employee Retention Credit (“ERC”) was extended through June 30, 2021, while the amount of the credit increased to 70% of “qualified wages,” such eligible wages increasing to $10,000 per quarter (from $10,000 per year). To qualify for the ERC, a business must have suffered a complete or partial shutdown, or 20% reduction in year-over-year gross receipts (down from 50%). Employers that obtain PPP loans may still qualify for the ERC if the ERC qualifying wages are not paid with forgiven PPP proceeds.
Similarly, while the paid sick and family leave mandate under the Families First Coronavirus Response Act (“FFCRA”) has expired, the Act extends the tax credit through March 2021 for employers that voluntarily pay such leave. Similarly, the repayment period for the Employee Payroll Tax Deferral has been extended through December 31, 2021.
Many other provisions have been tailored to help hard-hit businesses, such as: a 100% business meal expense deduction for food or beverages provided by a restaurant; extension of the increased charitable contribution deduction limit (as established by the CARES Act) through 2021; allowance of a tax credit of 40% of wages (up to $6,000 per employee) for employers in a qualified disaster zone; allowance of qualified disaster relief contributions by corporations of up to 100% of 2020 taxable income; and numerous “Tax Extender” provisions.
While the CRRSA may be top of mind, another – the Protecting Americans from Tax Hikes Act of 2015 (“PATH Act”) – set in motion changes to reporting nonemployee compensation (“NEC”). NEC includes payments made in the course of a trade or business for services performed by a payee who is not the payer’s employee, such as independent contractors and vendors.
The PATH Act advanced the due date for reporting NEC (previously reported on Form 1099-MISC) to January 31, while the deadline for Forms 1099-MISC reporting other types of payments remained February 28 (March 31 for returns filed electronically). Effective for payments made in calendar year 2020, NEC will be reported on Form 1099-NEC due February 1, 2021. Extensions are available but are non-automatic and will only be granted under five enumerated circumstances.
Additionally, Form 1099-NEC will not be part of the Combined Federal/State Filing Program for 2020; consequently, the forms need to filed directly with many states, including the California Franchise Tax Board (“FTB”). The FTB, for example, has indicated that Forms 1099-NEC must be filed with respect to NEC paid to California residents or for services performed in California. The state deadline is February 28 for paper submissions or March 31 for electronic submissions.
Nicholas Sanchez, J.D., LL.M. Taxation, is a partner at Miller Kaplan. Learn more at Millerkaplan.com.
