CARES Part 2 is Finally Here

The “Consolidated Appropriations Act, 2021” has now been signed into law. One key feature within this Act relates to the Paycheck Protection Program (PPP), which has now been revived with a $284 billion allocation so that especially hard-hit businesses that received PPP funds as part of the original CARES Act would now be eligible for a second round. 

The new law now allows eligible businesses that previously received a PPP loan under the original CARES Act and which meet certain criteria to receive a second draw of PPP funds. Businesses employing fewer than 300 people that have used up all their original PPP funds and can demonstrate a reduction of at least 25% in gross receipts in any quarter in 2020 relative to the same quarter in 2019 are eligible for a second round of PPP funds.   

The new Act also has funds targeted to specific groups who have been affected by the pandemic, including colleges and schools, a sector that will have $82 billion allocated to cover HVAC repair and replacement. 

This is a comprehensive Act with many tax provisions. Key tax-related elements of the new Act include:

·       A refundable tax credit in the amount of $600 per eligible family member. The credit phases out
        starting at $75,000 single and $150,000 married filing jointly.

·       Clarification of tax treatment of covered loan forgiveness which states that expenses paid with
        PPP loan proceeds are allowed as deductions, and that the tax basis and attributes will not be
        reduced as a result of the loan forgiveness.

·       CARES Act emergency financial aid grants are now excluded from the gross income of college and
        university students. The Act also holds students harmless for purposes of determining their
        eligibility for the American Opportunity and Lifetime Learning Credits.

·       The 50% limit on the business meal deduction is suspended for meals provided by restaurants in
        2021 and 2022.

The Act also included the following tax extenders:

·       The itemized medical deduction threshold of 7.5% of adjusted gross income is now permanent

        at 7.5%.

·       The Act extends the Work Opportunity Credit through 2025.

·       The Act extends mortgage insurance premiums as qualified residence interest through 2021.

Please feel free to contact us for more information on how the new act could affect your tax situation.

Stone & Company is a CPA firm based in Lexington, Massachusetts.

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