Rex Crandell has been in the tax and estates & trusts profession since 1976. He has many years of experience preparing thousands of tax returns, doing estate planning, estate administration and probate. 

Our Firm Specializes In:

• Estate Planning

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(925) 934-6320

Walnut Creek, CA 94598

rexcrandell@astound.net

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COVID-related Tax Relief Act of 2020

The COVID-related Tax Relief Act of 2020

The Consolidated Appropriations Act, 2021, H.R. 133 included funding for the government, extensions for expiring tax extenders, tax relief under the COVID-related Tax Relief Act of 2020, and many more items.

Passed by both the House and Senate, it was signed into law by President Trump on December 27, 2020.

COVID-related Tax Relief Act of 2020

Let’s take a look at a few of the highlights related to pandemic taxpayer relief under the COVID-Related Tax Relief Act of 2020:
Individuals

Economic impact payments 

$600 per taxpayer ($1,200 for married taxpayers filing jointly) and an additional $600 per qualifying child (under age 17). The recovery rebate payment begins to phase out starting at $75,000 of modified adjusted gross income for single filers, $112,500 for heads of household, and $150,000 for married taxpayers filing jointly. These payments are similar to the ones many taxpayers received earlier this year under the CARES Act.

Unemployment benefits

Additional unemployment insurance in the amount of $300 has been extended for an 11-week period beginning from December 26, 2020.

Educator expenses

Clarification that Personal Protective Equipment (PPE) used for the prevention and spread of COVID-19 will be treated as a deductible expense, retroactive to March 12, 2020.

Charitable contributions – Nonitemizers

The $300 above-the-line deduction for cash contributions given to a qualified charitable organization is extended through 2021 and increases to $600 for married taxpayers filing joint returns. In 2020, the maximum amount was $300.

Charitable contributions – Itemizers

The increased contribution limit to qualified charities that was specified in the CARES Act is extended through 2021 and applies to individuals and corporations. Amounts of up to 100 percent of adjusted gross income (AGI) are allowed as deductions (same as 2020). In 2019, the limit for the deduction for cash contributions was 60% of AGI.

Earned Income

For the 2020 tax year, taxpayers may use earned income amounts from the immediately preceding tax year when figuring the Earned Income Tax Credit and the Additional Child Tax Credit.

Flexible spending arrangements

Taxpayers can rollover unused amounts from 2020 to 2021 and from 2021 to 2022 and employers may allow employees to make a contribution change mid-year in 2021.

Money purchase pension plans

The COVID-related Tax Relief Act of 2020 also allows money purchase pension plans to be included as a qualified retirement plan, retroactive to the CARES Act. The CARES Act allowed taxpayers to make penalty-free withdrawals of up to $100,000 from certain retirement plans for coronavirus-related expenses, with the option to pay tax on that income over a three-year period or recontribute withdrawn funds.

Businesses

Paycheck Protection Program (PPP) Loans

Retroactive to the effective date of the CARES Act, PPP loans that are forgiven will be treated as tax-exempt income. Gross income does not include loan forgiveness for Economic Injury Recovery Loans (EIDLs) and certain other loans or loan repayment assistance. Under the CARES Act, taxpayers receiving an EIDL were required to reduce any PPP loan forgiveness by the amount of the EIDL.

In addition, businesses with 300 or fewer employees with a gross revenue loss of 25 percent in any quarter of 2020 compared to the same quarter in 2019 are eligible for a second round of PPP loans.

Deductible expenses

Deductions are also allowed for deductible expenses (that would otherwise be deductible) paid for with the proceeds of a forgiven PPP loan. This reverses earlier IRS guidance that stated no deduction would be allowed. This tax provision applies to the second round of PPP loans as well.

Payroll tax credits

Refundable payroll tax credits for paid sick and family (Families First Coronavirus Response Act) leave are extended through March 2021. Employers are not required to provide paid leave after December 31, 2020; however, employers may still claim the credit if the employee would have qualified for paid leave if the mandate had been extended beyond December 31, 2020, and the employer provides paid leave.

Employee retention tax credits

Implemented as a refundable credit under the CARES Act, the employee retention tax credit (ERTC) is extended through June 30, 2021. The following also applies for calendar quarters beginning after December 31, 2020:

  • The credit rate is increased from 50 to 70 percent of qualified wages.
  • The limit on per-employee creditable wages is increased from $10,000 for the year to $10,000 for each quarter.
  • The required reduction in a year-over-year decline in gross receipts on a quarterly basis is reduced from 50 to 20 percent.
  • When determining the relevant wage base, the definition of a “large employer” that can only claim the credit for employees that are not working because of the COVID pandemic increases from more than 100 to more than 500 employees.
  • Certain government employers are now allowed to claim the ERTC.
  • Safe harbor allowing employers to use prior-quarter gross receipts to figure eligibility.
  • New employers in 2020 (i.e., those not in existence in 2019) can claim the credit.

Furthermore and retroactive to the date of the CARES Act, the ERTC is expanded to allow employers who receive PPP loans to qualify for the credit with respect to wages that are not paid with forgiven PPP proceeds. It also clarifies that group health plan expenses can be considered qualified wages even if no other wages are paid to an employee.

Employee portion of payroll tax deferral

The repayment period for deferral of payroll tax is extended through December 31, 2021.

Standard Mileage Rates for 2021

Starting January 1, 2021, the standard mileage rates for the use of a car, van, pickup, or panel truck are as follows:

  • 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020
  • 16 cents per mile driven for medical or moving purposes for qualified active-duty members of the Armed Forces, down 1 cent from the rate for 2020, and
  • 14 cents per mile driven in service of charitable organizations. The charitable rate is set by statute and remains unchanged.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile, including depreciation, insurance, repairs, tires, maintenance, gas, and oil. The rate for medical and moving purposes is based on the variable costs, such as gas and oil. The charitable rate is set by law.

Taxpayers always have the option of claiming deductions based on the actual costs of using a vehicle rather than the standard mileage rates.

Before tax reform, these optional standard mileage rates were used to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes. However, it is important to note that under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station.

Taxpayers can use the standard mileage rate but must opt to use it in the first year the car is available for business use. Then, in later years, they can choose either the standard mileage rate or actual expenses.

Leased vehicles

Typically, if the standard mileage rate is chosen, then leased vehicles must use the standard mileage rate method for the entire lease period (including renewals). Due to the COVID-19 pandemic, however, the IRS is allowing employers to switch from the vehicle lease valuation method to the cents-per-mile method (56 cents for 2021 and 57.5 cents for 2020) when determining the value of an employee’s personal use of a vehicle during the pandemic, and is effective as of March 13, 2020.

If you have any questions about standard mileage rates or which driving activities you should keep track of as the new tax year begins, do not hesitate to contact the office.

Have questions regarding The COVID-related Tax Relief Act of 2020?

Call Rex Crandell Firm in Walnut Creek, CA at 925-934-6320 or click here to contact through our website!