The Hidden Gems of the CAA
The latest COVID-19 relief bill contains some headline grabbers, but other less trumpeted provisions could also make a big difference for CPAs and their clients.
Digital Exclusive - 2021
As we start the new year, hopefully feeling refreshed, we can rejoice about at least one thing: more COVID-19 tax relief. On Dec. 27, 2020, President Donald Trump signed into law the Consolidated Appropriations Act (CAA), a combination of COVID-19 relief and many other provisions covering 5,593 pages. But as with all new tax laws, it boils down to the same basic formula: the headliner (provisions we’ve all read and heard about), the extenders (which simply extend past provisions), the esoteric provisions, and everything else.
This last category—everything else—is where the fun begins; the never-ending search to find those buried treasures in the new law. Here are a few that I would consider to be hidden gems, worthy of discovery:
Employee Retention Credit
With these new changes, employers could get a big payroll tax credit for keeping their employees on the payroll. This is now a 70 percent credit on up to $10,000 of qualified wages per employee per quarter for the first two quarters in 2021 through June 30, 2021. If employers qualify, they can claim up to $14,000 per employee in 2021.
This extends to employers with up to 500 employees. Note that this is a refundable payroll tax credit offsetting the employer’s portion of payroll taxes, so if these credits exceed payroll taxes you could be eligible for a refund. To qualify, the employer’s gross receipts for the first two 2021 calendar quarters must be at least 20 percent less than the 2019 quarter. Alternatively, employers can elect to use the prior quarter’s gross receipts to qualify.
There are various complexities and unanswered questions about how the Employee Retention Credit will impact other wage-based credits in the tax law and how to best utilize all available credits. Detailed and thorough analysis should be done based on each taxpayer’s unique circumstances. There will also need to be further guidance from the IRS and Treasury on this very special and potentially valuable credit.
PPP (Payroll Protection Program) Loans and Expense Deduction
The new law clarifies that business expenses paid with forgiven PPP loans are tax deductible.
Section 179D Made Permanent
If you are an architect, engineer, or contractor, or a CPA with any of these as clients, this is a huge opportunity to claim this—now permanent—deduction. This deduction applies if these taxpayers are encouraging green, energy-efficient design of public buildings, including improvements to the building envelope, lighting, heating, cooling, ventilation, or hot water systems.
The deduction can be up to $1.80 per square foot. Although the architect, engineer, or contractor doesn’t own the public building, they could be allocated this deduction from the government entity. It’s like a free deduction! Since it is calculated based on square footage, a large high school, elementary school, or public library could yield a sizable deduction to the architect, engineer, or contractor. This also applies to owners of commercial buildings.
Section 179D encourages energy-efficient designs while reducing energy costs for all. It’s a win-win for architects, engineers, contractors, the government, taxpayers, and commercial building owners.
For 2021 and 2022, the 100 percent deduction for business meal food and beverage is back. This includes carry-out and delivery meals.
The non-itemizer, above-the-line deduction for cash charitable contributions increases to $600 for married taxpayers filing jointly (non-married filers or married filing separately are limited to $300).
Relief for FSA (Flexible Spending Account)
Remember the “use it or lose it” rule requiring employees to spend money in their FSA account for health or dependent care by year-end or lose this money? The old rules did allow a carryover of unused funds of up to $560 to 2021, but this little gem of a law eliminates the health and dependent care carryover limit. Now employees can carryover any unused amount from either the 2020 or 2021 plan year to the next year.
Buried within the 5,593 pages are many other provisions and hidden gems that will need to be discovered, understood, and put to use. I teased you here with just a few. Be prepared to read and find more buried treasures that could help you or your clients. Hang in there, get your fingernails dirty, and get digging!
Rick Meyer, CPA, MBA, MST is a long-time member of the Illinois CPA Society and a director for alliantgroup, a national firm that works with businesses and their CPAs to identify government-sponsored tax credits and incentives. He can be contacted at [email protected].