Federal Tax News
PPP loans are expanded and extended. Under the new Consolidated Appropriations Act, eligible small businesses can take out first or “second draw” Paycheck Protection Program (PPP) loans. This provision targets smaller and harder-hit businesses with 300 or fewer employees that have used up, or have plans to use up, the full amount of their initial PPP loans. The maximum second-draw loan amount is $2 million. Only one second-draw loan can be taken out.
To be eligible, a business must demonstrate at least a 25% decline in gross receipts in the first, second or third quarter of 2020, compared to the corresponding 2019 quarter. For loan applications submitted after December 31, 2020, the business can use gross receipts for the fourth quarter of 2020, compared to gross receipts for the fourth quarter of 2019.
An eligible business can generally borrow up to 2.5 times its average monthly payroll costs in the year prior to the loan or in calendar year 2019. The limit is increased to 3.5 times payroll costs for businesses in the hard-hit accommodations and food service industries. The second round of the PPP, which includes the new second-draw opportunity, is funded with $284 billion. New loans can be made through March 31, 2021, or until the funding is exhausted.
The IRS announced that tax season will start on February 12, 2021. That’s when the tax agency will begin accepting and processing 2020 individual income tax year returns. It is later than in past years. The IRS stated that the start date will allow time to do additional programming and testing of systems following the December 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.
Overall, the IRS anticipates most taxpayers will receive their refunds within 21 days of if they file electronically with direct deposit. We can begin preparing your return as soon as you receive all the necessary information.
The cents-per-mile amounts are announced. The IRS has issued the 2021 standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. As of January 1, 2021, the standard mileage rates for the use of a vehicle are: 56 cents per mile for business use; 16 cents per mile for medical (or moving purposes for qualified active duty members of the Armed Forces) and 14 cents per mile in service of charitable organizations.
The standard business mileage rate is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. For more information: https://bit.ly/3hFKRkV
Businesses must file a new form if they pay independent contractors. Businesses that generally report payments to workers on Forms 1099-MISC will need to adapt. Beginning with the 2020 tax year, payments of at least $600 made for services performed by a non-employee must be reported on the new Form 1099-NEC (Nonemployee Compensation). Previously this information was reported on Form 1099-Misc, box 7.
In addition, if a business files a Form 1099-NEC that includes a mismatch between the recipient’s name and taxpayer identification number, the IRS may assess a notice and penalty for incorrect reporting. To avoid this issue, the IRS recommends securing a Form W-9 (Request for Taxpayer ID Number and Certification). Contact us with questions.
The IRS has released the covered compensation tables for the 2021 plan year. For purposes of determining covered compensation for the 2021 year, the taxable wage base is $142,800. As background, the tax code provides that certain employee benefit plans are qualified plans only if the contributions or benefits provided don’t discriminate in favor of highly compensated employees. For purposes of determining an employee’s covered compensation, a defined benefit plan uses the covered compensation tables developed by the IRS.
To view the 2021 tables in Revenue Ruling 2021-3: https://bit.ly/3qwr4Yk