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The Consolidated Appropriations Act of 2021

Business Tax Provisions

    • About-Face on Deductibility of PPP Expenses. The CAA overrules the IRS’s previous guidance denying the deductibility of expenses relating to forgiven PPP loans. We discuss this development in greater detail in this issue of BrassTax (see "An About-Face on PPP Deductibility").
    • Extension of CFC Look-Through Rule. The CAA extends the section 954(c)(6) look-through rule for payments between related controlled foreign corporations through 2025. Under this rule, dividends, interest, rents, and royalties that a CFC receives from related CFCs might not be treated as subpart F income (and therefore might not be currently includible to the CFC's 10% U.S. shareholders) if the payments are attributable to active income of the related CFCs. The look-through rule had been set to expire at the end of 2020. 
    • Full Deductibility of Business Meals. The CAA allows a 100% deduction for business meal expenses paid or incurred in 2021 or 2022 for food and beverages provided by a restaurant.  The TCJA generally allows only a 50% deduction for these expenses.
    • Changes to Employee Retention Tax Credit. The CAA extends the employee retention tax credit to wages paid by qualifying employers through June 2021. Other significant changes include:
      • Repeal of disqualification of PPP loan recipients. The CAA repeals the CARES Act's disqualification of a business with a PPP loan from also receiving the Employee Retention Tax Credit. However, wages used to qualify for PPP loans cannot also be used to qualify for the Employee Retention Tax Credit.
      • Expansion of credit. Under the CARES Act, an eligible employer could claim a credit for 50% of up to $10,000 in wages paid per employee in 2020. The CAA expands the credit to 70% of up to $10,000 in wages paid per calendar quarter per employee before July 1, 2021.
      • Eligible employers. Under the CARES Act, employers generally could claim the credit only if they had no more than 100 full-time employees and had experienced at least a 50% year-over-year reduction in gross revenues for the applicable quarter. The CAA allows up to 500 full-time employees and requires at least a 20% year-over-year reduction in gross revenues. Additionally, an employer now may elect to determine its eligibility based on a decrease in its gross receipts using the previous quarter instead of the current quarter.
      • Eligibility of governmental entities. Certain governmental employers, such as federal credit unions, public colleges and universities, and public medical and healthcare providers, now may qualify for the credit.
    • Tax Credits for Employer-Paid Family and Medical Leave. The CAA extends the availability of tax credits under the Families First Coronavirus Response Act (FFCRA) for qualifying employer-paid family and medical leave to March 31, 2021. It also extends the section 45S tax credit for employer-paid family and medical leave to Dec. 31, 2025.
    • Extension of Other Tax Credits. The CAA extends several other tax credits, including the New Markets Tax Credit, the Work Opportunity Tax Credit, and certain investment and production tax credits for solar and wind projects.
  • Individual Tax Provisions
    • Second Round of Recovery Rebates. The CAA provides for a second round of cash payments of up to $600 per eligible taxpayer and qualifying child. The rebates begin to phase out as the taxpayer’s adjusted gross income (AGI) exceeds a threshold ($75,000 for single taxpayers). Taxpayers can claim the credit based on the lesser of their 2019 AGI and 2020 AGI.
    • Extended Repayment Period for Deferred Payroll Taxes. On August 28, 2020, the IRS issued Notice 2020-65, which allows employers to suspend Social Security tax withholding for their employees from Sept. 1, 2020 through Dec. 31, 2020, and to instead withhold the deferred taxes from the employees' wages over the period from Jan. 1, 2021 through April 30, 2021. The CAA extends the period for withholding and repaying the deferred Social Security taxes to the entire 2021 calendar year. 
    • Reduction of AGI Hurdle for Deduction of Medical Expenses. For tax years beginning before 2021, individuals who itemized their deductions could claim an itemized deduction for unreimbursed medical expenses to the extent that the medical expenses exceeded 7.5% of their  AGI. The CAA makes the 7.5% threshold permanent (replacing the 10% threshold that would have applied in the absence of the CAA).
    • Employer Payments of Student Loans Temporarily Tax-Free. The CAA extends the exclusion from income and employment taxes of up to $5,250 of an employer's payments toward an employee’s qualified student debt until 2026.
    • Reduced Exclusion for Cancellation of Principal Residence Indebtedness. Section 108(a)(1)(E) allows individuals to exclude from gross income certain cancellation of indebtedness income that arises from the discharge of qualified principal residence debt before 2021. The CAA extends the exclusion to principal residence indebtedness that is discharged before 2026.
    • Above-the-line Charitable Deduction Extended. The CAA extends through 2021 the $300 above-the-line charitable deduction allowed under the CARES Act. It also extends through 2021 the CARES Act provision allowing itemizing taxpayers to take certain charitable deductions on cash contributions without regard to the 60% of adjusted gross income limitation.

Key Contacts

Linda Z. Swartz
T. +1 212 504 6062


Adam Blakemore
T. +44 (0) 20 7170 8697

Jon Brose
T. +1 212 504 6376

Andrew Carlon
T. +1 212 504 6378

Mark P. Howe
T. +1 202 862 2236

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