Stimulus Legislation Contains Federal Credit Extensions and Amendments

Consolidated Appropriations Act
Douglas Andersen, State & Local Tax Partner, Brett Johnson, State & Local Tax Principal, Nancy Chher, State & Local Tax Principal
December 28, 2020

On Dec 27, 2020, President Trump signed into law the fourth major COVID-19 stimulus package within the overall Consolidated Appropriations Act (Senate Amendment to H.R. 133) following the three pieces of legislation enacted in March (Coronavirus Preparedness and Supplemental Response Act, Families First Coronavirus Response Act, and CARES Act). Among other things, the newly-signed Act provides extensions to various federal credit programs and it modifies the CARES Act Employee Retention Tax credit.   

Overview

The following federal credits that were slated to expire at the end of 2020 have been given five-year extensions through December 31, 2025.

  • New Markets Tax Credit
  • Work Opportunity Tax Credit
  • Empowerment Zone Tax Credit
  • Employer Credit for paid family and medical leave

In addition, the Act provides a two-year extension for the Energy Investment Tax Credit for solar for commercial buildings and residential energy-efficiency property tax credit. The effect of the Act is to extend the phase-out timeline for the credit for solar energy property as follows –

  • 26 percent through December 31, 2022
  • 22 percent after December 31, 2022 and before January 1, 2024
  • 10 percent for non-residential property only after January 1, 2024

The following income tax credits were given a one year extension.

  • Indian Employment Credit was extended for one year until December 31, 2021.
  • Employee Retention Credit for presidentially-declared disasters (non-COVID) was extended from December 31, 2019 through 60-days after enactment of the Consolidated Appropriations Act
    • Provides a tax credit of 40% of wages (up to $6,000 per employee)
    • Credit applies to wages paid whether or not services associated with those wages were performed

The CARES Act Employee Retention Credit against payroll taxes was extended and expanded.

Beginning on January 1, 2021, the Act will --

  • Increase the credit rate from 50 percent to 70 percent of qualified wages
  • Reduce the required year-over-year gross receipts decline from 50 percent to 20 percent and provides a safe harbor allowing employers to use prior quarter gross receipts to determine their eligibility
  • Increase the limit on per-employee wages that can be credited from $10,000 per year to $10,000 per quarter
  • Apply the less restrictive rules of the wage base qualification to employers with 500 or fewer employees. Employers with more than 500 employees will continue to calculate their qualified wage base as they did in 2020.
  • Provide rules to allow new employers who were not in existence for all or part of 2019 to be able to claim the credit

Retroactive changes to the CARES Act Employee Retention Credit are –

  • Employers who receive Paycheck Protection Program (PPP) loans may still qualify for the Employee Retention Credit with respect to wages that are not paid for with forgiven PPP proceeds
  • Consistent with IRS guidance, clarification that group health plan expenses can be considered qualified wages even when no other wages are paid to the employee
  • Clarification of determination of gross receipts for certain tax exempt organizations

Application to taxpayers

The multi-year extensions of some of these credits provide certainty about their availability over the coming years instead of having been renewed annually or renewed retroactively after having been allowed to lapse. In the case of the solar credits, the Act permits more taxpayers to take advantage of the higher credit percentages by extending the phase-out period. The one-year extension of the Employee Retention Credit for Natural Disasters provides income tax credits for businesses affected by wildfires, hurricanes, and other natural disasters in Federal Emergency Management Agency (FEMA) declared disaster areas (non-COVID). The CARES Act Employee Retention Credit against payroll taxes was expanded to allow more employers to get immediate relief against their payroll tax obligations.

If you believe that these credits may apply, please contact one of the following HCVT state and local tax team members for assistance to evaluate how these changes may affect your client and to prepare any necessary forms.

Douglas Andersen | Partner | 562.216.5512 | douglas.andersen@hcvt.com
Brett Johnson | Principal | 310.566.1971 | brett.johnson@hcvt.com
Nancy Chher | Principal | 562.216.1816 | nancy.chher@hcvt.com
Edvin Givargis | Senior Manager | 562.216.1816 | edvin.givargis@hcvt.com
Elisa Reyes | Manager | 562.216.5500 | elisa.reyes@hcvt.com
Goran Jovicic | Manager | 562.216.5539 | goran.jovicic@hcvt.com

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