The year-end funding and stimulus legislation includes several compensation and benefit-related tax provisions.
As part of the stimulus legislation, the “Taxpayer Certainty and Disaster Tax Relief Act of 2020” would expand the employee retention credit provisions through June 30, 2021 (from January 1, 2021) as well as allowing for the full deductibility of business meals provided by a restaurant during the next two calendar years.
The provision in the legislation would extend and expand the employee retention tax credit (ERC), part of the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act), for a six-month period from January 1, 2021, through June 30, 2021. The legislation also contains technical corrections to the CARES Act.
For calendar quarters beginning on January 1, 2021, and through June 30, 2021, the legislation includes changes that would:
The legislation includes several retroactive provisions regarding the effective date of the ERC provisions under the CARES Act (that is, section 2301 of the CARES Act) to:
Code section 274 would be amended to provide a 100% deduction for business meal food and beverage expenses provided by a restaurant that are paid or incurred in calendar year 2021 and 2022.
The legislation would allow certain construction and building-trades workers age 55 years or older who are receiving retirement benefits to continue to work and receive such benefits. Generally, distributions cannot be taken out until age 59½ years. This provision would be effective for distributions before, on or after the date of enactment.
A partial termination generally occurs when a qualified plan has turnover in excess of 20%. A partial termination can cause significant cost and administrative expenses to the plan sponsor. Due to the high turnover since March 2020, the legislation includes a temporary rule for any plan year that includes March 13, 2020, because of the high workforce turnover since March 2020. The legislation provides that determination of the partial termination could be delayed until March 31, 2021, to give companies time to restore their workforce above 80%and avoid the partial termination.
The legislation provides flexibility for taxpayers to rollover unused amounts in their health and dependent care flexible spending arrangements from 2020 to 2021 and from 2021 to 2022. The legislation would allow this extended 12-month grace period. In addition, employers would be permitted to allow employees to make a 2021 mid-year prospective change in contribution amounts.
The stimulus legislation would make permanent the reduced requirement of 7.5% of adjusted gross income for a medical deduction. Section 213 allows a deduction for medical expenses that exceed a certain percent of adjusted gross income. The requirement had been 10% of adjusted gross income, but the TCJA reduced the percentage to 7.5%. The reduced percentage was set to expire at the end of 2020.
The stimulus legislation includes a provision for disaster tax relief for individuals and businesses in presidentially declared disaster areas for major disasters declared (other than COVID-19) after December 31, 2019, through 60 days after the date of enactment.
In August 2020, the president issued a memorandum directing the Secretary of Treasury to use his authority to defer the withholding, deposit, and payment of certain payroll tax obligations. Employee payroll tax could be deferred from September 1, 2020, through December 31, 2020. Under IRS Notice 2020-65, the amount of this deferral would be repaid from January 1, 2021, through April 30, 2021, with penalties accruing as of May 1, 2021. The stimulus legislation would provide an extended payroll period for employees, and would allow for repayment to be extended from January 1, 2021, through December 31, 2021. Penalties would not accrue until January 1, 2022.
Read a summary of the legislation: TaxNewsFlash
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