January 6, 2021
Major points of interest for tax-exempt organizations from the Consolidated Appropriations Act, 2021
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA), a spending bill for the US federal government. The CAA clarifies and expands the Paycheck Protection Program (PPP) loans and the Employee Retention Credit (ERC). It also enhances and expands several other tax provisions first outlined in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). See Tax Alert 2020-0807 for discussion on the CARES Act. This Tax Alert highlights several key sections of the CAA and how provisions in the CAA directly affect tax-exempt organizations.
The Paycheck Protection Program
The CAA creates an additional $284 billion for PPP loans for first-time qualified borrowers and businesses that previously received a PPP loan. The CAA also makes these forgivable loans available to IRC Section 501(c)(6) business leagues, such as chambers of commerce and other business associations. The CAA reads that "[a]ny organization that is described in [S]ection 501(c)(6) of the Internal Revenue Code and that is exempt from taxation under [S]ection 501(a) of such Code (excluding professional sports leagues and organizations with the purpose of promoting or participating in a political campaign or other activity) shall be eligible to receive a covered loan if:
Employee Retention Credit
The CARES Act established the ERC, which provides a refundable payroll tax credit (essentially the employer's portion of Social Security taxes) equal to 50% of employees' wages paid during the COVID-19 crisis. The CAA extends the ERC through July 1, 2021, and increases the available credit from 50% to 70% of eligible employees' wages (including health benefits), up to $10,000 for each of two quarters, for a maximum per-worker benefit of $14,000. The CAA does not change the general eligibility criteria for the ERC: an employer is eligible if either its operations were fully or partially suspended due to a governmental order related to COVID-19 during the first or second quarter of 2021, or it experienced a significant decline in gross receipts during that quarter or quarters. However, the CAA lowered the "significant decline in gross receipts" threshold from 50% to 20% when comparing the fourth quarter of 2020, as well as the first or second quarter of 2021, to the corresponding quarter in 2019. For tax-exempt entities, the CAA clarifies that gross receipts "shall be treated as a reference to gross receipts within the meaning of Section 6033" of the Internal Revenue Code.
Charitable contribution deductions
The CARES Act increases the percentage limitations for certain charitable contributions during tax year 2020 - up to 100% (from 50%) of adjusted gross income for itemizing individuals and up to 25% (from 10%) of taxable income for corporations. The CAA extends these changes for qualifying contributions made in 2021. Additionally, non-married individuals may claim the same $300 above-the-line deduction for cash contributions in 2021 as in 2020, while married couples filing jointly may claim a $600 above-the-line deduction. Tax-exempt organizations can use these provisions to incentivize donors to provide additional support during tax year 2021.
Miscellaneous points of interest
Effective for calendar years 2021 and 2022, the CAA allows a 100% business expense deduction for meals (rather than the current 50%) so long as the expense is for food or beverages provided by a restaurant.
The CAA earmarks $22.7 billion as support for colleges and universities. The support includes increasing the maximum Pell Grant award to an individual to $6,495, restoring Pell Grant eligibility for incarcerated students, and repealing the drug-offense limitation on Pell Grant eligibility. This funding is also intended to help simplify the Free Application for Federal Student Aid.
The CAA contains a wide range of tax provisions illustrating the federal government's efforts to support tax-exempt organizations in this challenging economic era created by the Coronavirus pandemic. The utility and relevance of these various provisions will depend on each tax-exempt organization's specific facts and circumstances. We encourage tax-exempt organizations to thoroughly review each of these provisions to assess the potential impact and benefit to the entity.
— For more information about EY's Exempt Organization Tax Services group, visit us here.