Tax considerations due to the CAA for banking and financial institutions

The Consolidated Appropriations Act, 2021 (CAA), which was signed into law in late December, included the COVID-related Tax Relief Act of 2020 (COVIDTRA) and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR). The bill comprised another round of stimulus packages and tax provisions for businesses and individual taxpayers, several of which had originated in the Coronavirus Aid, Relief and Economic Security (CARES) Act that was signed into law in March 2020. The following are highlights of the CAA most pertinent to banking and financial institutions, and their executives.

Stimulus package

Additional funding for the Payroll Protection Program (PPP)

The CAA provided a second round of PPP loans more targeted toward small businesses particularly affected by the coronavirus pandemic. The bill assigned $284 billion to the Small Business Administration to supply PPP loans of up to $2 million per eligible business. To qualify for a second loan, businesses must have fewer than 300 employees and have incurred a 25% revenue loss in any quarter in 2020, compared to same quarter in 2019 or experienced a reduction in annual gross receipts of 25% or more in 2020 compared to 2019 (if the business was in operation in all four quarters in 2019). The CAA also allows for small 501(c)(6) organizations that have 150 or fewer employees and are not lobbying organizations to apply for PPP loan funding.

Please note, the new funding is also available to first time applicants under most of the original rules. A company or nonprofit organization must generally have 500 or fewer workers, although companies in some industries can qualify with more. The applicant must also certify that “current economic uncertainty makes this loan request necessary” to support continuing operations. Applicants must have been in operation on Feb. 15, 2020, to qualify. Self-employed business owners, including independent contractors, are also eligible for loans, but a rule imposed by the Small Business Administration requires sole proprietorships to have shown a profit on their 2019 tax return to qualify.

In addition, a streamlined forgiveness process was created for borrowers with loans of $150,000 or less.

Individual tax rebates

The CAA also authorized a second round of stimulus checks to individuals and qualifying children. While the second round is half of that authorized under the CARES Act, it allows for up to $600 per individual and qualifying children, subject to income thresholds. The payment amounts start to phase out at $75,000 for individual filers and $150,000 for married couples filing jointly.