While most of the economic stimulus bill passed by the House of Representatives ended up in the final bill signed into law, the Senate made several important changes. These include provisions relating to the proposed federal minimum wage hike, tax-free treatment for unemployment benefits and student loan forgiveness, as well as enhancements to coronavirus-related tax credits.
By John McGillOriginally published in The McGill Advisory, April 2021
On March 11, 2021, President Biden signed the $1.9 trillion American Rescue Plan into law. While we discussed the highlights of the plan passed by the House of Representatives in our March 2021 issue, below are the five most important changes in the final version of the law that will affect you the most.
1. Minimum wage hike nixed
The House bill would have gradually raised the federal minimum wage to $15 an hour by June 2025. Due to political opposition and procedural hurdles, this provision was stripped from the final bill.
However, the minimum wage hike is far from dead politically. It will likely be introduced in future legislation later this year, and some version is expected to pass.
2. Unemployment benefits tax-free
The new law extends federal supplemental unemployment benefits through September 6, 2021, in the amount of $300 a week (down from $400 a week in the House bill). Typically, unemployment benefits received are taxable. However, the new law makes the first $10,200 in unemployment benefits received in 2020 tax-free for households with income below $150,000 a year.
3. Student loan forgiveness tax-free
Congress added another tax-free goodie in the final law. Typically, any loan forgiveness represents taxable income. However, the new law stipulates that any student loan forgiveness incurred in 2021-2025 will be tax-free.
Ironically, the new law does not actually forgive any outstanding student loans. While President Biden supports loan forgiveness of $10,000 per borrower, progressive Democrats are pushing hard for this to be increased to $50,000. While the final loan forgiveness amount is uncertain at this time, you can be sure this legislation will be approved later this year.
4. Additional Provider Relief Funding
The Senate added $8.5 billion in new funding to the Provider Relief Program to help struggling healthcare providers in rural areas.
5. Tax credits extended
The new law extends the tax credits originally created by the Families First Coronavirus Response Act (FFCRA) through September 30, 2021. The requirement to provide paid sick family leave under the FFCRA for reasons tied to COVID-19 expired on December 31, 2021. However, practices that voluntarily permit their employees to take coronavirus-related sick or family leave will receive a refundable payroll tax credit for those wages, subject to certain limits and healthcare expenses. The new law also allows employers to provide qualified sick leave if the employee is obtaining COVID-19 immunization, or is recovering from any injury, disability, illness, or other condition related to such immunization.
The new law also extends the Employee Retention Credit through December 31, 2021. Your practice qualifies for this 2021 credit if it suffered a 20% reduction in revenues. Moreover, the credit percentage has been increased from 50% to 70% of wages paid, up to a maximum of $10,000 per quarter, per employee.
The IRS has recently published guidance (FAQ #59) indicating that salaries and wages paid to employed family members and other relatives do not qualify for the credit. However, many business groups have protested, arguing that wages and salaries paid to family members and relatives that materially participate in the practice (or business) operations should qualify for the tax credits.
Since corporate tax returns cannot be accurately completed until this issue is resolved, we recommend that you request an extension of time to file your 2020 personal and practice tax returns.
The above article was reprinted with permission from The McGill Advisory, a monthly newsletter with online resources devoted to tax, financial planning, investments, and practice management matters exclusively for dentists and specialists, published by John K. McGill & Company, Inc. (a member of The McGill & Hill Group LLC). Visit www.mcgilladvisory.com or call 888.249.7537 for further information.
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