News : So there's a coronavirus relief deal, huh? — Tax extenders

Monday, December 21, 2020

So there's a coronavirus relief deal, huh? — Tax extenders — What this means for the IRS

Dec 21, 2020

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ALRIGHT, SO HERE'S THE DEAL: Congress being Congress, it took until Sunday night — less than a week before Christmas — to secure an agreement for more pandemic relief (and to fund the government, no less).

But secure that relief they did, as Pro Tax's Brian Faler noted, though lawmakers still have to vote on it. So let's look at what policymakers did on taxes and what it might mean for the future.

PPP Deductibility: Perhaps the most touch and go aspect from a tax perspective has been whether this package would allow businesses to write off normal business expenses paid for by forgiven Paycheck Protection Program loans.

In the end, the answer was yes — though there was still talk on Sunday that there would also be limits on which companies can claim the deductions. (Earlier in the week, one of the going rumors had been that only companies that received PPP loans of up to $150,000 would be able to get the write-offs.)

So it's a victory for business groups who have been pushing for PPP deductibility — but also kind of amazing that Treasury Secretary Steven Mnuchin, who now has less than a month left in office, was able to mount such stiff resistance against the deductions when the idea had pretty solid bipartisan support on the Hill.

Finally: The groups pushing for PPP deductibility have acknowledged that basically allowing tax write-offs for items already paid for by the government wouldn't make sense in normal circumstances, but stressed these weren't normal times for lots of companies struggling to get by (and that the government would be undercutting its own relief efforts by forcing businesses to pay those taxes).

The response: " Once we agree that it is double dipping, the question then becomes 'is this a good way to provide stimulus?'" said Bill Gale of the Brookings Institution.

"Given the evidence that so much of PPP loans went predominantly to advantaged firms and not sufficiently to small businesses, I would argue that it is not a particularly good way to stimulate and that, for the same amount of money, Congress could do a lot of other good things — aid to the states, for example," Gale added. (Remember: There's no budget impact with PPP deductibility, because the scorekeepers assumed that the deductions would be allowed. But some estimates say that business owners would get tens of billions of dollars with the deductions.)

HEY, THERE — and welcome to the final Weekly Tax of 2020. At least we still have a Christmas Star coming.

I mean, what else are you going to do when you can't row on the Schuylkill? Today marks 171 years since the founding of the Skaters Club of the City and County of Philadelphia — the first figure skating club in the U.S.

2020 has been hard enough. Don't freeze us out.

Email: bbecker@politico.com, alorenzo@politico.com, bfaler@politico.com and teckert@politico.com.

You can also reach us on Twitter at @berniebecker3 , @aaronelorenzo, @tobyeckert, @Brian_Faler, @POLITICOPro and @Morning_Tax.

EVERYONE IS TALKING ABOUT TRANSITION PLAYBOOK, SUBSCRIBE TODAY: A new year is quickly approaching. Inauguration Day is right around the corner. President-elect Joe Biden's staffing decisions are sending clear-cut signals about his priorities. What do these signals foretell? Transition Playbook is the definitive guide to the new administration and one of the most consequential transfers of power in American history. Written for political insiders, this scoop-filled newsletter breaks big news daily and analyzes the appointments, people and emerging power centers of the new administration. Track the transition and the first 100 days of the incoming Biden administration. Subscribe today.

Tax extenders! Congress didn't just agree to extend a group of temporary tax incentives before they expired — and name the last time that happened, for whatever it's worth. They also might have added a new one to the mix by making business meals fully deductible for two years, an idea that really didn't have that much support outside the Trump administration.

It's not just pushing back the expiration date on those incentives a year, either. The lower excise tax rates for beer, wine and spirits will now be permanent, after the broad support for the craft beverage measure helped drive interest in the temporary tax preferences these past couple years.

Other tidbits: The New Markets Tax Credit and Work Opportunity Tax Credit both get five-year extensions under this agreement.

Other tax breaks are poised to get a one-year extension, which could put them back into the mix for a year-end tax bill at the end of 2021 — which also happens to be when the temporary provisions from the 2017 tax law start to enter the mix for negotiations. (Companies will have to start gradually writing off their research and development expenses starting in 2022).

What's more? Democrats say they won expansions of tax credits for lower-income people in exchange for the meals deduction — like ensuring that anyone who lost their job or made less money this year can use their 2019 income levels to keep assistance like the Earned Income Tax Credit.

As expected, the new measure includes another round of direct payments, maxing out at $600, and no new big infusion of aid for states and localities.

There's also an expansion of the employee retention tax credit, which has struggled a bit to gain traction, but has bipartisan support. And the measure will also give workers who have had their payroll taxes deferred since September until the end of 2021 to pay back the government — instead of through April, as originally laid out by Treasury and the IRS.

Trump unilaterally deferred employee-side payroll taxes for the last four months of the year this summer, but private-sector companies largely decided not to take part in the initiative. The year-long repayment plan could just about put a wrap on the issue from a policymaking perspective. Sen. Chris Van Hollen (D-Md.), who had been pushing to make the payroll tax deferral optional, said "this provision to extend the payment period will provide at least some relief to those caught in Trump's political shell game."

And finally: Here's two big issues to look out for as 2020 turns into 2021.

Is this the last pandemic relief measure? Democratic congressional leaders say they believe they'll get another bite at the apple after President-elect Joe Biden is inaugurated. But that's not a sure thing, and the results in the two Georgia Senate races will surely have some say in how much more Washington does on the matter.

And what does this mean for the IRS? It's fair to say this newest relief measure heaps a lot more work on top of the tax collector — another round of direct payments for starters, as well as some further work on the first installment, not to mention those potential changes to the ERTC, EITC, Child Tax Credit, and so on.

Oh, and the tax filing season is scheduled to start in about a month.

Around the World

WAIT A SECOND: Prime Minister Viktor Orban of Hungary is cutting in half a business tax that goes to municipalities, Reuters reports — much to the consternation of the mayor of Budapest. Orban's new policy would cut taxes for small- and middle-sized business at the start of the new year, in the process cutting a key revenue stream for Hungary's cities and towns. Gergely Karacsony, the Budapest lord mayor and a member of the opposition to Orban, said the new tax cut would only deepen the crisis caused by Covid-19, and other members of the opposition have suggested the prime minister's latest moves will let his government apply more pressure to cities. Orban has said that smaller cities will get government support to make up for lost revenues, while larger municipalities will be handled on a case-by-case basis.

A NEW YEAR, A NEW HUDDLE: Huddle, our daily must-read in congressional offices, will have a new author in 2021! Olivia Beavers will take the reins on Jan. 4, and she has some big plans in store. Don't miss out, subscribe to our Huddle newsletter, the essential guide to all things Capitol Hill. Subscribe today.

Around the Nation

CHOICES HAVE BEEN MADE: Gov. Jay Inslee of Washington is proposing to hike taxes on health insurers and capital gains, to help the state battle the pandemic without cutting other services, The Seattle Times reports. Washington's revenue situation has brightened over the course of 2020 — official projections found an almost $9 billion revenue shortfall over the next three years back in March, but the forecast is now $2.4 billion below what it was before the pandemic. In his latest budget, Inslee is proposing a 9 percent hike on capital gains earnings north of $25,000 for individuals and $50,000 for households, while exempting retirement accounts and a lot of other earnings (and not going into effect until 2023). The budget also includes a new assessment on health insurers, while laying the groundwork for funding a refundable tax credit program for lower-income families that was authorized more than a decade ago.

Quick Links

German lawmakers propose online shopping tax.

Gov. Ned Lamont is resisting tax hikes on the rich in Connecticut.

IRS releases final regulations on executive pay deduction limit.

Did You Know?

Erno Rubik created his first cube in Budapest, using 27 wooden blocks.

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