Lesser-Known Tax Changes for Businesses and Individuals

BY DAVID GONZALEZ | DIRECTOR, ECONOMIC INITIATIVES

The COVID-19 pandemic brought along significant funding programs to aid many small businesses as changes in their operations and consumer spending habits took center stage. Both small businesses and individuals stand to benefit from a few crucial programs installed to aid the economic rebound and stability of households. Below is a selection of a few lesser- known changes.

Please note: business owners and individuals should consult their own tax professional for all tax decisions. The items listed below are strictly for informational purposes and are not tax recommendations, nor should they be used for the basis of any financial decision.

Employer Student Loan Repayment

Although most federal student loan borrowers are experiencing paused payments through September 30, 2021, there is an additional benefit from The Consolidated Appropriations Act of 2021 which allows employer-provided student loan repayment as a tax-free benefit to employees for five additional years. This extends CARES Act relief first made available in March 2020. This means that through Dec. 31, 2025, employers can choose to make tax-exempt annual contributions of up to $5,250 per employee toward eligible education debt. The funds allocated for this student loan assistance do not count toward an employee's gross taxable income and neither the company nor the employee will have tax liability for the money applied to student loan payments.

Child Tax Credit

This tax credit is automatic for families who have filed their taxes and have previously claimed their children on their taxes, but data from the Center on Budget and Policy Priorities indicates nearly 4 million families are at risk of missing out on the monthly child tax credit payments this year. The American Rescue Plan’s Child Tax Credit expansion made these children’s families eligible for the credit largely for the first time. The Rescue Plan also allowed the IRS to distribute part of the credit through advance monthly payments between July and December 2021, rather than as a lump sum at tax time in 2022. The IRS is issuing these advance payments automatically for families for whom it has information, either through tax returns or the Economic Impact Payment portal.

Employee Retention Credit (ERC)

This is a tax credit aimed at helping small business owners keep employees on their payroll. From Jan. 1, 2021 and through Dec. 31, 2021, small businesses with fewer than 500 employees that experienced a quarterly revenue decline of 20% (previously 50%) year-over-year can claim a payroll tax credit for 70% of qualified wages up to $10,000 per employee per quarter. If the credit is larger than payroll tax debt, the business can receive the difference back in cash. A business can qualify for this credit even if the business received a Paycheck Protection Program (PPP) loan. The caveat, a business cannot use the same wages for both the ERC and PPP loan forgiveness.

Fully Deductible Business Meals

Business owners and the restaurants they patronize can both benefit with this change. The IRS and Treasury announced that business may now deduct 100% of the cost of food or beverages consumed in 2021 and 2022. This change came via the Taxpayer Certainty and Disaster Relief Act of 2020, where the previous deduction limit was at 50%.