Highlights of Consolidated Appropriations Act (CAA) of 2021
Churches and Christian Ministries
While the actual CAA is 5,593 pages long, the following summary highlights portions of this latest coronavirus related legislation specifically of interest to churches and Christian ministries. We have listed them in the order that we believe will most impact ministries. We certainly advise readers to consult us for details of these provisions and the myriad other components of the law. With the new Administration in Washington additional legislation is inevitable and may modify these benefits.
PPP2 loans and forgiveness
A second wave of Paycheck Protection Loans and forgiveness is available for eligible not-for-profit organizations. The primary eligibility criteria requires that at least one 2020 quarter’s gross receipts were at least 25% less than the same quarter in 2019. Similar to PPP1, the loan amount is 2.5 times the average total monthly payment of payroll costs in 2019 up to $2 million. PPP2 loans less than $150,000 have a simplified forgiveness process. The covered period for PPP2 can be any 8- to 24-week period between the date of the loan and March 31, 2021. The list of covered costs has grown, but payroll costs must be at least 60% of the loan amount in order to enjoy full forgiveness.
Employee retention credit for church and Christian ministries retaining employees during COVID-19
Retroactive to March 13, 2020, and continuing until June 30, 2021, the employee retention credit can lead to very substantial credits against employment tax and/or actual cash refunds. This is now true even for organizations that received the first round of PPP loans and forgiveness. Eligibility is triggered either by virtue of government orders fully or partially suspending operations or by a drop in gross receipts in a calendar quarter of at least 50% (in 2020) or 20% (in 2021) compared to the same quarter in 2019. Unfortunately, ministers’ wages do not qualify since they are not subject to employer paid FICA taxes.
CARES Act Paid Sick Leave/ Family Leave
The CAA permits, but does not require an employer to extend the emergency paid sick leave benefit or paid family leave created by the Families First Coronavirus Response Act (FFCRA). Through March 31, 2021, paid sick and family leave continues to receive a generous credit against payroll tax obligations.
If employees already used their two weeks of sick pay or their full 12 weeks of paid family leave at 2/3 pay, there is no new benefit for them. A not-for-profit organization can claim this credit for its FICA employees; however, a minister, as a non-FICA employee, must claim the credit on his personal tax return.
Charitable contribution deductions for non-itemizers
The CARES Act made the first $300 of 2020 charitable contributions deductible “above-the-line” even if the taxpayer does not have enough total itemized deductions to benefit from personal write-offs. While the $300 limit continues in 2021 for single taxpayers, married couples filing jointly can deduct $600.
Employer payments on employees’ student loan debt
Employers may help employees to repay up to $5,250 per year on their student loans. This provision applies for 2020 and continues through 2025. Previously, these benefits only applied to employer payments of tuition on behalf of employees.
Minister’s deduction for restaurant meals paid out-of-pocket
Business meal costs borne by ministry employers on behalf of their Christian leaders are, of course, not taxable to them. The same is true when business meals are fully reimbursed when the employee documents those costs back to the ministry. If a minister pays business meal costs himself, however, they have traditionally been only 50% deductible in reducing their self-employment tax. For 2021 and 2022, when provided by a restaurant these meal costs are 100% deductible to the employee-pastor.
Increased charitable contribution deduction ceiling
While it is a very rare taxpayer who contributes more than 60% of his or her income to charitable organizations, pre-2020 law permitted up to this limit as part of a taxpayer’s itemized deduction. For 2020 and 2021, a taxpayer may deduct contributions up to 100% of his or her Adjusted Gross Income.
Lifetime Learning Credit
Accredited Christian college, university and seminary students enjoy education credits, either the American Opportunities Credit (AOC) for up to four years or the more widely applicable Lifetime Learning Credit (LLC) which includes graduate level tuition costs. Modified adjusted gross income limits previously made the AOC more available than LLC credits which can total as much as $2,000. Beginning with 2021 tax returns, the Act increases the amount of modified AGI that begins the phaseout of eligibility for LLC to be the same as the AOC--$80,000 for single taxpayers and $160,000 for married filing jointly taxpayers.