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Few other industries have been able to step up, adjust course, and contribute to fighting COVID-19 quite like manufacturing. Early on, many manufacturers shifted production to Personal Protective Equipment (PPE), hand sanitizers, and other needed disinfectants. Given the pandemic’s global nature, many were also required to make supply chain changes to ensure ongoing access to needed materials. The Consolidated Appropriations Act, 2021, passed late last year, provides several billion dollars in new initiatives and expanded tax and loan opportunities.
Energy and the Environment
One of the more significant appropriations in the Act allocates $35 billion to clean energy projects, especially wind and solar. Many of the energy priorities pre-date COVID-19 and help manufacturers achieve more sustainability and better environmental practices through incentives and regulations. According to the National Association of Manufacturers, there were several tax credits included that support the strategic move in this direction, including:
- Investment tax credits for solar and offshore wind projects
- Provides an extension of solar investment tax credits for solar photovoltaic and solar water heating projects through 2025 with a reduced benefit in 2023 and beyond; and a 30 percent tax credit for offshore wind projects that begin construction before January 1, 2026.
- Production tax credits for wind and coal on tribal lands
- Provides tax credits for the first ten years of wind production if construction started in 2020 and service starts by 2024. Partial credits are available for wind production that began construction in 2021. It also extends the production tax credit for coal on tribal lands from 15 years to 16 years.
- Fuel and vehicle tax credits
- A total of five tax credits were extended, most to December 31, 2021, and two to January 1, 2022.
- Carbon capture storage tax credits
- Aimed at industrial power plants and facilities to contain carbon emissions.
- Commercial energy efficiency tax deduction (under Sec. 179D)
- Makes permanent the commercial energy efficiency deduction and includes an annual cost of living adjustment.
Paycheck Protection Program Version 2.0
$284 billion in replenished Paycheck Protection Program funds have been made available to first- and second-time borrowers. Manufacturers that did not apply the first time around are subject to the same rules as before, which include:
- Must demonstrate economic need.
- Have less than 500 employees
Loans are limited to $10 million- or 2.5-times payroll, whichever is less, and manufacturers may choose their covered period, ranging from eight to 24 weeks.
Those that took out a PPP loan and have used the funds or had them forgiven may apply for a second loan. To qualify, they must have experienced at least a 25 percent drop in gross receipts in any quarter in 2020 compared to the same 2019 period. Second draw loans max out at $2 million-, or 2.5-times payroll, whichever is less.
In either case, first or second loans, forgivable funds are non-taxable, and certain PPP expenses are tax-deductible, like rent or utilities. The latter is a change from regulations issued by the IRS as recently as December 2020.
Extended Tax Credits
Two COVID-related tax credits have been extended to help manufacturers and other employers recoup the money. The Employee Retention Tax Credit (ERTC) has been extended to June 30, 2021, and the amount of the credit is expanded. Manufacturers can claim up to $14,000 per employee in the first and second quarters.
To qualify, they must have 500 or fewer employees and experienced at least a 20 percent dip in gross receipts compared to the same 2019 period. Plus, the credit can be used at the same time as PPP funds, as long as it is not for the same employee.
The other tax credit for COVID-19 to provide reimbursement for paid sick leave has been extended to March 31, 2021. The paid sick leave requirement is no longer mandatory, but if provided, the existing rules still apply.
Finally, the Work Opportunity Tax Credit was not part of the COVID-19 relief but is still a valuable benefit and has been extended through 2025. Last year, WOTC was updated to include long-term unemployed individuals as a targeted group. Manufacturers can receive several thousand dollars in tax credits for the first year (and in some cases, the second year) wages paid to eligible employees.
Congress also made business meals a 100 percent deduction if purchased in a restaurant.
We’re here to help
There are many new opportunities awaiting manufacturing companies through new initiatives, PPP loans and extended tax incentives. This means manufacturers should carefully review their situation to determine how to take advantage of these programs. If you have questions about the information outlined above or need assistance with an accounting or tax issue, JLK Rosenberger can help. For additional information, call us at 949-860-9902 or click here to contact us. We look forward to hearing from you soon.