February1,2021
Philadelphia’streatmentofcertainbusinesstaxprovisionsasa
resultoftheCoronavirusAid,Relief,andEconomicSecurity
(CARES)ActandTheConsolidatedAppropriationsAct,2021
PaycheckProtectionProgram(PPP):BusinessIncomeandReceiptsTax(BIRT)‐TaxonNet
Income(MethodIandMethodIIFilers)
Forgivenessofindebtednessonaloan
UndertheCARESAct,arecipientiseligibleforforgivenessofindebtednessonacoveredPPP
loaninanamountequaltothesumofcostsincurredandpaymentsmadeduringthecovered
periodforpayrollcosts,interestpaymentsonacoveredmortgageobligation,anycoveredrent
obligation,andcoveredutilitypayments(ActSec.1106(b)).UndertheCARESAct,theportionof
thePPPloanthatisforgivenisexcludedfromgrossincome(ActSec.1106(i)).
PhiladelphiawillconformtoActSec.1106(i)forthepurposeoftheNetIncomeportionofBIRT
andexcludefromgrossincomeanyamountforgivenunderthePPP.Notethatthispolicydoes
notchangetheDepartment’sgeneralrulethatloanforgivenesscreatesReceiptsforBIRT
purposes.
DeductionsforcoveredexpensesassociatedwithPPPloans
TheConsolidatedAppropriationsAct,2021(“COVID‐19reliefbill”)clarifiesthat“nodeduction
shallbedenied,notaxattributeshallbereduced,andnobasisincreaseshallbedenied,by
reasonoftheexclusionfromgrossincomeprovided”bySec.1106oftheCARESAct.This
provisionappliestoloansunderboththeoriginalPPPandsubsequentPPPloans.Thebill
supersedesIRSguidancethateligibleexpensesassociatedwithPPPloanscouldnotbededucted
forfederalincometaxpurposes(Notice2020‐32).
PhiladelphiawillconformtotheCOVID‐19reliefbillforthepurposeoftheNetIncomeportion
ofBIRTandallowdeductionsforeligibleSection1106expensestotheextenttheexpenses
werereimbursedbyforgivenPPPloans.
TaxonGrossReceipts
TheamountofaPPPloanandanyamountoftheloanthatisforgivenundertheCARESActis
excludedfromataxpayer’sReceiptsforpurposesoftheBIRTGrossReceiptsTax.Notethatthis
policydoesnotthechangetheDepartment’sgeneralrulethatloanforgivenesscreatesReceipts
forBIRTpurposes.
PaycheckProtectionProgram(PPP):NetProfitsTax(NPT)
ForNPTpurposes,consistentwithourtreatmentofthePPPprovisionsforBIRTMethodI
taxpayers,Philadelphiawill:
o ExcludefromgrossincomeanyamountforgivenunderthePPP;
o AllowbusinessdeductionsforeligibleSection1106expensestotheextenttheexpenses
werereimbursedbyforgivenPPPloans.
FederalEmployeeRetentionCredit(ERC)
TheERCisafullyrefundablepayrolltaxcreditavailabletoemployers,includingnot‐for‐profits
thathadtheiroperationsfullyorpartiallysuspendedasaresultofagovernmentorderlimiting
commerce,travelorgroupmeetings(the“suspensiontest”)duetoCOVID‐19.Thecreditisalso
providedtoemployerswhohaveexperiencedagreaterthan50%reductioninquarterly
receipts,measuredonayear‐over‐yearbasis(the“grossreceiptstest”).
TheERCisintendedtoencourageeligibleemployersfinanciallyimpactedbyCOVID‐19tokeep
employeesontheirpayrollduringtheeconomicdownturn.Theemployeeretentioncreditis
equalto50%ofupto$10,000of“qualifiedwages”1paidbyeligibleemployerspaidtoboth
hourlyandsalariedemployeesfromMarch13,2020,throughDecember31,2020.The
maximumamountofthefullyrefundablecreditis$5,000peremployee.Eligibleemployers
reporttheirtotalqualifiedwagesforpurposesoftheERContheirquarterlyfederalemployment
taxreturns,usuallyForm941.
Eligibleemployersthatcontinuetoprovidetheiremployeeswithhealthcarecoveragecannow
claimtheERCforthesecostsregardlessofwhethertheemployeescontinuetoreceiveasalary.
Update:TheConsolidatedAppropriationsAct,2021(“COVID‐19reliefbill”)extendsandexpands
theERCthroughJuly1,2021.Thebillincreasestherefundablepayrolltaxcreditfroma
maximumof$5,000to$14,000peremployeebychangingthecalculationfrom50%ofwages
paidupto$10,000to70%ofwagespaidupto$10,000foranyquarter.Thebillalsoclarifies
thatbusinesseswillnowbeabletotaketheERCandparticipateinthePPP.
PhiladelphiawillincludequalifiedwagesastaxablecompensationtotheemployeeforCity
WageTaxpurposes.BIRTMethodIItaxpayerswillfollowthefederaltreatmentofqualified
wages:1)anemployer’staxdeductionforqualifiedwages,includinghealthplanexpenses,will
bereducedbytheemployeeretentioncreditand2)theemployeeretentioncreditwillnotbe
treatedasgrossincometotheemployer.
ModificationofLimitationonBusinessInterestExpense
TheCARESActamendsIRCSection163(j)fortaxyearsbeginningin2019and2020.Withthe
exceptionofpartnerships,taxpayersmaydeductbusinessinterestexpenseupto50%oftheir
adjustedtaxableincome(ATI),anincreasefrom30%ofATIundertheTCJA,unlessanelectionis
madetousethelowerlimitationforanytaxableyear.Inaddition,foranytaxyearbeginningin
2020,ataxpayermayelecttouseits2019ATIforpurposesofcomputingthe2020Section
163(j)limitation.Thiswillbenefittaxpayerswhomayhavereduced2020earningsasaresultof
theCOVID‐19crisis.
TheCARESActincludesspecialrulesforpartnerships.Theincreased50%ATIthresholdonly
appliestotaxableyearsbeginningin2020.Foranytaxableyearbeginningin2019,excess
businessinterestexpense(i.e.,businessinterestexpenseexceeding30%percentofthe
partnership’sadjustedtaxableincome)allocatedbyapartnershiptoapartnerfromataxable
yearbeginningin2019wouldbebifurcated.50%ofthatexcessbusinessinterestexpensewould
betreatedaspaidoraccruedin2020andisfullydeductiblebythepartnerwithoutregardto
thesection163(j)limitation.Theremaining50%ofexcessbusinessinterestexpensewouldbe
subjecttotheexistingrules,whichgenerallytreatexcessbusinessinterestexpenseaspaidor
accruedonlyifthepartnerreceivesanallocationofexcesstaxableincomeorexcessbusiness
interestincomeinalateryearfromthesamepartnership.
PhiladelphiawillconformtotheCARESActamendmenttoIRCSection163(j)fortaxyears
beginningin2019and2020andthespecialrulesforpartnerships.AsindicatedinourTaxCuts
andJobsAct(TCJA)AdvisoryNotice(May29,2019),absentauthorizingPennsylvanialegislation
decouplingataxpayer'sfederalinterestexpensedeductionforPhiladelphiaBIRTpurposes,
taxpayersareobligatedtousethefederalinterestexpensedeductioncalculatedonaseparate
entitybasis.
TechnicalAmendmentsRegardingQualifiedImprovementProperty(QIP)underIRCSection
168(CARESActSection2307)
TheCARESActincludesatechnicalcorrectionthatcorrectsthe2017TaxActtopermit100%
bonusdepreciationforeligibleQIPplacedinservicebythetaxpayerafterDecember31,2017
andbeforeJanuary1,2023.ThistechnicalcorrectionismadetoIRCSection168andprovidesan
opportunityfortaxpayersthatplacedeligibleQIPinserviceduring2018and2019toclaim100%
bonusdepreciation.TheCARESActalsoamendstheIRCtoincludea15‐yearregularMACRS
recoveryperiodforQIP.TheActalsoupdatestheADSdepreciationrecoveryperiodforQIPto
20years.
PhiladelphiaisrequiredbylawtofollowtheCommonwealthofPennsylvaniarulesonfederal
bonusdepreciation.Pennsylvania(andthereforePhiladelphia)aredecoupledfromthefederal
100%bonusdepreciationdeductionallowedforqualifiedpropertiesacquiredandplacedinto
serviceafterSeptember27,2017andbeforeJanuary1,2023.Thechangeto100%bonus
depreciationforfederaltaxeswaspartofthefederalTaxCutsandJobsAct(TCJA).
SeeourAdvisoryNotice‐BonusDepreciationPolicyUpdate(July31,2018)
Email[email protected]withadditionalquestions.