Deloitte Tax looks at COVID-related changes affecting compensation and benefits, Qualified Opportunity Funds

New alerts from Deloitte Tax LLP examine pandemic-related legislative changes and IRS guidance with implications for compensation and benefits plans, the employee retention tax credit, and investments in Qualified Opportunity Funds.

Compensation and benefits

The $1.9 trillion American Rescue Plan, which President Biden signed into law on March 11, includes several provisions that affect employer tax deductions and credits and funding of pension plans, such as:

• An expanded definition of “covered employee” under Internal Revenue Code section 162(m);
• Enhancements to the employee retention tax credit and extension of the credit to qualified wages paid through December 31, 2021;
• Modifications to the payroll tax credit for qualified wages paid to employees due to sick leave or expanded family and medical leave for reasons related to COVID-19 and extension of the credit by two calendar quarters through September 30, 2021;
• An increase in the individual tax exclusion for employer-provided dependent care assistance;
• Funding relief for single employer pension plans; and
• Funding relief and funding assistance for certain multiemployer pension plans.

An alert from Deloitte Tax looks at these provisions and discusses their potential implications for affected taxpayers.

Employee retention tax credit

Also available from Deloitte Tax is a summary that looks at provisions related to the employee retention tax credit in the American Rescue Plan and recent guidance (Notice 2021-20) addressing retroactive changes to the credit that were included in the Consolidated Appropriations Act, 2021, the omnibus tax-and-spending legislation that was signed into law last December 27.

Deloitte Tax will be releasing a tax alert that will discuss the potential implications of the various updates and additions provided by Notice 2021-20 in more detail.

Qualified Opportunity Funds

The IRS recently issued Notice 2021-10, which extends certain pandemic-related penalty relief originally provided to Qualified Opportunity Funds (QOFs) and their investors under previous guidance that expired last year.

QOFs are a component of the Qualified Opportunity Zone (QOZ) Program, which was added to the federal income tax code under 2017’s Tax Cuts and Jobs Act (P.L. 115-97) to authorize the designation of economically distressed communities as QOZs, where new investments, under certain conditions, may be eligible for preferential tax treatment. Electing taxpayers that invest in QOZs through a QOF can defer and potentially reduce tax on prior capital gains rolled over into such a fund, as well as permanently eliminate tax on future gain arising from appreciated QOF investments held for at least 10 years.

In response to the COVID-19 pandemic, the IRS last year released Notice 2020-39, which provided temporary relief from complying with certain time-sensitive requirements for tax-advantaged investments made by eligible taxpayers through a QOF. Notice 2021-10 extends the relief originally provided under the earlier guidance and makes additional enhancements to the QOZ Program.

A tax alert and table from Deloitte Tax provide an overview of the guidance.

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