Congress has passed a $900 billion package to fund the government for the remainder of the fiscal year and provide needed COVID relief to individuals and businesses. Several provisions will have a direct impact on Nebraskans, and some items that are receiving little notice will influence budgetary and fiscal decisions in the 2021 legislative session.

Among the features of the COVID-19 Emergency Relief Package — which you can read more about in this Washington Post story — are extended federal unemployment benefits, direct stimulus payments of up to $600 per qualified individual and qualified child, renewed funding and expanded eligibility for the Paycheck Protection Program (PPP), increased funding for safety-net programs and a provision that will increase the Earned Income Tax Credit for many recipients. These provisions will help support Nebraskans who are dealing with the economic fallout of the COVID-19 pandemic, and will bring federal money into the Nebraska economy.

Two provisions that aren’t receiving considerable attention but that could have major implications for the 2021 legislative session are:

  • A measure clarifying that businesses can deduct expenses paid for with forgiven PPP loans. The IRS has previously issued notices that existing law prohibits taxpayers from deducting expenses funded with tax-exempt PPP grants, and Nebraska, due to its conformity to the federal tax code, has made revenue projections for fiscal year 2021 with the expectation that such expenses could not be deducted from taxable income. The newly established deductibility of such expenses will cause a decrease in Nebraska income tax revenues relative to current projections, which could have significant implications for the state budget. University of Nebraska law professor Adam Thimmesch discusses this issue at greater lengths in a recent blog post.
  • A provision extending the availability by one year (until Dec. 31, 2021) of funds provided to states and localities by the Coronavirus Relief Fund in the CARES Act. Out of the $1.084 billion in funding received by the state of Nebraska, only about $682 million has been disbursed to-date, although some of the remaining money is already earmarked for specific purposes. This change allows the state to use remaining CARES money to address needs created by COVID-19, such as reimbursing expenses of local health departments or supporting statewide broadband access, throughout 2021.

It’s good news that Congress is providing much needed relief amid this ongoing public health and economic crisis, but it will also be important for Nebraska lawmakers to have a firm understanding of how this new package will impact state tax revenues and budgetary flexibility.