The nation’s smallest businesses are getting revamped Paycheck Protection Program (PPP) rules and a special filing period announced in recent changes from the Biden-Harris administration. Small businesses with fewer than 20 employees make up 98% of the small businesses in the U.S. but have not received much assistance from the PPP so far and have accounted for a significant portion of business closures during the pandemic. These new rules seek to remedy that. Here’s what you should know.
Dedicated filing period – Small businesses with fewer than 20 employees will get a dedicated filing period starting Wednesday, Feb. 24 and running through Tuesday, March 9 to allow lenders to focus on loans for these businesses. This includes individuals who receive 1099s or are considered self-employed who file a Schedule C.
New calculations for ‘no-payroll’ business owners – Specifics have not yet been released, but self-employed, independent contractors, and sole proprietors can expect a new calculation method to account for the missing payroll component of their PPP loans. Additionally, $1 billion is being set aside for this group for those located in low and moderate-income areas.
More opportunities for underserved communities – Former felons (with nonfraud convictions) and non-citizen small business owners with Individual Taxpayer Identification Numbers (ITINs), green card holders, and those with visas will be eligible to apply for relief. Further guidance is expected.
Greater access for business owners with delinquent student loan debt – Business owners with delinquent or defaulted federal debt over the last seven years will now be able to apply for a PPP loan.
Address PPP processing delays – Anti-fraud violation checks have been a significant hold up for PPP processing, and the White House expects to continue to work with the Small Business Administration (SBA) to address this issue while maintaining program integrity.
Further guidance is expected in many of these areas, and we will continue to update you as it becomes available. Contact us for assistance with your PPP loan application or forgiveness application.
Merger and acquisition activity in many industries slowed during 2020 due to COVID-19. But analysts expect it to improve in 2021 as the country comes out of the pandemic. If you are considering buying or selling another business, it’s important to understand the tax implications.
Two ways to arrange a deal
Under current tax law, a transaction can basically be structured in two ways:
1. Stock (or ownership interest). A buyer can directly purchase a seller’s ownership interest if the target business is operated as a C or S corporation, a partnership, or a limited liability company (LLC) that’s treated as a partnership for tax purposes.
The current 21% corporate federal income tax rate makes buying the stock of a C corporation somewhat more attractive. Reasons: The corporation will pay less tax and generate more after-tax income. Plus, any built-in gains from appreciated corporate assets will be taxed at a lower rate when they’re eventually sold.
The current law’s reduced individual federal tax rates have also made ownership interests in S corporations, partnerships and LLCs more attractive. Reason: The passed-through income from these entities also is taxed at lower rates on a buyer’s personal tax return. However, current individual rate cuts are scheduled to expire at the end of 2025, and, depending on actions taken in Washington, they could be eliminated earlier.
Keep in mind that President Biden has proposed increasing the tax rate on corporations to 28%. He has also proposed increasing the top individual income tax rate from 37% to 39.6%. With Democrats in control of the White House and Congress, business and individual tax changes are likely in the next year or two.
2. Assets. A buyer can also purchase the assets of a business. This may happen if a buyer only wants specific assets or product lines. And it’s the only option if the target business is a sole proprietorship or a single-member LLC that’s treated as a sole proprietorship for tax purposes.
Preferences of buyers
For several reasons, buyers usually prefer to buy assets rather than ownership interests. In general, a buyer’s primary goal is to generate enough cash flow from an acquired business to pay any acquisition debt and provide an acceptable return on the investment. Therefore, buyers are concerned about limiting exposure to undisclosed and unknown liabilities and minimizing taxes after a transaction closes.
A buyer can step up (increase) the tax basis of purchased assets to reflect the purchase price. Stepped-up basis lowers taxable gains when certain assets, such as receivables and inventory, are sold or converted into cash. It also increases depreciation and amortization deductions for qualifying assets.
Preferences of sellers
In general, sellers prefer stock sales for tax and nontax reasons. One of their objectives is to minimize the tax bill from a sale. That can usually be achieved by selling their ownership interests in a business (corporate stock or partnership or LLC interests) as opposed to selling assets
With a sale of stock or other ownership interest, liabilities generally transfer to the buyer and any gain on sale is generally treated as lower-taxed long-term capital gain (assuming the ownership interest has been held for more than one year).
Obtain professional advice
Be aware that other issues, such as employee benefits, can also cause tax issues in M&A transactions. Buying or selling a business may be the largest transaction you’ll ever make, so it’s important to seek professional assistance. After a transaction is complete, it may be too late to get the best tax results. Contact us about how to proceed.
Last spring, the CARES Act created the ERC for businesses that were affected by the COVID-19 pandemic. However, the CARES Act disallowed the credit for businesses that received a Paycheck Protection Program (PPP) loan. Fast forward to December 2020, when Congress declared that businesses that had obtained PPP loans could also qualify for the ERC. In addition, Congress extended the availability of the ERC into the first two quarters of 2021, with a few new favorable provisions. The credit is refundable, which means that qualified businesses are able to get cash to the extent that the credit exceeds the payroll tax liabilities. The chart below outlines the terms of the ERC for both the original and extended filing periods:
How does PPP loan forgiveness impact the ERC?
In a statement from the Internal Revenue Service (IRS)
, “[t]he eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.” The release of the new loan forgiveness applications
on January 19, 2021, includes a provision to incorporate this change in guidance on a forward-looking basis. The revised loan forgiveness applications (Form 3508S
, Form 3508EZ
and Form 3508
) note that a borrower should “not include qualified wages taken into account in determining the Employee Retention Credit.”
My PPP loan was already forgiven, what now?
As I previously noted, a business cannot “double dip,” or utilize the same wages to obtain PPP loan forgiveness while still benefiting from the ERC. However, the ERC was not available to PPP recipients prior to December 27, 2020. Accordingly, those businesses that applied for loan forgiveness would have included all eligible payroll costs paid or incurred during the covered period pursuant to the instructions in the loan forgiveness applications. Certainly, those businesses shouldn’t be penalized for already receiving forgiveness prior to this change in the law; however, this wouldn’t be the first time we’ve seen something like that with the evolution of the PPP.
On January 15, the American Institute of Certified Public Accountants (AICPA) sought clarification on this matter. In a letter to the IRS, the AICPA “recommends that the IRS and Treasury provide guidance stating that the filing of a PPP loan forgiveness application does not constitute an election to forgo the ERC with respect to the amount of wages reported on the application exceeding the amount of wages necessary for loan forgiveness.” It is clear — additional guidance is imminent.
As we await clarification from the IRS, businesses who have already received forgiveness on their PPP loans should first evaluate their eligibility for the ERC. After concluding their eligibility, businesses should begin gathering payroll reports, government shutdown orders and financial statements to calculate and claim their credits.
Borrowers of PPP loans who have yet to apply for loan forgiveness have an alternative path; those businesses looking to leverage the ERC now have an additional element to consider in their evolving journey to loan forgiveness. This change in guidance further emphasizes the importance of an intentional strategy to maximize the benefits of both programs, but also leaves questions unanswered for borrowers who have already received forgiveness on their PPP loans.
The coronavirus pandemic has forced many businesses and entire industries to move their operations remotely in the interest of employee and customer safety, and this has caused these businesses to change the way they think about their operations. During this time, businesses have had to quickly adapt and implement new technology and processes in order to meet customer and employee demands that did not exist previously. These disruptions can be a source of headache or opportunity for businesses who choose to embrace the virtual business model.
One process that is in the limelight more than ever is virtual outsourced accounting. Virtual outsourced accounting simply means working with an accounting firm that provides services virtually through cloud-based platforms. While many businesses have already made the move the cloud-based accounting platforms, some have resisted or have kept operations in-house due to the lack of incentive to change. However, the pandemic has created an incentive and highlights many of the reasons why a business would want to consider a virtual outsourced accounting option.
The benefits of virtual outsourced accounting
Safety – First and foremost is the safety of yourself and your employees. Virtual outsourced accounting allows you to conduct these financial operations remotely keeping you and your employees safe. When we return to our workplaces and safety is less of an issue, you continue to receive the other benefits of virtual accounting.
Security – Virtual accounting allows for heavy encryption of your sensitive and confidential data and frequent backups of information across multiple locations, keeping your records safe in the event of any number of physical or digital threats. Physical filing cabinets or local servers are at increased risk of physical or digital hacking because they often do not have the heavy encryption necessary for protection, nor the multiple back-ups in case of a data breach or natural disaster.
Consistency – Businesses are likely in this for the long-haul with many industries not anticipating a return to workplaces for several more months. When you outsource your accounting to a firm with virtual capabilities, you never have to worry about lost time due to illness or employee turnover. Accounting firms have adapted their workplaces to virtual as well, providing as uninterrupted service as possible.
Knowledge – Outsourcing your accounting provides you with greater access to a deeper bench of highly-skilled and knowledgeable accounting teams to help you bust through roadblocks or troubleshoot issues you are likely facing during the pandemic. When you’re encountering especially difficult and unforeseen challenges, a knowledgeable third-party adviser can help you stay on top of regulatory changes, financing opportunities, and provide guidance on forecasting and budgeting during unpredictable times.
Flexibility – As the pandemic increasingly throws new challenges at businesses, having access to virtual outsourced accountants allows you the flexibility to bring in help where and when you need it. Outsourced accounting teams can serve as a fill-in for your in-house accounting staff where needed due to illness, long-term leave, furloughs/layoffs, or employee turnover.
Remote Access – Working with a virtual accounting team that operates in the cloud allows you greater flexibility to perform tasks and access your numbers. Because data is updated in real time between you and your accountant, you can get a more accurate picture of your business’s financials – crucial during a turbulent time like the pandemic.
Cost Savings – Outsourcing your accounting to a firm that conducts operations virtually provides you with significant cost savings including salary/compensation, employee benefits, and overhead that you would experience by hiring and in-house employee. Furthermore, you never have to worry about turnover costs such as recruiting, hiring, and training a new staff member.
If you haven’t considered virtual accounting, now is the time. You do not have to face these pandemic challenges alone, and your financial processes shouldn’t be stifled due to inadequate operations that fail to consider the virtual world to which we’ve been forced to adapt. Contact us for more information on virtual accounting.
The Small Business Administration (SBA) announced that the Paycheck Protection Program (PPP) reopened the week of January 11. If you’re fortunate to get a PPP loan to help during the COVID-19 crisis (or you received one last year), you may wonder about the tax consequences.
Background on the loans
In March of 2020, the CARES Act became law. It authorized the SBA to make loans to qualified businesses under certain circumstances. The law established the PPP, which provided up to 24 weeks of cash-flow assistance through 100% federally guaranteed loans to eligible recipients. Taxpayers could apply to have the loans forgiven to the extent their proceeds were used to maintain payroll during the COVID-19 pandemic and to cover certain other expenses.
At the end of 2020, the Consolidated Appropriations Act (CAA) was enacted to provide additional relief related to COVID-19. This law includes funding for more PPP loans, including a “second draw” for businesses that received a loan last year. It also allows businesses to claim a tax deduction for the ordinary and necessary expenses paid from the proceeds of PPP loans.
Second draw loans
The CAA permits certain smaller businesses who received a PPP loan and experienced a 25% reduction in gross receipts to take a PPP second draw loan of up to $2 million.
To qualify for a second draw loan, a taxpayer must have taken out an original PPP Loan. In addition, prior PPP borrowers must now meet the following conditions to be eligible:
- Employ no more than 300 employees per location,
- Have used or will use the full amount of their first PPP loan, and
- Demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021, are eligible to utilize the gross receipts from the fourth quarter of 2020.
To be eligible for full PPP loan forgiveness, a business must generally spend at least 60% of the loan proceeds on qualifying payroll costs (including certain health care plan costs) and the remaining 40% on other qualifying expenses. These include mortgage interest, rent, utilities, eligible operations expenditures, supplier costs, worker personal protective equipment and other eligible expenses to help comply with COVID-19 health and safety guidelines or equivalent state and local guidelines.
Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors and small agricultural co-operatives.
Deductibility of expenses paid by PPP loans
The CARES Act didn’t address whether expenses paid with the proceeds of PPP loans could be deducted on tax returns. Last year, the IRS took the position that these expenses weren’t deductible. However, the CAA provides that expenses paid from the proceeds of PPP loans are deductible.
Cancellation of debt income
Generally, when a lender reduces or cancels debt, it results in cancellation of debt (COD) income to the debtor. However, the forgiveness of PPP debt is excluded from gross income. Your tax attributes (net operating losses, credits, capital and passive activity loss carryovers, and basis) wouldn’t generally be reduced on account of this exclusion.
This only covers the basics of applying for PPP loans, as well as the tax implications. Contact us if you have questions or if you need assistance in the PPP loan application or forgiveness process.
The Internal Revenue Service recently issued the 2021 optional standard mileage rates. These rates, which adjust every year to account for inflation of fuel costs, vehicle cost and maintenance, and insurance rate increases, will once again affect the way a company reimburses their mobile workers. Specifically, the IRS mileage rate is a guideline that businesses use to calculate the deductible costs of operating an automobile for business, charitable, medical, or moving purposes. Beyond announcing the rate change, we have a few reminders and tips surrounding this reimbursement allowance.
As of January 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) are:
- 56 cents per mile for business miles driven, down 1.5 cents from 2020
- 16 cents per mile driven for medical or moving purposes, down 1 cent from 2020
- 14 cents per mile driven in service of charitable organizations; the mileage rate for service to a charitable organization is not alterable by the IRS. Instead, it must be changed by a Congress -passed statute.
Have you considered…
- Under the Tax Cuts and Jobs Act, employees are not permitted to write off unreimbursed business mileage. If your company does not make up for this reimbursement, it could face legal consequences.
- A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.
- Taxpayers also have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. The actual expense method often produces a significantly different result. You will want to talk with your CPA to determine which method yields the larger deduction.
The IRS rate was intended to function as a reimbursement cap. Today, the rate holds businesses accountable, but it doesn’t account for fluctuations in vehicle prices across city, county, and state lines. For companies whose employees use their vehicles for work, there is an alternative to the standard mileage rate. The Fixed and Variable Rate (FAVR) allowance preserves reimbursement equity and helps businesses avoid over- or underpayment to employees. To find out more about this IRS recommended reimbursement methodology or if you have any questions about the IRS Standard Mileage Rate, please contact one of our professionals today.
The employee retention tax credit (ERTC) is intended to provide liquidity to employers during the pandemic and was greatly expanded in the Consolidated Appropriations Act of 2021 thanks to Sections 206 and 207 of the Taxpayer Certainty and Disaster Relief Act portion, opening the doors to more businesses to be able to qualify for and receive this credit who are facing significant hardship as a result of the coronavirus pandemic. Many changes from the original credit were enacted including an expansion in the amount of credit and business eligibility, and how it plays with the Paycheck Protection Program (PPP).
Here’s what you need to know about this credit, how it works, and how to apply. Note that when a provision is designated as effective Jan. 1, 2021, it does not apply to any retroactive credit claims.
Who is eligible for the ERTC?
The following businesses and organizations engaged in a trade or business are eligible to qualify for the ERTC:
- For-profit businesses
- Tax-exempt organizations
- Certain government entities that are state or local-run (Effective Jan. 1, 2021, previously no government entity at any level was eligible):
- Colleges or universities
- Organizations providing medical or hospital care
- Certain organizations charted by Congress (such as Fannie Mae, FDIC, Federal Home Loan Banks and Federal Credit Unions)
How does my business qualify for the ERTC?
An eligible organization can qualify for the ERTC if:
- Their operations are fully or partially suspended due to a lockdown order, OR
- Their gross receipts are less than 80% for a quarter in 2021 or the immediately compared to the same quarter in 2019 (or 2020 if the business was not open in 2019) or, there is a 20% drop quarter-over-quarter when comparing Q1 of 2021 to Q4 of 2020 compared to Q4 of 2019.
The gross receipts test is Effective Jan. 1, 2021, this is an increase from the previous law and expands the threshold for eligible businesses.
Effective Jan. 1, 2021, businesses with 500 employees or less are eligible to claim the credit even if an employee is working during the first two quarters of 2021 (an increase in the threshold from 100 employees in the original law). For affiliated companies sharing more than 50% common ownership, the 500 count is aggregated.
What is the time period for the credit, and when can I start collecting?
The passage of the bill at the end of December extended the availability of the ERTC through the first two quarters of 2021, allowing for more relief as the pandemic continues on. Qualified wages paid after March 12, 2020, and before July 1, 2021, are eligible for the credit.
Additionally, the new law will allow for an advanced credit for companies with 500 or fewer employees, allowing these companies to monetize the credit before wages are paid. The amount is based on 70% of the average quarterly payroll for the same quarter in 2019, and if there is excess advance payment, companies will need to repay the credit to the government.
How much credit can I receive?
Effective Jan. 2021, 70% of qualified wages are eligible for the ERTC including the cost to continue providing health benefits (such as if an employee is on furlough). This is an increase from the 50% provided in the previous stimulus bill. The qualified wage limit was increased to $10,000 per quarter per employee for the first 2 quarters of 2020. Previously was $10,000 per employee for the entirety of 2020.
Also, effective Jan. 1, 2021, the credit maxes out at an aggregate $14,000 per employee, or $7,000 for the first two quarters of 2021, and is available even if the employer received the maximum credit for wages paid to the same employee in 2020. This is an increase from the $5,000 max in the previous bill.
Additionally, the credit is now available for certain pay raises including hazardous duty pay increases (previously not allowed and is retroactive).
How does my PPP loan factor in?
First and foremost, companies with PPP loans can now also claim the ERTC, and the change is retroactive to the effective date of the original law (March 12, 2020). Key to note is that the ERTC cannot be applied toward wages covered by the PPP.
If, for example, your business received a PPP loan in 2020 and paid qualified wages in excess of the PPP loan amount, you could qualify and apply for the ERTC through an amended employment tax return (Forms 941X). This also applies to affiliate companies related to a PPP borrower. Furthermore, if your PPP payroll costs are not forgiven, those same payroll costs can be applied toward ERTC qualified wages. Your accountant can help you calculate and designate these costs.
Claiming the ERTC, with or without a PPP loan, requires careful calculation and documentation. Contact us for assistance with this credit.
The U.S. Small Business Administration (SBA) and Treasury have announced that lenders with $1 billion or less in assets will be able to open applications for the next round of Paycheck Protection Program (PPP) funding starting Friday, Jan. 15 at 9 a.m. ET. Both first and second-draw loans will be able to apply at that time. For large lenders, the application opens on Tuesday, Jan. 19 for first and second-draw loans.
Community financial institutions (CFIs) began accepting applications for underserved small businesses on Jan. 11 for first-draw loans and Jan. 13 for second-draw loans. More than 9,100 applications were submitted so far totaling over $1.4 billion of the $284.5 billion available in this round of funding.
As a reminder, the second round of PPP funding expanded certain provisions of the original program including:
- Expanded eligibility for nonprofits, independent contractors/sole proprietors/self-employed individuals, certain businesses eligible for other SBA 7(a) loans, accommodation and food services, business leagues with a Sec. 501(c)(6) designation, and news/nonprofit public broadcasting organizations.
- Expanded eligible costs including COVID-related worker protection and facility modifications; property damage costs related to public disturbances; suppliers expenditures essential to operations; operating expenditures for software/cloud computing services essential for running the business.
- Simplified applications for first-draw loans of $150,000 or less.
- Repeal of Economic Injury Disaster Loan advances (EIDL) deduction from forgiveness amount.
- Repeal of duo claims on a PPP loan and the employee retention tax credit program – Businesses can qualify for both.
- Allowance for second-draw PPP loans if a business has maxed out the first, has fewer than 300 employees, and a 25% reduction in revenue.
- Allowance of expenses paid with a PPP loan to be tax-deductible.
You can read more about the provisions of the second round of PPP funding in our blog. Contact us for assistance with a first or second-draw PPP loan and your forgiveness application.
Three new interim final rules (IFRs) for the Paycheck Protection Program (PPP) have been released from the Small Business Administration (SBA) and Treasury in response to the changes and second round of funding enacted by the relief portion of the Consolidated Appropriations Act signed at the end of December.
Here’s the breakdown on the first two IFRs.
Changes in provisions for first-draw PPP loans
First-time borrowers of PPP forgivable loans received consolidated rules in the IFR “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” as well as an outline of changes made by the Act. Here’s what this rule clarified:
- The authority to make PPP loans was extended to March 31, 2021.
- Eligibility was expanded to:
- Businesses that are also eligible for other SBA 7(a) loans with 500 or fewer employees.
- Independent contractors, sole proprietors, certain self-employed individuals.
- Nonprofits, including churches.
- Accommodation and food services – Fewer than 500 employees per location.
- Business leagues, chambers of commerce, visitor’s bureaus and others (not sports leagues) that fall under the Sec. 501(c)(6) designation – Must have fewer than 300 employees, less than 15% of receipts from lobbying, and less than 15% of activity and less than $1 million spent toward lobbying.
- Certain news organizations and nonprofit public broadcasting organizations with no more than 500 employees.
- Publicly traded companies or businesses with direct or indirect control by the president, vice president, head of executive departments, or members of Congress (including spouses) are now ineligible.
- Qualifying payroll documentation may include payroll records; payroll tax filings; Form 1099-MISC; Form 1040, Schedule C or Schedule F; sole proprietorship income and expenses; bank records.
- Hotels and restaurants can receive loans up to 3.5 times their average payroll cost (2.5 times for every other industry).
- Maximum loan amount is $10 million.
- Additional eligible costs include COVID-related worker protection and facility modifications; property damage costs related to public disturbances; suppliers expenditures essential to operations; operating expenditures for software/cloud computing services essential for running the business.
- First-draw loans of $150,000 or less can use a simplified forgiveness application (form is due to be released by Jan. 20).
Additionally, specific funds were set aside for minority, underserved, veteran, and women-owned businesses. When the PPP portal reopens on Monday, Jan. 11, lenders for underserved communities will have exclusive access for two days for first-draw loans and will be able to offer second-draw loans on Wednesday, Jan. 13. The portal will be open to all borrowers following these exclusive access days.
New provisions for second-draw PPP loans
In the IFR “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans,” much-awaited guidance was released for those looking to apply for a second PPP loan. Here’s what it said:
Eligible borrowers must
- Have 300 or fewer employees
- Have used or will use the full amount of their first PPP loan on or before expected date of second loan disbursement, and the full amount must have been used on eligible expenses.
- Have had at least 25% reduction in revenue for all or part of 2020 compared to the same time in 2019. Gross receipts can be used for calculation, or annual tax forms can be used for those in operation for all four quarters of 2020.
- The gross receipts used for calculation were defined to include all revenue regardless of form in which it was received or accrued or the source.
- First draw PPP loans should not be included in 2020 gross receipts.
Third interim final rule clarifications
In an IFR released on Jan. 19, the SBA and Treasury made a few notable changes and clarifications to the PPP that apply regardless of which type of forgiveness application a business uses. Here are the key points:
- Alternative covered payroll periods are no longer available – This is a break from the previous PPP program that allowed businesses with biweekly or more frequent payroll schedules to use a covered period that aligns with their payroll schedule vs the date of loan disbursement.
- Covered periods begin on the date of loan disbursement – This isn’t new, but a reminder to businesses that you have 8 or 24 weeks from date of loan disbursement to use as your covered period.
- Be aware of cash compensation related to ERCs – If you’re considering pairing your PPP loan with an employee retention credit (ERC), be mindful of what wages you’re using for which program. Read more about the ERC here.
- Watch your owner cash compensation limit – As a reminder, self-employed individuals, general partners, or owner-employees with at least a 5% stake are limited in forgiveness on their compensation. You can use 2.5 months’ worth of compensation during the year used to calculate your PPP loan amount with a cap at $20,833 per individual across all businesses.
- Use a separate forgiveness application for each loan – If you have multiple entities and multiple PPP loans, each loan needs its own forgiveness application, including second-draw loans.
Additionally, the three forgiveness applications have been updated to account for changes in these IFRS. Here are the links:
New PPP application forms have been released for first or second-draw loans. We will continue to update you as further guidance becomes available. Contact us for assistance with your application for a first or second-draw loan or forgiveness.
The U.S. House of Representatives and U.S. Senate have passed the Coronavirus Response & Relief Supplemental Appropriations Act, and President Trump is expected to sign the bill immediately. The agreement comes after weeks of negotiations and two funding extensions to keep Congress open until a bill was passed with a $1.4 trillion government-wide funding plan. The $900 billion coronavirus relief portion includes another round of Paycheck Protection Program (PPP) funding, extended unemployment benefits, and direct payments to taxpayers. Here’s an overview of the key provisions in the bill.
Updates to the PPP and changes for second round
The Act designates $267.5 billion for this round of PPP funding, and the program specifically sets aside $25 billion for businesses with 10 employees or less as of Feb. 15, 2020. Regulations for this round of PPP funding are required to be released within 10 days of enactment.
Borrowers who received PPP funding in the first round following the CARES Act will receive some additional updates to their existing PPP loans. Borrowers who would like to adjust their requested loan amount based on these updated regulations may do so, provided they have not yet received forgiveness. Here are the key updates:
- More expenses are eligible – Covered operations expenditures (including business software and cloud computing services), property damage costs (costs incurred during public disturbances in 2020 not covered by insurance), supplier costs (that are essential to operations), and worker protection expenditures (to comply with HHS, CDC, or OSHA requirements) would be eligible for forgiveness. These amendments would not apply to loans that have already been forgiven.
- Tax deductions on related expenses are allowed – The bill reverses an earlier ruling and makes expenses deductible. It also confirms forgiveness is non-taxable.
- Loans up to $150,000 get a simplified forgiveness application process – Borrowers with loans up to $150,000 will get one-page online or paper form with borrower certifications of the number employees covered by the loan, the estimated amount spent on payroll, and the total amount of the loan. Borrowers must still maintain appropriate documentation.
- Borrowers do not have to deduct EIDL advance – Previously, EIDL advances were to be deducted from the PPP forgiveness amount, but that was repealed.
- PPP borrowers can also get an Employee Retention Credit – Wages used for ERC will not be eligible for PPP forgiveness.
The second round of funding provided by this Act has a few key differences from the first round in the CARES Act. Key to note is that borrowers can apply for a second PPP loan through this program if they have fully used their first PPP loan and meet the employer size and gross revenue criteria listed below. PPP loans in this round are capped at $2 million. Here are the key differences:
- Changes to employer size and gross revenue qualifications – Only businesses with up to 300 employees (down from 500 employees) and a gross revenue decline by at least 25% for any quarter of 2020 compared to the same quarter in 2019 will qualify for this round.
- Changes to loan limits – The loan amount is limited to 2.5 times of the average payroll for the last 12 months through date of application or 2019 and is limited to $2 million. Businesses that are part of the NAICS code beginning with 72 – Accommodation and Food Services – are limited to 3.5 times payroll for the 1-year period or 2019 and limited to $2 million.
- Changes to eligible nonprofits – 501(c)(6)s now qualify – These organizations must have 150 employees or fewer, gross receipts from lobbying activities must total less than 15% or $1 million, and lobbying activities cannot comprise more than 15% of total activities.
- More groups can apply for first-time assistance – Other groups that can apply for first-time assistance through this round of PPP funding include businesses eligible for other SBA 7(a) loans with fewer than 500 employees, sole proprietors, independent contractors, self-employed individuals, and nonprofits (including churches).
As with the first round of PPP loans, 60% of the funds must be spent on payroll over the covered period (8 or 24 weeks).
Other provisions affecting businesses
- $13.5 billion for Economic Injury Disaster Loans (EIDLs)
- $15 billion in grants for theaters and live venues – Theaters and live venues must have been operational prior to Feb. 29, 2020, have at least a 25% reduction in gross revenue, and they plan to resume operations following closures. Grants can be up to $10 million per eligible business, with preference given to venues with higher revenue losses. Certain characteristics apply for live venue spaces, movie theaters, and museums, so work with your CPA to determine eligibility.
- Employer tax credits for those offering paid sick leave have been extended to Mar. 31, 2021, for employers who voluntarily choose to expand paid emergency leave. Otherwise, the requirements set forth by the Families First Coronavirus Response Act (FFCRA) expire Dec. 31, 2020.
- Extension of time for employers to pay back deferred payroll taxes till the end of 2021 instead of Apr. 30, 2021.
- $10 billion for childcare assistance – This includes supplemental assistance for childcare providers to assist with fixed costs and operating expenses.
Provisions affecting individuals
- Direct stimulus payment of $600 per adult and child with the same phase out thresholds as the CARES Act ($150,000 if married filing a joint return, $112,500 if filing as head of household, or $75,000 for individuals). Payments are expected to start arriving as early as the week of Dec. 28, 2020.
- Changes and extensions to unemployment including:
- $300 in enhanced unemployment benefits for unemployment beginning after Dec. 26, 2020, through Mar. 14, 2021, fully financed by the federal government, instead of split between the states and federal government.
- Extension of the Pandemic Unemployment Assistance program for gig workers, independent contractors, and the self-employed.
- Extension of the Pandemic Emergency Unemployment Compensation program which protects workers who exhaust state benefits with an additional 13 weeks.
- $25 billion for rental assistance.
- An extension of the eviction moratorium through Jan. 31, 2021.
- $13 billion for enhanced Supplemental Nutrition Assistance Program (SNAP) benefits including funding a 15% increase in benefits for 6 months to recipients.
- $81.8 billion allocated to colleges and schools to assist with pandemic-related changes in operations.
- $45 billion for transportation including $2 billion for airports and $15 billion for passenger airline workers.
- $7 billion for increased broadband access to assist with remote business operations and learning.
- $28 billion in funding for vaccine purchase and distribution.
- $22 billion for state, local, tribal, and territorial governments for health-related expenses like testing.
Further guidance and regulations are expected in various components of the bill and are due in periods of 10 to 45 days depending on the issue and reporting agency. Not included in the bill was aid for state and local governments, an agreement on liability protections for businesses, nor a continued freeze on payments and interest for federal student loans set to expire for many in February. Lawmakers have indicated they expect to pass another stimulus bill addressing some of these issues in early 2021.
More guidance and updates are expected on the Coronavirus Response & Relief Supplemental Appropriations Act. Stay tuned for more details in the days and weeks to come.
Please note that information and guidance on the PPP loan program is changing on a daily basis. The information provided in this article is current as of December 22, 2020. It is intended for general informational purposes only. Consult with your financial advisor about your specific situation.