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A measure to extend the Paycheck Protection Program (PPP) application deadline from March 31, 2021, to May 31, 2021, has passed the U.S. House of Representatives and the Senate. It now heads to President Biden’s desk for signature which he is expected to do promptly.

Small businesses will have until May 31, 2021, to continue submitting first and second-draw PPP loan applications to the Small Business Administration (SBA). The SBA was also granted an additional 30 days past May 31 to finish processing applications. The measure does not include any funding increases for the program.

Contact us for assistance with your PPP loan or forgiveness applications.

President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) on March 11. While the new law is best known for the provisions providing relief to individuals, there are also several tax breaks and financial benefits for businesses.

Here are some of the tax highlights of the ARPA.

The Employee Retention Credit (ERC). This valuable tax credit is extended from June 30 until December 31, 2021. The ARPA continues the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the Consolidated Appropriations Act extension and the ARPA extension, this means an employer can potentially have up to $40,000 in qualified wages per employee through 2021.

Employer-Provided Dependent Care Assistance. In general, an eligible employee’s gross income doesn’t include amounts paid or incurred by an employer for dependent care assistance provided to the employee under a qualified dependent care assistance program (DCAP).

Previously, the amount that could be excluded from an employee’s gross income under a DCAP during a tax year wasn’t more than $5,000 ($2,500 for married individuals filing separately), subject to certain limitations. However, any contribution made by an employer to a DCAP can’t exceed the employee’s earned income or, if married, the lesser of employee’s or spouse’s earned income.

Under the ARPA, for 2021 only, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500 (from $2,500 to $5,250 for married individuals filing separately).

This provision is effective for tax years beginning after December 31, 2020.

Paid Sick and Family Leave Credits. Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. Among other changes, the law extends the paid sick time and paid family leave credits under the Families First Coronavirus Response Act from March 31, 2021, through September 30, 2021. It also provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.

Grants to restaurants. Under the ARPA, eligible restaurants, food trucks, and similar businesses that provide food and drinks may receive restaurant revitalization grants from the Small Business Administration. For tax purposes, amounts received as restaurant revitalization grants aren’t included in the gross income of the person who receives the money.

Much more

These are only some of the provisions in the ARPA. There are many others that may be beneficial to your business. Contact us for more information about your situation.

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The American Rescue Plan Act (ARPA) of 2021 passed Congress and President Biden signed the bill into law on March 12, 2021. The ARPA approves $1.9 trillion in spending for individuals, businesses, governments, and certain industries impacted by the COVID-19 pandemic. The third Act in a year, the ARPA approves additional economic impact payments for individuals; the extension of federal unemployment benefits; additional funds for Paycheck Protection Program (PPP) Loans, and Economic Injury Disaster Loans (EIDL) for hard-hit small businesses; and grants for food and beverage establishments. Here are the key individual and business provisions in the bill.

Individual provisions in ARPA

The bill extends and slightly alters two key benefits many individuals have been relying upon through the pandemic.

Unemployment – Federal benefits of $300 per week (in addition to state benefits) are extended through Sep. 6, 2021. The first $10,200 in federal unemployment benefits is tax-free for households making less than $150,000 per year in 2020. Taxpayers who received unemployment income may need to update 2020 tax returns if already filed.

Economic impact (stimulus) payments (EIPs) – The IRS will issue another round of EIPs at $1,400 per individual, $2,800 per married filing joint (MFJ), plus $1,400 per dependent. Income phase-out limits reduce from previous EIPs to $80,000 for individuals and $150,000 for MFJ. Full-time students under the age of 24 are now eligible for economic impact payments (EIP), unlike previous rounds. Your 2019 or 2020 adjusted gross income (AGI) is the basis for EIPs, so taxpayers will want to consider when to file their 2020 tax return to ensure a maximum EIP benefit.

Small business funding provisions in ARPA

The bill includes additional funding for small business relief programs, including the PPP, EIDLs, and industry-specific relief.

PPP – The Act allocates an additional 7.25 billion in additional funds, and the eligibility expands to include:

The deadline is still Mar. 31, 2021, to apply, so don’t delay.

EIDL advance payments – The Act allocates $15 billion for EIDL advance payments, and eligibility requirements state:

Restaurants, bars, and other eligible food and beverage providers – The Act allocates $28.6 billion for grants, and $5 billion is set aside for applicants with 2019 gross receipts of $500,000 or less.

Shuttered venue operators – The program is extended from the Consolidated Appropriations Act (CAA) with $1.25 billion allocated.

Community navigator pilot programs – $175 million is allocated for programs that increase awareness of and participation in COVID-19 relief programs for socially and economically disadvantaged business owners.

Other provisions of ARPA

For assistance with any of these provisions, please contact us.

Form 1040, Schedule C taxpayers received an updated interim final rule (IFR) on the Paycheck Protection Program (PPP) from the Small Business Association (SBA). The IFR clarifies guidance released on Feb. 22 that made changes to how self-employed and sole proprietors could calculate their maximum loan amount to help expand the program for these groups. Approximately 2.6 million sole proprietors have applied for PPP loans, and it is estimated there are about 25 million sole proprietors across the country.

The biggest adjustment made by the IFR is that these borrowers may calculate their maximum loan amount using their gross income. Previously, the calculation was done by using payroll costs plus net profits. This excluded many sole proprietors who had little or negative net profit.

Determining how much you can borrow

For sole proprietors with no employees the calculation is as follows:

  1. Use either line 31 net profit or line 7 gross income (up to $100,000)
  2. Divide by 12 and then multiply that amount by 2.5

First-draw and second-draw owner compensation is capped at $20,833; however, for accommodations and food services, second-draw owner compensation is capped at $29,167

For sole proprietors with employees, the calculation is as follows: Use either line 31 net profit or calculate the following using gross receipts:

  1. Line 7 gross income minus employee payroll costs (lines 14, 19, 26)
  2. Divide by 12 to get monthly total (cannot exceed $100,00 annually or $8,333 monthly)
  3. Add average monthly payroll costs
  4. Multiply by 2.5 months

The same owner compensation limits apply as for those with no employees.

Limited liability companies with only one member do qualify for these updated calculations, but single member S-corporations do not.

The calculation is only for loans submitted after the rule’s effective date of Mar. 3, 2021, meaning loans submitted between Jan. 1 and Mar. 2, 2021, would not be eligible for this new calculation. You can access the new forms here:

Additionally, the IFR states that first-draw PPP loans with $150,000 or less in gross income on a Schedule C will be eligible for the economic necessity safe harbor, but loans above will not and could receive additional SBA review.

The current PPP application period expires Mar. 31, 2021, and lenders are experiencing delays in implementing these new calculations. It is anticipated they will begin accepting applications the week of Mar. 8. We are continuously monitoring the situation for additional clarifications and updates.

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.

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 3508SForm 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.

What’s next?

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 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:

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.

Assistance provided

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.

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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: 

How does my business qualify for the ERTC? 

An eligible organization can qualify for the ERTC if: 

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: 

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: 

Additionally, specific funds were set aside for minority, underserved, veteran, and women-owned businesses. When the PPP portal reopens on Monday, Jan. 11lenders 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. 13The 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  

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: 

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.