And the New Year Begins with a Flurry of New Tax Law! How Exciting (and Exhausting) is That?

We have several items to discuss regarding PPP loans (rounds One and Two) and the Employee Retention Credit (ERC). While we were hoping for a little time to get ready for the 2020 tax season, the government is not allowing us that luxury. So here we go on what we know and what our recommendations are.

2021 EPSL and EFML Credits This is our #1 question from you today.  Offering Emergency Paid Sick Leave and Emergency Family and Medical Leave has been extended to March 31, 2021. This is optional for employees for the period from January 1st to March 31st. If you do decide to offer it, you must be consistent with all of your eligible employees for the entire 3-month period.  You will receive a credit for up to two weeks and it will be for 100% of their wages through payroll. This only applies to the UNUSED portion of their original allotment that remains on January 1. For example, if the employee is entitled to 80 hours of EPSL between April 1 and December 31 and 40 hours have been used, only 40 hours carry over to 2021, to be used by March 31st. Again, you will report this to your payroll company and they will process the credit. If you decide not to continue the (now optional) credit, you will treat the illness (COVID or other) just as you do with any other employee time off according to your employment manual. One final thought: if an employee is sick or under a mandatory quarantine, you do NOT want that person in your office! Providing the credits available for that person may be a good solution for you and your employee. This credit is NOT the same as #4 below.

PPP - Round #1 You must spend at least 60% on payroll to have the loan forgiven. Most of you have spent over 100% on payroll so you are covered easily.  We still believe you should wait to file for forgiveness. As you are aware, there should be short forms coming out soon for any business with PPP loans of $150,000 or less. This will make your life much easier when you finally do file. Please read #4 below for more things to consider.

PPP - Round #2 There is NO detail yet on the rules of how to apply for this second round of PPP loans. Here is the big picture for this second round. You must have a drop of 25% in collections in one quarter (comparing 2019 with 2020) to qualify. Most of you had a qualifying drop in the second quarter of 2020. click here to calculate The calculation for the amount of the PPP loan is the same as round one. In case you have forgotten (since it seems like the forms were filed years ago), the calculation is 2.5 times the monthly 2019 payroll, with some limitations. You have 24 weeks to spend the money. Sixty (60) percent must be spent on payroll, just like Round One. Banks are NOT ready yet. We are unsure if the application will be the same as the one you filed for the first round (that would make sense to us so probably not). It may be a new application.  We do believe you might want to contact your bank about it in the next week or so, just to give them a heads up you want to apply. You can figure out the details once the application and rules are announced.  You do NOT have to use the same bank for Round Two. However, if you decide your first experience was less than stellar, please remember that banks will most likely only want to help you if you bank with them. There are a few exceptions.

2020 Employee Retention Credit (ERC) They snuck this new rule in on us and it is a game changer. Up until recently, you could not receive the credit if you received a PPP loan (Round One). We learned that under certain circumstances, many of you may be eligible.  To qualify, you must have a 50% drop in collections in any quarter in 2020. You are eligible for the credit until you reach 80% of collections in a quarter.  Many of you will qualify for Quarter 2 until Quarter 3. Some of you may even make it to Quarter 4 for the credit.

The short answer is that if you qualify, 50% of employee wages are eligible for the credit with a maximum of $5,000 per employee.  This credit is very complicated (oh JOY!) but here are some thoughts as we move forward.  Money used for the PPP loan is NOT eligible for the credit. An example is if you used 100% of your payroll for the PPP loan (and had NO additional wages to report), you would not be eligible for the credit. We would need to figure out another way to make the credit work. In order to receive the credit, your payroll company will need to amend the appropriate Form 941(s). They will be charging you for any amendments. A refund will be requested with the amended return. The good news is that a credit is dollar for dollar for your practice. The bad news is that at the moment, amended 941s must be paper filed and therefore we think if the government does not change the rules and allow e-filing amended 941s, your refund could take a long, long time - which defeats the purpose for the change in the law. We need to receive more clarification and will look into figuring out how to optimize this credit for you (this will be an additional service billing from us). Please be patient and we will be sending out more information.  We appreciate you and hope you had happy holidays. Here is to the beginning of 2021 and the new and fun challenges of a new year.

COLEMAN, UREDA, ALFORD & KAUCHER, PA