News & Updates

March 8, 2021
Certified Public Accountants and Consultants
Employee Retention Credit, Changes to PPP and the New Stimulus Bill
As many Americans across the nation ponder over the day when the world can return to normalcy again, millions of Americans and businesses alike continue to struggle with the devastating effects of the Corona virus pandemic. The U.S. Government has fought tirelessly to provide its American people the much needed hope they deserve. From the financial aid of PPP loans to the multitude of tax credits available, a lot of changes have taken place that many business owners and taxpayers may want to keep in mind.
Employee Retention Credit
What is it and how can it potentially benefit your business?
On December 27, 2020, the Consolidation Appropriations Act of 2021 was signed into law providing additional stimulus and financial support to millions of Americans and businesses. Part of the act contained what is called the Taxpayer Certainty and Disaster Act. Section 206 of this act permits suitable employers to take advantage of the Employee Retention Credit (ERC), a refundable tax credit available for those employers who paid qualified wages after March 12, 2020 up to January 1st, 2021. Many employers qualified if their business operations were entirely or partially suspended due to governmental orders related to the Covid-19 pandemic or who experienced a 50% decrease in gross receipts compared to that of the prior year. The ERC is equal to 50% of qualified wages which include qualifying health plan expenses, up to $10,000 in wages per employee in 2020. The highest credit available per employee is $5,000 in 2020. Unfortunately, the Act only allowed employers to receive either the ERC or a PPP loan. Since then, the restriction has now been lifted allowing the ERC to become available retroactively to those that may obtain a PPP Loan for the business. However, the employer can only claim the ERC on any qualified wages that are not counted as payroll costs in obtaining forgiveness for their PPP Loan; meaning that wages paid with PPP proceeds that were forgiven or expect to be forgiven cannot be used to prove an ERC claim. The IRS provided some type of guidance which recommends employers to amend their quarterly payroll tax returns.
For the period of January 1st, 2021 through June 30, 2021, the credit has since been increased to 70% of qualified wages. The wage limitation has increased from $10,000 per year to $10,000 per quarter, allowing a maximum credit per employee of $14,000. Employers can also claim the credit if they can prove a loss in gross receipts of 20%. Additionally, employers may use prior quarter gross receipts to determine admissibility. Initially, for employers with 100 or more employees, the credit was only obtainable for those wages paid to employees for which no services were provided. For businesses with 100 or fewer employees, the credit is available for all wages. The threshold for 2021 has now changed from 100 to 500 employees in determining qualified wages. According to the IRS News Release 2020-21 “employers can access the ERC for the 1st and 2nd quarters of 2021 prior to filing their employment returns by reducing employment tax deposits. Employers with an average of 500 or fewer full-time employees in 2019 may request advance payment of the credit, subject to certain limitations, on Form 7200, Advance of Employer Credits due to Covid-19, after reducing deposits.” Although the Act changed the employee retention credit for the 1st two quarters of 2021, the IRS notice 2021-20 only addresses rules relevant to 2020. They will soon release more guidance discussing the rules that will pertain to the 2021 tax year.
Changes to the Paycheck Protection Program - Application Process
As the March 31st deadline to obtain a PPP loan approaches, anxiety continues to rise as changes continue to transpire related to the program’s eligibility & forgiveness process. On February 22, 2021, the Biden Administration established a two-week period in which only business with 20 employees or less were able to apply for a PPP loan. This application window, ending March 9th, allows for smaller business to take greater advantage of the PPP proceeds available.

The new IFR, established on March 3rd, changed the PPP loan calculation formula for sole proprietors, contractors and self-employed owners allowing them to calculate their loan amount based on the owner’s compensation share of its payroll costs based on either net profit or gross income. These changes both apply to both first draw and second draw loans. Previously, borrowers were only able to utilize the profit reported on their annual tax returns, leaving unprofitable businesses ineligible to apply for a loan. In using gross income, expenses are left out, leaving a huge opportunity for businesses to obtain a loan and allow others to request a larger loan amount. For schedule C filers with employees, the borrower can calculate the owner’s compensation share of its payroll costs based on either net profit or gross income from their 2019 or 2020 Form Schedule-C minus payroll costs reported on line 14 (employee benefits), line 19(pension/profit sharing plans), and line 26 (wages), PLUS the average monthly payroll costs multiplied by 2.5. For those with no employees, the borrower may calculate the loan amount based on net profit or gross income (not exceeding $100,000) from their 2019 or 2020 Schedule C on their Form 1040 divided by 12 and multiplied by 2.5. Limitations on payroll costs may apply. First & second draw owners’ compensation cannot exceed $20,833. To eliminate the potential for fraudulent activity, a Schedule C filer that reports more than $150,000 in gross income to calculate its first-draw loan will not be able to claim the economic necessity safe harbor. The borrower will not automatically be deemed to have made the statutorily required certification concerning the necessity of the loan request in good faith. The borrower may also be subject to review by the SBA of its certification. The SBA may be more likely to have other available options of liquidity to support their business operations more so than the Schedule C filers with lower levels of gross income. Also keep in mind that for limited liability companies with only one member and treated as a disregarded entity for federal tax purposes that file a Schedule C will consider it member as the sole proprietor and owner of the applicant. If the applicant is presented as a qualified joint venture, both spouses will be considered sole proprietors and owners of the applicant.
Additionally, the new IFR, backed by the Biden Administration, also changes its eligibility rules to remove limitations preventing PPP loans to small business owners with past nonfraud felony convictions, who are delinquent in student loans and lawful residents who are deemed eligible to apply. All changes and more have been updated on the new PPP Loan application form for Schedule C filers. (Form 2483-C & Form 2483-SD-C) Any PPP Loan applications submitted prior to March 3rd will abide by the rules provided at the time of application.
New Stimulus Bill & Potential Deadline Extensions
With tensions on the rise and the potential passing of a third stimulus bill, totaling $1.9 trillion dollars, the AICPA is urging Congress to extend the April 15th tax deadline & the March 31st PPP deadline to allow borrowers more time to continue utilizing the provided financial support and provide individuals and entities with more time to prepare for the 2020 tax filing year. The tax filing deadline has already been extended to June 15th for taxpayers in Texas due to the recent Winter storm. All estimated payments are also due June 15th.

Over the weekend, the Senate approved the $1.9 trillion stimulus package and has sent it back to the House for their final vote expected to happen Tuesday, March 9th. If approved, the bill will be sent to President Biden for his signature of approval sometime this week. The package could add an additional $50 Billion to the Paycheck Protection program, $465 Billion in direct payments, ($1,400 per person including all children and adult dependents; phaseouts will apply) along with billions of other dollars for other purposes. The president’s signature deadline is March 14th.
If you are curious as to whether you may be able to utilize the ERC or obtain a first and/or second draw PPP loan, now is the time to act. Do not hesitate to contact our office for additional information and assistance with your application & forgiveness processes. We are more than happy to help you take advantage of all possible aid to help put your business back on the right track. Call us today!
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One Sugar Creek Center Blvd., Suite 650
Sugar Land, TX 77478
(281) 491-8866 Fax (281) 491-8998