Dear Clients:
We hope you are all staying safe, healthy and adjusting to the impact of COVID-19. It has now been six weeks since the CARES act was signed on March 27, 2020 and much has changed since then. The rules and regulations related to the CARES Act and subsequent bills continue to evolve as the US Treasury, Small Business Administration and IRS understand how to implement the provisions of the CARES Act.
We are here to support you during these difficult times and should you have any questions we are not addressing in this email please reach out to our COVID-19 team at
Covid19@mggcpa.com.
Update on Paycheck Protection Program (PPP)
Status of the Program:
It is our understanding that at this time there is still available money for PPP loans and the program is still accepting loan applications. We encourage you to submit your application with your bank as soon as possible or find an eligible SBA lender at this
link
here. Please read our past PPP articles on our COVID-19 knowledge center
webpage
for guidance on the loan amount calculation.
SBA FAQs:
The SBA and the Treasury Department continue to update the PPP Loan FAQs and materials. Here are links to the most up to date information:
The
deductibility
on the expenses that were funded by the PPP Loan:
The IRS issued Notice 2020-32, stating taxpayers receiving loans through the PPP are not permitted to deduct normally deductible expenses to the extent the expenses were reimbursed by a PPP loan that was then forgiven. It is possible this will change as legislation is being introduced to make the expenses fully deductible.
Extension of Safe Harbor for returning PPP loan Funds:
If you received a PPP loan but after receiving your funding, you do not believe you are eligible for the PPP Loan and you cannot certify under penalty and perjury that "Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant" you have until May 14, 2020 to return the PPP loan funds with no penalty.
PPP Loan Forgiveness rules:
At this time the SBA and US Treasury have not issued formal guidance on the loan forgiveness. In absence of formal guidance we recommend you follow the framework previously provided by the SBA:
- The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 75% of the forgiven amount must have been used for payroll). Loan payments will also be deferred for six months.
- Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
Until authoritative guidance is issued by the SBA, here is a
link
to a loan forgiveness framework that has been provided by the American Institute of Certified Public Accountants (AICPA).
Once guidance is issued we will provide more information.
Recordkeeping of PPP Loan funded expenses:
In order to ensure maximum forgiveness of your PPP Loan (assuming all other conditions are met) we suggest you take the following steps:
- Setup a new bank account to hold your PPP loan funds
- Every time you pay something that is an eligible expense, track it on your books and record as a PPP loan funded expense and in each memo of the check or ACH payment notate PPP loan expense. These expenses include:
- Payroll Costs
- Mortgage interest on real or personal property
- Rent under a leasing agreement
- Utilities
- If a transaction is paid out of your regular operating account, the portion that is an eligible PPP loan expense (the eligible expense amount) should be computed and reimbursed by the PPP account to the regular operating account.
Update on Economic Impact Payment
The IRS and US Treasury are continuing to process economic impact payments. You can check your payment status by going to this
website
. If you have any questions about whether you are eligible for the payment here a
link
to the IRS FAQ webpage.
Update on Employee Retention Tax Credit
Interaction with Paycheck Protection Program:
An employer who received a PPP loan, but repays all of it back by May 14
th
, 2020 under the SBA limited safe harbor will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit, and therefore will be eligible for the credit if the employer is otherwise an eligible employer. You can find the definition of eligible employer
here
.
If multiple entities are treated as a single employer under the aggregation rules, any one of these entities that has received a PPP loan will disqualify all entities in the aggregated group for the Employee Retention Credit.
Update on Form 7200, Advance Payment of Employer Credits
A payroll reporting agent may sign Form 7200 for a client provided that it has the authority granted via Form 8655, to sign and file the employment tax return. Please inquire with your payroll provider on this.
Update on Form 941, Employer's Quarterly Federal Tax Return
The IRS has issued a
draft
o
f the Form 941 and
instructions
that will go into effect starting with the second quarter of 2020. The draft includes fields for reporting the COVID-19 federal employment tax provisions including the Social Security tax deferral and the employee retention credit under the CARES Act and the paid leave credits under the FFCRA.
Employers reporting the CARES Act employee retention credit and/or the FFCRA paid leave credits will need to complete the new Form 941, worksheet 1 (not yet available).
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We wish you and your loved ones continued good health and safety. We are grateful that everyone at MGGGY is still able to connect with you during these unprecedented times. Please don't hesitate to contact us if you have any questions and concerns. We are here for you.
CC mgggy newsletter release 2020-13
