This overview below will cover important points about the new Paycheck Protection Program, Employer Retention Tax Credits, FFCRA credits, unemployment, and stimulus checks. With this information, you will be prepared to speak with your professional advisors about how these initiatives may benefit you and your business. We are expecting new guidance to be issued by the SBA within the first week of January 2021 that will clarify further details.
Please note that while we are sharing what we currently know, some details are still changing. We will continue to keep you updated as additional information becomes available. This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for legal or tax advice.
PAYCHECK PROTECTION PROGRAM: ROUND 2
Here are the highlights:
- For PPP2, eligible borrowers must employ no more than 300 employees. It includes all employees, both part-time and full-time.
- The borrower must show a 25% reduction in gross receipts in any quarter of 2020 from the corresponding quarter of 2019.
- Loans under $150k will get a much simpler, one-page forgiveness application with no back-up documentation necessary. We should know more about the application within the month.
- The expenses that the borrower paid using PPP1 loan monies are now tax deductible even though the loan is forgivable.
- The borrower does not need to have received or applied for forgiveness in order to apply for PPP2 but will need to certify that the first round monies were used or will be used.
- You can apply for new PPP until the end of March 2021, or until funds run out.
- The loan monies must be spent within 8-24 weeks from when you get the loan, however, you can now choose any period over those weeks.
- Seasonal businesses, like summer camps, are now eligible to apply. Choose any 12-week period between February 15, 2019 and February 15, 2020 to calculate average monthly salaries. Bear in mind that you will have to spend the monies within 24 weeks of the loan, even if you are not ‘in season’.
Changes made to the original PPP that apply to Rounds 1 & 2:
- EIDL grants will no longer reduce PPP forgiveness.
- PPP2 expanded allowable expenses to include operating expenses necessary to operate remotely, property damage costs caused by protests, supplier costs and worker protection expenditures (e.g., plexiglass, masks and signage to maintain social distancing).
- Allowable payroll costs have also expanded. It now includes vision, dental and group life.
Here’s what stayed the same:
- PPP2 loans will still be required to certify that current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.
- The same affiliation rules probably still apply.
- The same FTE rules (maintaining employee headcount and safe harbors) probably still apply. We’ll know more when the SBA issues its guidelines.
- The loan amount is still 2.5 times the average qualified monthly salaries for 2019. If you are in the hospitality business (NAICS Code 72) the loan amount jumps to 3.5 times the average qualified monthly salaries for 2019.
Open questions about PPP:
- We reached out to the SBA to explain what is included in “gross receipts” – specifically as it relates to school lunch programs and provider healthcare relief funds.
- How will gross receipts will be determined - on a cash or accrual basis?
- We also asked the SBA to clarify whether businesses with more than 300 employees qualify if they meet the alternative size standards.
- Review your accounting records to see if you had a 25% decrease in revenue.
- Check if your employee count is less than 300.
- Reach out to the bank that processed your first PPP round and ask them if you can use the same application for round 2, and what other documentation is needed.
EMPLOYEE RETENTION TAX CREDIT
Many individuals and businesses may rush to take advantage of the new round of PPP, but the new Employee Retention Credit being offered may prove to be even more advantageous. The Federal Government wants to encourage businesses to keep on paying their employees. You may qualify for this credit if your business experienced a significant decline in revenue or was shut down by government order.
The credit is for qualified wages paid after March 12, 2020 and before July 1, 2021. There are big differences between the credit as applied to 2020, and as applied to 2021.
Advantages of ERTC over PPP:
- It does not require certification of necessity.
- You do not need to apply with the bank or SBA. It is handled directly by IRS on your payroll tax return.
- There is no forgiveness application.
- The money will not “run out”; it is a credit on your payroll taxes.
- There is no maximum number of employees (although it might make a difference in the calculation of the credit).
Bottom line: How much of a credit can I get?
For 2020 the max is $5,000 per employee and for 2021, $14,000 per employee. This can add up to a lot of money!
In many cases, this credit can exceed the PPP amount, especially in 2021. However, it is important to know that you can’t claim the same wage dollars for both ERTC and PPP forgiveness (no double dipping).
Other important considerations:
- A business needs to make sure they are not taking PPP, ERTC and FFCRA on the same dollars. They all have different rules and regulations that apply to each of them. Since you cannot get both the retention credit and PPP on the same dollar spent, you might need to make a calculation which will be more beneficial for your individual business.
- Another important caveat to consider: Clergy pay is not considered qualified wages for this credit. Consider this if much of your staff is being paid parsonage.
- If your credit exceeds your income, you will get that excess refunded from the Government.
- You may be able to get an advance on this credit if you believe you are eligible.
Regarding qualifying for and calculating the credit: There are numerous variables and details that are beyond the scope of this update. The variables include which year the credit is being taken for, how many full-time employees the company averaged in 2019 and how significant the drop in gross receipts was for the business. Please check with your professional advisors so that you can properly determine whether you would qualify for this tremendous credit, and how it would potentially interact with the PPP. The IRS does a good job at explaining the 2020 credit with examples and FAQs.
FAMILIES FIRST CORONAVIRUS RESPONSE ACT
The Families First Coronavirus Response Act (FFCRA) is a mandate that provided emergency sick leave to employees for up to two weeks due to COVID, and up to an additional ten weeks if they missed work due to caring for a child that was home because of school closures.
How it works:
- The Federal Government then provided a dollar-for-dollar credit on payroll taxes that refunds the business the amounts they paid to employees for this qualified leave.
- FFCRA is subject to rules and regulations about how much credit can be claimed and what documentation is needed.
- While employers are no longer required to provide emergency sick leave after 2020, there is an extension of the tax credit until March 31, 2021, should a business choose to provide this leave.
The Federal Government extended unemployment benefits and will be supplementing regular state unemployment benefits by $300.
THE STIMULUS CHECK
Individuals earning less than $75,000 or $150,000 as a couple (based on your 2019 income) will receive $600 each, including qualifying children. Direct deposits have already started!
Roth&Co is committed to keeping you apprised of all provisions that may benefit you, your business or your organization. We will provide more information as it becomes available.
This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.