The IRS and SBA have been implementing the COVID-19 relief and tax law changes enacted December 27, 2020. The legislation was extensive, and the changes numerous. This newsletter highlights funding and credit options that require attention in the short term. Additional items in the new law will be addressed at later dates.
NEW LIFE FOR A POPULAR PROGRAM
The Paycheck Protection Program (“PPP”) has been rebooted and is open for applications until March 31, 2021 (or when funds run out, if earlier). The primary appeal of accessing PPP funds continues to be that the loans, if spent properly, can be forgiven.
Interaction with Employee Retention Credit
If a business did not participate in the PPP program because it elected to use the Employee Retention Credit, it can now apply for PPP funds in ADDITION to taking the credit, provided the same payroll dollars are not used in both programs. Additional information on the Employee Retention Credit follows.
Spending the money
The requirements for how the money can be spent while remaining eligible for forgiveness have loosened up, but the objective of the program continues to be encouraging employers to retain their employees.
– Self-employed individuals and partners can be treated as employee equivalents under the program.
– Workers who are paid as independent contractors are not your employees and should file separately for their own loans.
The SBA has updated the relevant rules, links and dates on its main PPP webpage:
Reminder: Payroll Protection Program loans are provided through your bank. It is important to apply directly through an SBA approved lender. Be prepared to contact multiple lenders and remember to be persistent.
SBA lender match tool:
https://www.sba.gov/funding-programs/loans/lender-match
THE PPP NOW HAS SEPARATE “FIRST DRAW” AND “SECOND DRAW” PROGRAMS
FIRST DRAW PPP PROGRAM FOR NEW OR MODIFIED LOANS
Access under the first draw program is available to:
(1) enterprises that did not apply for or receive a PPP loan in 2020, but wish to do so now, and
(2) select previous borrowers who had returned some or all of their first draw loan, or did not accept the full amount for which they were eligible.
The definition of who qualifies now includes a few organization types that did not qualify under the earlier version of the law.
First draw program webpage:
First draw program top-line overview printable PDF:
First draw sample application (your lender may have their own version):
First draw calculation and documentation Q&A:
SECOND DRAW PPP LOANS FOR PREVIOUS BORROWERS
To qualify for second draw funding, businesses must have:
- spent all of their first draw on authorized uses (documentation will be required),
- have no more than 300 employees (this is lower than allowed for first draws), and
- be able to demonstrate an actual reduction in gross receipts. The reduction must be at least 25% when comparing one chosen quarter in 2020 to the same quarter in 2019.
Second draw program webpage:
Second draw program top-line overview printable PDF:
Sample second draw application (your lender may have their own version):
REMINDER: YOU HAVE TO ASK FOR FORGIVENESS
Loan forgiveness under the PPP program is not automatic; you must apply. To be timely, your PPP loan forgiveness application must be submitted within ten months from the end of your 8 or 24 week covered period. For those who received funds in the first offering and choose an 8-week covered period, that deadline can be as early as April, 2021. If you don’t remember when you received your funds, look up the date and mark your calendars for just shy of the same date in 2021.
FAQs released jointly by the SBA and Treasury Department:
https://www.sba.gov/document/support-frequently-asked-questions-ppp-loan-forgiveness
EIDL ADVANCES NO LONGER REDUCE PPP FORGIVENESS
Taxpayers who received $1,000 – $10,000 Economic Impact Disaster Loan (“EIDL”) advances from the SBA no longer have to reduce their PPP loan forgiveness by these amounts. If your loan forgiveness was completed before the change, contact your lender for possible adjustment.
SHUTTERED VENUE GRANTS
Performing arts venues, theaters, operators and representatives that have either been unable to operate due to COVID-19, or have suffered extreme losses in gross receipts, will be able to apply for Shuttered Venue Operator (“SVO”) grants through the Small Business Administration. Program implementation details are still under development, but SVO grants could prove to be higher than PPP loans for the same fact situations.
Watch the SBA SVO program webpage for more information:
CALIFORNIA SMALL BUSINESS GRANTS 2nd & FINAL ROUND FEBRUARY 2 – 8th
Active California small businesses and non-profits that missed round 1 are encouraged to apply for the California Small Business COVID-19 Relief Grant Program. Applications under the second and final round open February 2 and close February 8, 2021.
Eligible businesses must have been negatively impacted by the pandemic and have annual gross revenues below $2.5 million. Applicants will need to submit financial, tax return and ID information. If approved, the size of the award will be set by the annual revenue of the business. The maximum award is $25,000.
Complete program details, eligibility information, and application portal are available at: https://careliefgrant.com/
EMPLOYEE RETENTION CREDITS EXPANDED AND EXTENDED
Businesses who received loans under the Payroll Protection Program can now also receive Employee Retention Credits, although not on the same wage dollars used to calculate PPP loan forgiveness.
The Employee Retention Credit program has been extended to June 30, 2021.
Eligible business include:
- those whose operations were either fully or partially suspended by a COVID-19 government order, and/or
- those which experienced more than a 20% drop in gross receipts (previously 50%).
As of this print, the IRS webpages have not yet been updated to reflect the changes.
PayChex has an article describing the program and recent changes:
https://www.paychex.com/articles/compliance/employee-retention-credit
CLA provides a comparison of the old and updated programs:
PAID LEAVE PROGRAM EXTENDED
The coronavirus-related paid sick and family leave program has been extended through March 31, 2021. Businesses with fewer than 500 employees are required to offer paid leave under the program. Dollar for dollar federal payroll tax credits are available to offset the cost to employers (up to the stated maximums).
For self-employed individuals, an income tax credit is provided with similar maximums, but the refund won’t occur until filing annual personal income tax returns.
As of this print, the DOL and IRS web pages have not been updated for the date extension but otherwise continue to provide useful program details.
Program information:
REDUCING THE COST OF FORGIVENESS
Under theDecember law changes, expenses equal to the amount of PPP loan forgiven will no longer have to be disallowed for federal tax purposes. It is important to note, however, that California has NOT conformed to the correction and has not yet given any indication that they intend to. As a result, taxpayers still need to plan for their California taxable income to go up by the amount of their PPP loan forgiveness.
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DISCLAIMER
While we hope the contents of these alerts are helpful to our clients, these alerts are not intended to be advice upon which you should rely. Tax advice contained in these alerts is not intended to be used for, and cannot be used for, the purpose of avoiding penalties under the US federal tax laws. Inclusion of topics outside the scope of our normal service areas is intended to serve solely as a general starting point and should not replace consultation with experts in the related fields.