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PAYCHECK PROTECTION PROGRAM UPDATE

On December 27, 2020, the Consolidated Appropriations Act (CAA), 2021 was enacted, creating a second round of stimulus designed to aid individuals, families, and businesses impacted by COVID-19 as part of a larger appropriations bill.  This Act modified and extended the Paycheck Protection Program that was created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act. 

Initial Paycheck Protection Program Extended

The CARES Act created a new, potentially forgivable loan program to expand the Small Business Administration (SBA) loan programs currently in place.  This program is available for both for-profit and tax-exempt businesses with 500 or fewer employees (including independent contractors, sole proprietors, and self-employed individuals who report their income on Schedule C) that can certify in good faith that current economic uncertainty makes the loan request necessary to support ongoing operations.

These loans are intended to provide financial assistance to businesses impacted by COVID-19 that need help with certain specific expenses (such as U.S. payroll costs and ‘‘covered compensation,’’ including sick or medical leave, group health benefits, insurance premiums, retirement benefits, mortgage interest, rent, and utility payments, among others, as expanded by the CAA).  The CAA allocated additional funding to the initial PPP loan program to benefit those businesses that have not yet taken advantage of the PPP and extended the application deadline to March 31, 2021, unless funding runs out earlier.

Second Draw Paycheck Protection Program (PPP2)

For those businesses that received a PPP loan already and have used or will use the full amount, the CAA created a Second Draw PPP (PPP2). This program is specifically targeted at smaller, harder hit businesses (those that have 300 or fewer employees and at least a 25% reduction in gross receipts in at least one quarter of 2020 versus the same quarter in 2019).  And, under this program, businesses also have until March 31, 2021 to apply.

Maximum Loan Amount

In general, first- and second-time borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) for the previous 12 months or in 2019, up to a maximum of $10 million. 

Applicants must provide a Form 941, Employer’s Quarterly Federal Tax Return (or other forms with similar information) and state quarterly wage unemployment insurance tax reporting forms for each quarter in 2019 or 2020 (whichever is used to calculate the loan amount) or equivalent payroll processing records, along with evidence of any retirement and health insurance contributions. Schedule C businesses generally just need to provide a copy of their 2019 Schedule C.

A business not in operation on February 15, 2020 is not eligible to receive any PPP loans.  As before, neither PPP loan has SBA fees, neither requires a personal guarantee, nor both provide for deferral of payments.  Most importantly, both PPP loans are potentially completely forgivable.

 

Eligible Costs Expanded and Loan Forgiveness Simplified

PPP Borrowers can have their first- and second-draw loans forgiven if the funds are used on eligible costs during the forgiveness period.  As with the first round of the PPP, costs eligible for loan forgiveness in the revised PPP include payroll (including group health care coverage and retirement benefits), rent, covered mortgage interest, and utilities.  In addition, the following now also qualify as eligible costs:

  • Operating Expenses – relating to software/cloud computing; human resources; sales and billing; and accounting or tracking payroll, supplies, records, or expenses.
  • Costs to Repair Property Damage – caused during by looting/public disturbances that occurred in 2020 not covered by insurance.
  • Supplier Costs – Expenses to suppliers that are essential to operations.
  • Worker Protection and Facility Modification Expenses – Incurred to comply with COVID-19 health and safety guidelines.

PPP borrowers must still spend 60 percent of the loan amount on payroll expenses to be eligible for full forgiveness.  Additionally, the amount of loan forgiven is not subject to federal income tax.  And, business expenses continue to be deductible even when paid with PPP proceeds that are later forgiven and do not reduce the tax basis of these assets.

In addition, borrowers that receive PPP loans of $150,000 or less shall receive forgiveness if the borrower signs and submits to the lender a short certification that includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.  

Schedule C (Sole Proprietors) do not need to have any payroll or the other expenses.  They can get a maximum of 20.8% of their 2019 income capped at $20,833. The application is easy and the forgiveness is easy. For a second PPP, they would have to show the decrease in quarterly revenue to qualify.

The SBA has yet to create the simplified application form but must do so by January 20, 2021.  The form may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements.  Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.

How to Apply 

  • Contact your bank or download the application at treasury.gov.
  • WE RECOMMEND YOU DEAL WITH YOUR BANK ON THIS. THERE ARE A LOT OF SHADY LOAN COMPANIES PROMOTING SBA LOANS THAT YOU SHOULD STEER CLEAR FROM.

IMPORTANT TAX CREDIT INFORMATION

You may be entitled to A tax credit if you paid employees while they were OUT SICK OR on leave due to Covid

or

IF YOU are self-employed and were unable to perform services due to dealing with Covid

 Payroll Tax Credits for Employers with Employees

Employers qualify for refundable credits against their portion of the FICA tax for wages paid to employees while on leave due to Covid.  The credits apply only to wages paid between April 1, 2020 and December 31, 2020 using non-PPP forgiven funds. 

 Sick leave credit. An employer is allowed a credit equal to 100% of sick leave wages paid for the quarter, subject to limits based on the circumstance of the leave. The credit is limited to $511 per day ($5,110 in total) for sick leave paid for an employee who is unable to work because he or she is:

  1. subject to a federal, state, or local quarantine or isolation order;
  2. advised by a health care provider to self-quarantine due to coronavirus concerns; or
  3. experiencing coronavirus symptoms and seeking a medical diagnosis.

The credit is limited to $200 per day ($2,000 in total) if the sick leave is for an employee who is caring for an individual described in item 1 or 2, caring for a son or daughter whose school or place of care is closed or the childcare provider is unavailable.

Family leave credit. An employer is allowed a credit equal to 100% of qualified family leave wages paid for the quarter, limited to $200 per day with a maximum of $10,000 per eligible employee. The credit can be claimed for up to 10 weeks of an employee's qualifying leave.

Eligible employers claim these credits on their federal employment tax returns.  If you qualify for a credit but did not claim the credit you can do so by amending the last Employer's QUARTERLY Federal Tax Return (Form 941) that you filed in 2020.

THESE CREDITS ARE NOT CLAIMED ON YOUR INCOME TAX RETURNS. YOU HAVE TO CLAIM THEM ON YOUR PAYROLL TAX RETURNS (FORM 941 OR 941X).

Tax credits for Self-Employed Individuals.

PLEASE READ BEFORE WE FILE YOUR INCOME TAX RETURNS

Self-Employed are eligible for sick leave and family leave refundable credits who could not work due to dealing with Covid.  The credits apply only to days occurring during the period beginning on April 1, 2020 and ending on December 31, 2020. 

Sick leave credit. Self-employed individuals are allowed an income tax credit for a qualified sick leave equivalent amount. The qualified sick leave equivalent amount equals the number of days (up to 10) that the self-employed individual cannot perform services and would have been entitled to receive paid sick leave if he were an employee.

The credit is limited to the lesser of 100% of average daily self-employment income, or $511 per day if the self-employed individual is:

  1. subject to a federal, state, or local quarantine or isolation order related to COVID-19;
  2. advised by a health care provider to self-quarantine due to coronavirus concerns; or
  3. experiencing coronavirus symptoms and seeking a medical diagnosis.

The credit is limited to the lesser of 2/3 of average daily self-employment income, or $200 per day for a self-employed individual who is caring for another individual described in item 1 or 2, caring for a son or daughter whose school or place of care is closed or the childcare provider is unavailable.

Family leave credit. This provision for self-employed individuals allows an income tax credit for a qualified family leave equivalent amount. The qualified family leave equivalent amount equals the number of days (up to 50) that the self-employed individual cannot perform services and would have been entitled to receive paid leave if he were an employee, multiplied by the lesser of 2/3 of average daily self-employment income, or $200. 

Self-Employed individuals file Form 7202 with Individual Income Tax Returns to claim their qualified sick and family leave equivalent credits. If you qualify, let us know immediately in that these credits are claimed on your 2020 income tax returns.

We will be happy to work with you to see if you qualify and assist you with filing the necessary forms to obtain the credits. These credits can amount to a fair amount of money and we want to make sure they are not overlooked.

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