Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) Flowcharts

We wanted to share some information with you about the ERC (a payroll tax credit) and PPP in case you were wondering if either might apply to your business. We will be talking about this as well as other topics and items on our webinar January 12th but wanted to get a few decision flowcharts in front of you on these topics to help guide you if your business is eligible to take advantage of these programs.

Employee Retention Credit: There is a potential payroll tax credit for the first two quarters of 2021 and a potential retroactive payroll tax credit for 2020 available as well. The below decision flowcharts (one for 2020 and one for 2021) will help you determine if you might be eligible for this in either 2020 or 2021 (the rules are different for 2020 and 2021 thus the need for two different flow charts).

Employee Retention Credit 2020

Employee Retention Credit 2021

Did you obtain an original PPP Loan and use (or intend to use) all the proceeds as required? The below decision flowchart will help you determine if you might be eligible for a second draw PPP loan.

Paycheck Protection Program Flowchart 2021

Register here for our webinar on January 12, 2021,11:00 ET,10:00 CT.

If you have any questions on the decision flowcharts please contact Matt Folz, CPA for ERC mfolz@hsccpa.com or Scott Touro, MBA for PPP stouro@hsccpa.com

SBA and Treasury Announce PPP Re-Opening; Issue New Guidance

WASHINGTON – The U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced today that the Paycheck Protection Program (PPP) will re-open the week of January 11 for new borrowers and certain existing PPP borrowers. To promote access to capital, initially only community financial institutions will be able to make First Draw PPP Loans on Monday, January 11 and Second Draw PPP Loans on Wednesday, January 13. The PPP will open to all participating lenders shortly thereafter. Updated PPP guidance outlining Program changes to enhance its effectiveness and accessibility was released on January 6 in accordance with the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act.

This round of the PPP continues to prioritize millions of Americans employed by small businesses by authorizing up to $284 billion toward job retention and certain other expenses through March 31, 2021, and by allowing certain existing PPP borrowers to apply for a Second Draw PPP Loan.

“The Paycheck Protection Program has successfully provided 5.2 million loans worth $525 billion to America’s small businesses, supporting more than 51 million jobs,” said Secretary Steven T. Mnuchin. “This updated guidance enhances the PPP’s targeted relief to small businesses most impacted by COVID-19. We are committed to implementing this round of PPP quickly to continue supporting American small businesses and their workers.”

“The historically successful Paycheck Protection Program served as an economic lifeline to millions of small businesses and their employees when they needed it most,” said Administrator Jovita Carranza. “Today’s guidance builds on the success of the program and adapts to the changing needs of small business owners by providing targeted relief and a simpler forgiveness process to ensure their path to recovery.”

Key PPP updates include:

  • PPP borrowers can set their PPP loan’s covered period to be any length between 8 and 24 weeks to best meet their business needs;
  • PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures;
  • The Program’s eligibility is expanded to include 501(c)(6)s, housing cooperatives, direct marketing organizations, among other types of organizations;
  • The PPP provides greater flexibility for seasonal employees;
  • Certain existing PPP borrowers can request to modify their First Draw PPP Loan amount; and
  • Certain existing PPP borrowers are now eligible to apply for a Second Draw PPP Loan.

A borrower is generally eligible for a Second Draw PPP Loan if the borrower:

  • Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses;
  • Has no more than 300 employees; and
  • Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020.

The new guidance released includes:

For more information on PPP second draw please contact Scott Touro, MBA at stouro@hsccpa.com

A Business Guide to the December Federal Coronavirus Relief Package

On Sunday night, President Trump signed the coronavirus relief and government funding bill into law, but sent it back to Congress with a redlined version of the bill asking for changes. Everyone is uncertain whether Congress will make any or all of the his requested changes. However, below is a summary of the bill.

On Dec. 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, containing one of the largest relief packages in history at more than $900 billion. This relief package provides direct payments of up to $600 to individuals, restores the Federal Pandemic Unemployment Compensation at $300 per week, provides additional funding for the Small Business Administration’s Paycheck Protection Program while allowing for certain borrowers to draw a second round of PPP funding, and includes grants for shuttered live venue operators. This bill also ensures tax deductibility for expenses paid with forgiven PPP loan money.

The 5,593-page legislation also includes an extension of several provisions of the Coronavirus Aid, Relief and Economic Security Act, including paid sick and family leave credits, the employee retention credit, the airline payroll support program, and more.

The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (part of the Consolidated Appropriations Act) includes $284 billion in additional funding for the PPP, $15 billion in grants for shuttered venue operators and $20 billion in new Economic Injury Disaster Loan Assistance (EIDL) grants for eligible entities located in low-income communities. High-level details on each are included in this program overview from RSM.

If you have any questions please contact Kathy Ettensohn, CPA at kettensohn@hsccpa.com or Mike Vogel, CPA at mvogel@hsccpa.com.

IRS issues standard mileage rates for 2021

The Internal Revenue Service issued the 2021 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on January 1, 2021, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

  • 56 cents per mile driven for business use, down 1.5 cents from the rate for 2020,
  • 16 cents per mile driven for medical, or moving purposes for qualified active duty members of the Armed Forces, down 1 cent from the rate for 2020, and
  • 14 cents per mile driven in service of charitable organizations, the rate is set by statute and remains unchanged from 2020.

The standard mileage rate for business use is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

To read the full articles, click here.

What is in the Second Stimulus Package?

Leaders of Congress have reached an agreement on a $900 billion pandemic relief bill. This will include enhanced unemployment benefits and additional direct cash payments to individuals under a certain income level. It is unclear what that income level is at this time.

Here is what we know so far. Please remember NOTHING is final at the time this was written.

Stimulus Checks
This package includes direct stimulus payments of $600 to individuals, the stimulus will once again be sent to people below a certain income level. As of Sunday night, this level has not been set. Eligible families will also receive an additional $600 per child.

Unemployment Benefits
Under this new package, unemployed individuals would receive a $300 weekly federal enhancement in benefits for 11 weeks, from the end of December through mid-March. This agreement also extends, the Pandemic Unemployment Assistance program to include benefits to gig workers, freelancers, independent contractors, and the self-employed and certain others affected by Coronavirus. The Pandemic Emergency Unemployment Compensation program will provide an additional 13 weeks of payments to individuals that have otherwise received all benefits.

Small Business Loans
This bill would reopen the Paycheck Protection Program. This means that some of the hardest hit small businesses will be able to apply for a second PPP loan. The PPP loan program will be expanded to include eligibility for nonprofits organizations, news outlets and independent restaurants. This second package, also, carves out $15 billion for live venues, independent movie theaters and cultural institutions, which were not included in the first package.

Businesses that received a PPP loans in the spring with the first round of PPP loans and have had them forgiven, will be allowed to deduct the costs covered by those loans on their federal tax returns. While the issue had been a point of contention, Sen. John Thune (R-S.D.) said the costs would be deductible under the final agreement.

Funding for Schools and Childcare
This would provide $82 billion in aid for K-12 schools and colleges, with an additional $10 billion included for childcare providers.

Nutrition Assistance
This package would raise SNAP benefits by 15% for six months, this does not expand eligibility. This bill would also expand the Pandemic EBT program to families with children under age 6, deeming them “enrolled” in childcare – which makes them eligible for benefits.

Vaccine Funding
The agreement provides $20 billion to purchase vaccines so that be available at no charge and $8 billion for vaccine distribution.

This bill does not include any direct aid to state and local governments.  

Information for this article was gathered from CNNPolitics article Second stimulus package: See what’s in it.

If you have any questions please contact Kathy Ettensohn, CPA at kettensohn@hsccpa.com or Mike Vogel, CPA at mvogel@hsccpa.com.

2020 Holiday Hours

We will be closing our offices in celebration of the Christmas and New Year’s holidays. Our holiday schedule will be:

  • December 24 (Thursday) – Closed
  • December 25 (Friday) – Closed
  • December 31 (Thursday) – Offices will close at 4:00 p.m. local time
  • January 1 (Friday) – Closed

From our family to yours, we wish you a very Merry Christmas and prosperous New Year!

IRS Issues Additional PPP Deductibility Guidance with Safe Harbor

While it may not be the guidance that some borrowers were hoping for, the IRS released Rev. Rul. 2020-27, which holds that taxpayers should not deduct PPP funded expenses in the year the expense was paid or incurred regardless of whether the taxpayer has sought forgiveness on the loan. In addition, the IRS issued Rev. Proc. 2020-51, which provides flexibility on how taxpayers that are denied PPP forgiveness or forego PPP forgiveness can deduct PPP funded expenses.

Under the revenue ruling guidance, PPP borrowers obtained PPP loans with the expectation of reimbursement. In other contexts, this expectation of reimbursement is sufficient enough to disallow a deduction, and the revenue ruling holds this logic is similar for PPP expenses. For example, a law firm advancing funds to clients to be repaid upon a successful outcome has been denied the ability to claim a deduction for the expenses paid with the advance as the advances really operate as loans. Another example is when an expense is paid or incurred for which the taxpayer has received prior authorization to incur such expense.

In addition, the ruling holds that PPP expenses would also be considered nondeductible as a result of an allocation to tax-exempt income. The Service states it does not matter whether loan forgiveness is obtained prior to year-end as expenses are allocable to tax-exempt income regardless of whether such tax-exempt income is received or not.

The above ruling will have a particularly unwelcome effect on taxpayers who claim an R&D credit. Losing the ability to deduct a research expense (because of PPP loan forgiveness) means that the expenditures will not be eligible to be treated as a section 174 expense or included into an R&D credit claim. There was optimism that forgiveness in a subsequent year might allow such a deduction and R&D credit claim in the current tax year, but Rev. Rul. 2020-27 makes it clear that is not the case. Similarly, the non-deductibility of wages will have an impact on 199A deduction limitations.

Perhaps surprising to some PPP borrowers is that the IRS does not distinguish its guidance based upon the size of the loan. As many borrowers are acutely aware, SBA is starting to issue requests to complete a loan necessity questionnaire, which is causing concern with borrowers due to the nature of questions being asked.

The IRS also released a revenue procedure which provides a safe harbor as to how a PPP borrower is to recover a disallowed deduction. Under this safe harbor, a PPP borrower that has its loan forgiveness denied, in whole or in part, or forgoes seeking loan forgiveness can recover the deduction as follows:
1. On the 2020, taxable year timely filed (including extensions) original income tax return.
2. Through an amended 2020 taxable year income tax return or AAR adjustment, as applicable.
3. On the income tax return in a year subsequent to the 2020 taxable year.
A statement is required for the safe harbor should a borrower need to avail itself of the revenue procedure.

Overall, the nondeductibility of expenses paid with PPP forgiven funds is a controversial subject as many feel Congress intended the expenses to be deductible. As borrowers wait for Congressional action to fix the deductibility issue, at least there is now authoritative guidance for borrowers to rely upon as to the timing of nondeductibility.

More details can be found in the Forbes article, IRS Crushes Hopes Of Deducting PPP-Paid Expenses Before Forgiveness Approval; But Questions Remain, written by Tony Nitti

If you have any questions please contact John Rittichier, CPA at jrittichier@hsccpa.com or Mike Vogel, CPA at mvogel@hsccpa.com.

Congratulations to our NEW Manager and Senior Managers

Congratulations to all our employees that were promoted at our recent State of the Firm!

From left to right, Tax Department: Michael Bramer, Manager, Cory Reffett, Senior Manager, Derek Sizemore, Senior Manager.

We are so grateful to our hard working team! Congratulations to all!

Congratulations to our NEW Supervisors

Congratulations to all our employees that were promoted to Supervisor at our recent State of the Firm!

From left to right, A&A Department: Jessica Gesselman, Drew Zuckerman, Laura Boden, Mitchell Meurer. Tax Department: Adam Caldwell, Esme Allen, Diane Claybon, Seth Ferguson, Susan Theising. Outsourcing Department, Client Accounting Implementation Expert: Jeremy Wann. Marketing Department: Senior Marketing Coordinator: Leslie Wight.

We are so grateful to our hard working team! Congratulations to all!

Congratulations to our NEW Senior Associates

Congratulations to all our employees that were promoted to Senior Associate at our recent State of the Firm!
 
From left to right, A&A Department: Cassie Muensterman, Montana Taylor, Rachel Coleman, Ryan Clark, Taylor Brown, Tessa Dent, Jeremy King. Tax Department: Justine Suanes, Miranda Norman. Outsourcing Department, Client Accounting Specialist: Megan Wildeman.
 
We are so grateful to our hard working team! Congratulations to all!