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As we continue to work with companies regarding the various stimulus programs available as a result of the Consolidated Appropriations Act (CAA) signed on December 27th, 2020, we wanted to share a planning tip for companies that qualify for both PPP loans (round 1 or round 2) and the newly expanded Employee Retention Credit program (ERC).
The CAA made important changes to the Employee Retention Credit Program that expanded the availability of this credit to many companies that were not previously eligible under the CARES Act. If your business qualifies for both PPP and ERC (see attached flow charts to evaluate your eligibility), planning may help you maximize your benefits from the programs. The following are important to consider when executing your plan:
Timing of when to apply for and receive PPP funding.
Timing of wages paid in the PPP program covered period to ensure as many wages as possible remain eligible for the Employee Retention Credit.
Optimizing which eligible expenses to use when applying for PPP forgiveness.
Evaluate your company’s situation and should you determine that you are eligible for both programs, carefully consider how they interact with each other to maximize your benefit. We are available to consult with you on these programs should you need assistance. Please reach out to your contact at Harding Shymanski if you need assistance.
On January 20th, the SBA released updated PPP forgiveness forms including a new one-page form for loans under $150,000. These forms may be used for applying for forgiveness for the original PPP loans and 2nd draw PPP loans.
This form can be used for borrowers with loan amounts of $150,000 or less, even those borrowers with combined loans to affiliates totaling $2 million or more. Unlike the long form 3508, SBA Form 3508S requires fewer calculations and less documentation for eligible borrowers. SBA Form 3508S does not require borrowers to show the calculations used to determine their loan forgiveness amount. However, SBA may request information and documents to review those calculations as part of its loan review or audit processes. This requirement indicates that although the $150,000 form is easier to complete, the borrower must still perform the cumbersome forgiveness calculations unless they are under $50,000 or meet the same requirements of the 3508EZ form (did not reduce wages more than 25% and did not reduce FTE’s).
Borrowers can use this form to apply for forgiveness of a First or Second Draw (PPP) Loan if the Borrower’s PPP loan amount is more than $150,000 and the Borrower did not reduce annual salary or hourly wages of any employee (making less than 100,000 in 2019 on an annualized rate) by more than 25 percent during the Covered Period compared to the most recent full quarter before the Covered Period AND The Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (when excluding FTE and hours reductions allowed to be excluded under Safe Harbor 1 rules)
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).
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.
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.
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.
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 NOTHINGis 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.