We recently wrote a PayDay with our first observations on the new pandemic stimulus law. We suggest that you read our previous PayDay for some basic information about PPP loans, loan forgiveness, the vastly improved employee retention tax credits, and the extension of the FFCRA sick/leave pay tax credits pertaining to COVID. THE PURPOSE OF THIS PAYDAY IS TO PROVIDE ADDITIONAL INSIGHTS AS TO HOW YOU CAN BENEFIT FROM THE NEW PANDEMIC STIMULUS LEGISLATION SIGNED INTO LAW ON DECEMBER 27, 2020. This legislation is complex and employers should engage their CPA/consulting firms and their SBA lenders to help them “make the most” out of this new law——Our attempt is to condense very complex legislation into conversational language and practical action steps which all employers can understand and take prompt action on.
The Consolidated Appropriations Act (CAA) provides for $284 Billion of new money allocated for both new and second draw PPP loans for employers who qualify for the PPP loans. New PPP loans, and so called “second draw” PPP loans are now open to employers who use “community financial institutions,” which are geared to provide PPP loans to economically depressed, low income areas—–both first and second draw PPP loans will be available by more traditional lenders “in the very near future,” per the SBA—–SO keep in contact with your SBA lender/bank as to when they will open their portals up for you. ALL EMPLOYERS SHOULD NOW BE DISCUSSING WHAT THE EMPLOYEE RETENTION TAX CREDITS mean to them, both retroactively to 2020 as well as the first 6 months of 2021. The ERC tax credits is a “hidden gem” in the CAA for those employers who qualify for the ERC tax credits—-which can be massive in amount for those who qualify!!
IMPORTANT—the deadline for applying for both first draw (original) and second draw (round 2) PPP loans is March 31, 2021. First come, first serve!
EMPLOYERS WHO DID NOT RECEIVE A PREVIOUS PPP LOAN—-SO CALLED “FIRST DRAW” PPP LOANS
The CAA extends the deadline for applying for the original PPP loans from August of 2020 to March 31, 2021. Those employers with 500 or less employees who did not receive a previous PPP loan can now apply for the “original PPP loan” under similar conditions to the original terms. The amount of the loan is 2 1/2X average monthly payroll costs with a “cap” of $10 million. IF an employer has a NAICS classification code starting with “72”, their loan amount is based on 3 1/2X their average payroll costs, or 40% more than other employers. The larger 3 1/2X loan amount includes restaurants, bars, motels/hotels, caterers and inns. Payroll costs have the same definition as the original CARES Act law, PLUS group insurance premiums for dental, vision, life and disability paid by the employer can now also be included in the calculation of “payroll costs” (NOTE—read AccuPay’s previous PayDay’s about how to determine/calculate your average monthly “payroll costs”). Employers can use a monthly average for calendar year 2019 or 2020 to determine their average payroll costs (choose the year with higher payroll costs!). OF SPECIAL NOTE IS THAT 501c6 ORGANIZATIONS ARE NOW ELIGIBLE FOR PPP LOANS, WHICH THEY WERE NOT PERMITTED TO RECEIVE IN THE CARES ACT PROVISIONS. This means that Chambers of Commerce, trade associations, and all organization exempt under Code Section 501c6 can now apply for a PPP loan UNLESS the organization is primarily involved in political or lobbying activities. We know of several 501c6 clients of AccuPay, originally excluded from PPP round 1, who can now apply under the new CAA provisions.
IMPORTANT—SBA Form 2483 is the application form for First Draw PPP loans and you can download a copy here.
EMPLOYERS WHO RECEIVED AN ORIGINAL CARES ACT PPP LOAN——POSSIBLE SECOND DRAW PPP LOANS!!
The CAA provides that the “hardest hit employers” (think restaurants, gyms,travel industry, churches, retailers, etc) will qualify for MORE PPP loan funds IF they have any quarter in 2020 in which the gross receipts for the quarter (often Q2 of 2020) were reduced by at least 25% as compared to the identical quarter in 2019. Additionally, eligibility for second draw PPP loans requires that the employer has already spent all of their round 1 PPP loan funds on expenses which were eligible for PPP loan purposes.
Second draw PPP loans are only available for employers with 300 or fewer employees and are “capped” at $2 million. Like the original PPP loans, second draw PPP loans are eligible for loan forgiveness if used for “eligible expenses” and at least 60% of the funds spent are for “payroll costs.”
IMPORTANT—-Both first draw and second draw PPP loans can be spent on a list of defined costs (includes some additional categories of cost plus the same costs as were detailed in the original PPP loans) over any selected time frame from 8 weeks through the end of 24 weeks from date of loan origination.
IMPORTANT—-Both first draw and second draw PPP loans can be forgiven from repayment and the debt forgiveness is not taxable income—and the expenses paid from both first draw and second draw PPP loans can be deducted for income tax purposes.
IMPORTANT—-SBA Form 2483-SD is the application form for Second Draw PPP loans and you can download a copy here.
IMPORTANT TO REDUCE TIME IN APPLYING FOR SECOND DRAW PPP LOANS—–IF AN EMPLOYER APPLIES FOR A SECOND DRAW PPP LOAN AND USES THE SAME SBA BANK/LENDER, THEY CAN APPLY BASED ON THE SAME AVERAGE PAYROLL COSTS FROM 2019 THEY USED FOR THEIR FIRST PPP LOAN. THEY WILL NEED TO DOCUMENT THE QUARTER IN WHICH THEIR GROSS RECEIPTS DIPPED BY 25% OR MORE IN 2020 COMPARED TO THE IDENTICAL 2019 QUARTER ECONOMIC NECESSITY REQUIRED FOR ALL PPP LOANS—–SAME AS THE CARES ACT.
All PPP borrowers must certify that “Current economic uncertainty makes the PPP loan request necessary to support the ongoing operations of the applicant/employer.” The SBA has indicated that it will not “audit” the “necessity test” for loans below $2 million, but other agencies, such as the IRS, and personal “whistleblowers” could impact the borrower of PPP funds. Each PPP loan applicant should feel comfortable in making this attestation which is on all PPP loan applications.
BEFORE THE HIDDEN GEM EMPLOYEE RETENTION TAX CREDITS—-A FEW LESS SIGNIFICANT PROVISIONS IMPACTING EMPLOYERS
The Families First Coronavirus Relief Act (FFCRA) scheduled to end in 2020 has been extended through March 31, 2021. The FFCRA for 2021 no longer mandates employers to pay up to 80 hours/10 weeks of Covid related sick/family leave time BUT does provide a “make whole” payroll tax credit for those employers who choose to pay FFCRA wages to eligible employees during Q1 of 2021. Wages used for FFCRA purposes can not also be claimed as “payroll costs” for PPP loan forgiveness nor can they be used for “employee retention tax credit purposes”-—-BUT 100% of the employer’s cost to pay eligible COVID sick/family leave time off can be claimed as a credit against the employer’s Form 941 payroll tax deposits. Employees who have already been paid the maximum FFCRA wages in 2020 do not get a “refresh” or new start on eligible wages in 2021, but are eligible for FFCRA wages up to the original limit as provided in the FFCRA legislation from March of 2020. The DOL has a continually updated list of FAQ’s as to “who is eligible,” “for how much”, etc.
The employer option to defer/postpone the employer share of FICA taxes in 2020 ended as of 12/31/20 and has not been extended. As an employer, do you have the amount of deferred FICA taxes which you will need to pay in 2 equal installments at the end of 2021 and 2022?—-These “liabilities” should be recorded as such in your general ledger—–are they?
SIMPLIFIED LOAN FORGIVENESS FOR PPP LOANS BELOW $150K
Banks, CPA’s and employers have been advocates for simplified PPP loan forgiveness for loans below $150K. The CAA fulfilled those wishes by directing the SBA to draft a new loan forgiveness form for these smaller loans, which will make the forgiveness process much easier than for loans greater than 150K. The new yet to be released SBA forgiveness form will be limited to one page and will likely be similar to the existing SBA Form 3508-S for loans below $50K—-employers will not have to document decreases in headcount, wages, etc and very little “math” will be on the 1 page form—–it will mostly be borrower attestation that they used all of the PPP loan for eligible costs and at least 60% of the PPP loan was used to fund “payroll costs.” The SBA has indicated that it plans on releasing this new loan forgiveness form by January 20, 2021.
IMPORTANT—–Those employers who think they qualify for the employee retention tax credits (based on being shut down by government order OR experiencing a significant reduction in quarterly 2020 gross receipts compared to 2019 should HOLD OFF on applying for forgiveness UNTIL THEY FIRST CALCULATE THEIR ERC TAX CREDIT FOR YEAR 2020—-An employer can not use the same wages for both ERC and PPP loan forgiveness. If you do not anticipate claiming a retroactive 2020 ERC tax credit, the new form should make your forgiveness process easier.
POSSIBLE INCREASED AMOUNTS OF THE ORIGINAL CARES ACT FIRST DRAW PPP LOANS—-CHECK THIS OUT!
The CAA provided that “payroll costs” will include an employer’s cost for “group dental, vision, life and disability insurance premiums,” which were not part of the original definition of payroll costs. Employers who got the original first round CARES Act PPP loans can now revise/amend their original SBA application to include those fringe benefit costs in their original application, which will create an increased PPP loan (recall that the PPP loan is based on 2 12/X average monthly “payroll costs”). Employers who wish to amend their original filing to request an increased amount of original, first draw PPP loan funding should talk with their bank as to how to do this.
Employers who have received the Economic Injury Disaster Loans (EIDL) and who got the upfront advances of $1,000 per employee not to exceed $10,000, originally had to reduce their PPP loan forgiveness by the amount of their EIDL advances. The CAA now provides that PPP loan forgiveness is NOT required to be reduced by upfront advances on the EIDL loan, and those employers should talk with their SBA lender as to how to obtain a refund of their EIDL advances. The SBA has indicated that they will automatically calculate and remit to SBA lenders the EIDL advances to employers, but each employer who had reduced PPP loan forgiveness due to their EIDL loan should make sure they get the EIDL advances back!!
THE HIDDEN GEM—-EMPLOYEE RETENTION TAX CREDITS FOR BOTH 2020 AND 2021
All employers whose operations were partially or completely “shut down” by government order during 2020 (and also the first 1/2 of 2021) OR whose gross receipts during a quarter in 2020 decreased by greater than 50% as compared to the same quarter of 2019 (for January-June of 2021, the required quarterly decrease for Q1 and Q2 of 2021 compared to the same quarter in 2019 is only 20%) should engage their CPA firm/business advisor/lawyer to calculate how much they can receive in “employee retention tax credits” retroactively for year 2020 and also for the first half year of 2021 (expires July 1, 2021). The original CARES Act provided that recipients of PPP loans could NOT ALSO receive any ERC tax credits. The new CAA now enables employers who receive PPP first or second draw loans to ALSO calculate their ERC tax credits and claim them on their IRS 941 returns. This applies RETROACTIVELY to wages paid on/after March 12, 2020 and through June 30, 2021. A KEY PROVISION OF THE ERC IS THAT AN EMPLOYER CAN NOT USE THE SAME WAGES FOR BOTH PPP LOAN FORGIVENESS AND ALSO FOR ERC TAX CREDITS. Since most employers spend more on payroll costs during a 24 week “covered period” than what is needed to totally forgive their PPP loan, the “excess wages” not used for PPP loan forgiveness can now generate ERC tax credits. These credits can be claimed retroactively for 2020 as well as for January-June of 2021.
COORDINATION OF PAYROLL COSTS USED FOR PPP LOAN FORGIVENES WITH QUALIFIED WAGES USED FOR EMPLOYEE RETENTION TAX CREDITS
Employers who “qualify” for the employee retention tax credits (or who are not sure also!!) should engage their CPA firm or other business consultant to calculate how to optimize the ERC tax credit without reducing an employer’s PPP loan forgiveness. REMEMBER THAT YOU CANNOT USE THE SAME WAGES FOR BOTH ERC TAX CREDIT AND PPP LOAN FORGIVENESS PURPOSES. This requires that your CPA/consulting firm analyze your 2020 and 2021 employee wages and determine which wages qualify for PPP loan forgiveness and which wages qualify for ERC tax credits (both the PPP loan forgiveness provisions and ERC tax credits have specific timeframes they can be used). IF YOU QUALIFY FOR ERC TAX CREDITS AND ALSO DO NOT NEED ALL OF YOUR PAYROLL COSTS FOR COMPLETE PPP LOAN FORGIVENESS (many employers spend more on payroll/wages over 24 weeks than is “needed” to attain total PPP loan forgiveness—the excess is “not used” for PPP loan forgiveness), THEN the goal of tax/business planning by your expert advisors is to OPTIMIZE your ERC tax credits while ALSO attaining total forgiveness of your PPP loan.
SINCE THE VASTLY NEW/IMPROVED EMPLOYEE RETENTIION TAX CREDITS ARE COMPLEX AND CAN BE SIGNIFICANT IN AMOUNTS, and this PayDay I am writing has already become lengthy, below are links to a few excellent articles about the very significant employee retention tax credit with details—-AccuPay can claim your calculated ERC tax credit on payroll tax Form 941 (or amended 2020 quarterly filings) once we obtain your ERC amounts—here are the links to ERC details:
- Links to 2 excellent articles on the ERC as published in Forbes – Part 1/Part 2
- Link to an excellent comparison of the ERC 2020 and 2021 substantial differences–by a large/national CPA firm
AccuPay will more specifically address the employee retention tax credit in our next PayDay—We encourage you to talk with your CPA/business consultant/lawyer about the employee retention tax credit to see if you qualify and also to coordinate the ERC credit with PPP loan forgiveness. AccuPay has already received some ERC retro 2020 calculations from clients’ advisors, which we will claim on IRS 941 forms—-THIS ANALYSIS IS A MUST DO FOR THOSE WHO QUALIFY OR WONDER IF THEY QUALIFY (think restaurants, dental practices, hotels, travel agents, churches, etc) for the employee retention tax credits in addition to PPP loans.
Questions on this PayDay can be emailed to firstname.lastname@example.org
This PayDay is for educational purposes only and does not constitute tax and/or legal advice. Any links to external resources are for educational purposes only. AccuPay is not affiliated with nor receives any renumeration from any outside sources. Please consult with your tax and/or legal advisor before applying any suggestions made here or through external links.