Legislation provides other business relief provisions
Here’s what you need to know about the Paycheck Protection Program (PPP) loans and other business relief provisions of the recently-passed American Rescue Plan Act.
PPP loan application deadline extended. The deadline to apply for PPP loans is now May 31, 2021.
Sick leave extended. If your business provides sick leave for COVID-related reasons, you might get reimbursed for the sick pay through a tax credit.
Businesses which voluntarily provide sick leave through September 30, 2021 qualify for the credit. There are limits for each employee. However, for employees who took 10 days of sick leave in 2020 using this same provision, they can take another 10 days beginning April 1, 2021.
Refundable tax credits are available through September 30, 2021.
Covered reasons to get the tax credit now include sick leave taken to get COVID testing and vaccination, and to recover from the vaccination.
These benefits are also extended to self-employed workers.
Family Medical Leave Act Provisions extended.
Additional coverage is now available through September 30, 2021.
Qualified wages for this provision move to $12,000 (up from $10,000) however the credit was not increased.
The Family Medical Leave Act also applies to the self-employed.
Big increase in Employee Retention Credit.
Businesses can get up to a $28,000 tax credit per employee in 2021, up from a $5,000 maximum credit in 2020. This credit can be claimed through Dec. 31, 2021.
There are many more provisions in the close to $2 trillion dollar spending package, including money given to states. As everyone digests this new 500-plus page piece of legislation, more clarifications will be forthcoming from the IRS and other sources.
If you or your business received funds from the Paycheck Protection Program (PPP), the recently passed Emergency Coronavirus Relief Act of 2020 will help to dramatically cut your tax bill. Here’s what you need to know.
The PPP program was created by the CARES Act in March 2020 to help businesses which were adversely affected by the COVID-19 pandemic. Qualified businesses could apply for and receive loans of up to $10 million. Loan proceeds could be used to pay for certain expenses incurred by a business, including salaries and wages, other employee benefits, rent and utilities.
If the business used at least 60% of loan proceeds towards payroll expenses, the entire amount of the loan would be forgiven.
While the CARES Act spelled out that a business’s forgiven PPP loan would not be considered taxable income, the legislation was silent about how to treat expenses paid for using PPP loan proceeds if the loan was ultimately forgiven.
Congress intended for these expenses to be deductible for federal tax purposes. But since the legislation was silent on this issue, the IRS swooped in and deemed these expenses to be nondeductible.
There was considerable debate over the latter half of 2020, with Congressional politicians explaining that their intent was that the expenses be deductible and the IRS responding “Too bad, they’re nondeductible.”
Congress overruled the IRS’s position in the Emergency Coronavirus Relief Act of 2020. The legislation officially makes deductible for federal tax purposes all expenses paid for using proceeds from a forgiven PPP loan.
Stay tuned for updates as to how this new legislation affects your business.
More than 70% of small businesses in America now have loan proceeds from the Paycheck Protection Program (PPP) to help retain employees during the current pandemic. The entire amount of a PPP loan is eligible to be forgiven if the funds are used for qualified expenses. Recent legislation liberalizes the terms of loan forgiveness for funds used for payroll, utilities and rent. It is now based on a 24-week period, not just eight weeks.
But how can you best position your company to fully benefit from PPP loan forgiveness? Here are five tips to help meet the challenge.
Restore your staff. If possible, restore the number of full-time equivalent (FTE) employees to previous levels by the safe-harbor due date of December 31 (extended from June 30). Bring back furloughed FTEs as soon as you can. Of course, this should fit into your overall business plan. If an employee does not return, document the refusal. All these actions will help when the forgiveness formula is applied to your loan.
Pile on payroll costs. Run payroll and other remaining qualified expenses—including mortgage interest, rent and utilities—on the last day of the 24-week period. This will enable your business to maximize the amount of loan forgiveness allowed under the calculation.
Reward employees. Consider paying out reasonable incentive amounts to maximize the forgiveness of payroll costs. The bonuses can even go to family members like your spouse or children. But remember that you can only count up to $100,000 of wages per person, pro-rated for the covered year, and you must be able to defend these payments as reasonable.
Use the simplified application form. There are two loan forgiveness forms – the regular form (Form 3508) and a simplified version called Form 3508EZ. Review both forms before deciding which one is right for your situation. For instance, there are fewer calculations on the simplified form with less documentation required. To qualify for the simplified form, you must meet at least one of these requirements:
You’re self-employed and have no other employees.
You didn’t reduce employee hours or reduce their wages and salaries by more than 25%.
You lost business due to health directives relating to COVID-19 and didn’t reduce employee wages and salaries by more than 25%.
Document everything. Once you receive PPP loan funds, keep supporting documentation on everything related to the loan. Document when you receive the loan, each time you spend part of the loan and accrued interest expense on the loan. Also keep copies of receipts and invoices to document all loan expenditures, including bank account statements and journal entries.
Small business owners, self-employed workers and freelancers received some welcome news when Congress recently passed the Paycheck Protection Flexibility Act. This new law clarifies how businesses can qualify to have all or a portion of its Paycheck Protection Program (PPP) loan forgiven.
Here is what you need to know:
December 31, 2020 is the new deadline to spend loan proceeds. When the PPP program was rolled out this spring, businesses were given 8 weeks after loan funding to use the loan’s proceeds if they wanted to qualify for loan forgiveness. That timeline has now moved to 24 weeks. Due to the extended stay-at-home orders and further assessment of the pandemic, the new deadline is now effectively December 31, 2020.
More loan proceeds can be used for non-payroll expenses. The original law required 75% of loan proceeds to be spent on payroll. For businesses with high cost of goods sold or who had trouble convincing furloughed workers to return to work, hitting this 75% threshold was problematic. The new law reduces the amount of loan proceeds required to be spent on payroll to 60%.
More flexibility in fully restoring workforce. Borrowers now have through December 31, 2020 to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. There are three exceptions allowed for not having a fully-restored workforce by Dec. 31. Borrowers can adjust their loan forgiveness calculations because of:
Employees who turned down good faith offers to be re-hired at the same hours and wages as before the pandemic;
Difficulty finding qualified employees;
COVID-19 related operating restrictions
Loan terms extended. For loans that do not qualify for forgiveness, borrowers now have up to five years to repay the loan instead of two. The interest rate remains at 1%. Since your bank has 60 days to process your loan forgiveness application and the SBA has 90 days to process the request, your initial payment is now effectively five to six months after your forgiveness application.
What you need to do
Download EZ Application Form. If you are a self-employed worker, independent contractor or sole proprietor who has no employees, you may be eligible to use the EZ Loan Forgiveness Application. Click here to download the EZ form. Click here to download instructions for the EZ form.
Download Regular Application Form. If you aren’t eligible to use the EZ Loan Forgiveness Application, then you’ll need to complete the regular loan forgiveness application. Click here to download the regular application.
Stay in contact with your lending institution about when and how to complete the loan forgiveness application.
Consider reaching out to your legislators to let your voice be heard on how you were impacted and to share your story on your PPP loan experience as several U.S. Senators indicated that there will be more changes in the future regarding the program.