Greg and John discuss the new relief options for businesses struggling through the COVID-19 Pandemic made available through H.R. 133. Learn what your business qualified for previously, and what it qualifies for now based on previous programs accessed.
Americans waited for Congress to negotiate and pass a bipartisan relief bill to address pressing economic issues at the end of 2020. The Paycheck Protection Program had ended, the additional $600 per week in Federal unemployment had run out and the days were quickly slipping away getting dangerously close to December 31st when protections from evictions and the additional pay for Emergency Sick Leave would run out. But in the eleventh-hour President Trump signed the Consolidated Appropriations Act, 2021 (CAA) into law on December 27, 2020 providing much needed relief for many Americans and business owners. The following will provide a high-level view of the CAA as it relates to COVID relief.
Paycheck Protection Program (PPP)
PPP, despite its challenges, provided much needed relief to business owners to help them stay open in 2020. For many, this was the difference between staying in business, or shutting down for good, and now it is available again through March 31, 2021. Not only can first-time borrowers apply, but so can second-time borrowers so long as they meet the eligibility requirements. Additionally, CAA addressed issues from the first two rounds of PPP. Now business expenses paid with PPP funds ARE tax deductible expenses allowing a “double dip”. The Economic Injury Disaster Loan (EIDL) advance is no longer deducted from the PPP forgiveness and loans of $150,000 or less are eligible for simplified forgiveness (Form 3508s) commonly referred to as “automatic forgiveness”.
First-time Borrowers
PPP 1 is available to qualifying small employers per SBA definition, Non-Profits, Housing Cooperatives, Veteran Organizations, Tribal Businesses, eligible Self-Employed, Sole Proprietors, Independent Contractors, or Small Agricultural Cooperatives
First-time borrowers maximum loan amount is the lesser of
- 2.5x your average monthly payroll costs for 2020 or 2019; up to a maximum of $10 million
Payroll costs are defined as:
- Salary, wages, commission, tips, bonuses and hazard pay (capped at $100K annualized per employee)
- Vacation, parental, family, medical or sick leave (may not include earnings from ePSL or eFMLA if the employer is requesting those tax credits)
- Employer’s portion of Insurance premiums and payment of any retirement benefit (includes group life and disability, (previously excluded))
- Employer’s cost of state and local taxes assessed on compensation
- Some portions of owner’s pay based on business entity type and/or how the business is taxed
Second-time Borrowers
In addition to the provisions for PPP 1, second-time borrowers must demonstrate at least a 25% reduction in gross receipts in any 2020 quarter when compared to the same quarter of 2019. They will also be expected to use all their previous PPP proceeds prior to applying for a second PPP loan including amounts returned or rejected. Borrowers that were not in business in 2019 but were in operation as of 02/15/2020 will need to demonstrate at least a 25% reduction in gross receipts in Q2, Q3 OR Q4 2020 when compared to Q1 of 2020.
Second-time borrowers maximum loan amount is the lesser of
- 2.5x your average monthly payroll costs for 2020 or 2019; or
- 3.5x your average monthly payroll costs for 2020 or 2019 for NAICS Code 72 employers (Accommodation and Food Services sector); or
- For seasonal employers your average monthly payroll costs for any 12-week period between 02/15/2019 and 02/15/2020 (Seasonal employer does not operate for more than 7-months out of the year, OR during the preceding calendar year had gross receipts for any 6 months of that year that were not 33.33% of the gross receipts of the other 6-monhts of that year); or
- $2M
Borrowers for both PPP 1 and PPP 2 must utilize at least 60% of the loan proceeds for payroll costs as indicated above and not more than 40% of the proceeds for eligible business expenses.
Eligible Expenses:
- Payroll Costs (as described above)
- Employer’s costs related to continuation of group health care benefits during periods of paid sick, medical or family leave, and insurance premiums
- Payments of interest on mortgage obligation (but not principal or prepayments) for loans in place on or before 02/15/2020
- Rental/Lease expenses under a lease agreement in place on or prior to 02/15/2020
- Utility costs for services in place on or before 02/15/2020
- Operational expense; clearly includes software and cloud computing expenses that are necessary to facilitate business operations
- Property damages caused by civil unrest during pandemic NOT covered by insurance
- Supplier costs; pursuant to a contract or purchase agreement in effect prior to taking out the loan so long as expenditures were essential to business operations
- Worker protection expenses; PPE, plexiglass barriers, costs to set up outside dining, etc.
Employee Retention Tax Credit
Under the CARES Act the Employee Retention Tax Credit (ERTC) was not available to businesses that obtained a PPP loan, but that has changed. Now employers can take the tax credit AND obtain a PPP loan, they just cannot count the earnings paid with PPP funds towards the earnings for the ERTC. Additionally, employers can request the credit retroactively to March 12, 2020. The credit goes against the employer’s portion of Social Security, however, the employer can retain the employee’s federal withholdings, both the employee and employer portions of Social Security and Medicare in order to cover the credit as the liabilities for Social Security alone will fall far short of the ERTC. Form 7200 can be used to request an immediate refund for credits that far exceed all 941 tax liabilities as well as it might be the best option to request the retro credit for 2020 now that the year is over. IRS is expected to update their FAQs to reflect these changes and provide guidance on how to request the retro credit.
The ERTC is available to any employer
- That was carrying on a trade or business during the calendar quarter for which the credit is determined; and
- Had its operations fully or partially suspended under government orders due to COVID-19, or
- Had a loss in gross receipts greater than 20% during the quarter for which the credit is being sought when compared to the same calendar quarter of 2019
2020 Details
- Available from 03/12/202 through 12/31/2020
- Amount of credit = 50% of qualified wages with respect to each employee for the calendar year
- Maximum wages considered per employee in the calendar year = $10,000 (max credit = $5,000 per employee)
- Qualified wages:
- Employers with >100 FTEs = wages paid to employees NOT performing services due to COVID-19 related circumstances (either suspensions of operations or reduction in gross receipts)
- Employers with <100 FTEs = all employee wages paid
- Includes employer’s qualified health plan expense
- Excludes wages paid with PPP funds
- Excludes wages paid under the ePSL, eFMLA or Work Opportunity Credits because of the separate credit against 941 liabilities
2021 Details
- Available from 01/01/2021 through 06/30/2021
- Amount of credit = 70% (previously 50%) of qualified wages with respect to each employee for the quarter
- Maximum wages considered per employee in any calendar quarter = $10,000 (max credit = $7,000 per employee per quarter; capped at $14,000; program ends 06/30/2021)
- Qualified wages:
- Employers with >500 (previously 100) FTEs = wages paid to employees not performing services due to COVID-19 related circumstances (either suspensions of operations or reduction in gross receipts)
- Employers with <500 (previously 100) FTEs = all employee wages paid
- Includes employer’s qualified health plan expense
- Excludes wages paid with PPP funds
- Excludes wages paid under the ePSL, eFMLA or Work Opportunity Credits because of the separate credit against 941 liabilities
Families First Coronavirus Response Act (FFCRA)
The Families First Coronavirus Response Act (FFCRA) was created under the CARES Act which mandated that employers with 1-499 employees provide 2-weeks of Emergency Paid Sick Leave (ePSL) and 10-weeks of paid Emergency/Expanded Family Medical Leave Act (eFMLA). These pay types were eligible for immediate tax credits against the employer’s Social Security, however, much like the ERTC, the employer could hold back the employee’s federal withholdings, both the employee and employer portions of Social Security and Medicare in order to cover the credit as the liabilities for Social Security alone could fall short of the credit. The mandate to provide this pay ended on December 31, 2020, however, for employers that choose to continue to provide this pay, the tax credits will be available through March 31, 2021.
Targeted EIDL Advance
In 2020 many employers applied for the PPP loan and EIDL simultaneously and some received an EIDL Advance whether they obtained an EIDL loan or not. This was designed to get funds into the hands of business owners as quickly as possible that was later deemed eligible to keep even if the borrower declined the EIDL loan. Now there is a Targeted EIDL Advance which is a grant, not an advance, for qualified businesses.
Eligibility
- The business is in a low-income community; and
- The business suffered an economic loss greater than 30%
- An 8-week period between 03/02/2020 and 12/31/2020 compared to the 8-week period immediately preceding 03/02/2020 OR during 2019 OR as otherwise determined for a seasonal business
- The business cannot be an agricultural enterprise
Details
- Maximum of $10,000 grant to small businesses with less than 300 employees
- If a borrower received an EIDL advance previously they would not be eligible for a second amount
- If a borrower received less than $10,000 on a previous advance, they may be eligible for the remaining balance, not to exceed $10,000 total
Unemployment Insurance
According to BLS January 2021 report, there were 10.7 million unemployed in December. CAA addressed immediate concerns by extending three major unemployment provisions through March 14, 2021. Pandemic Unemployment Assistance (PUA) which provides unemployment for self-employed, GIG workers, etc., Federal Pandemic Unemployment Compensation (FPUC) which provides an additional $300 per week on top of the respective state’s weekly benefit, and Pandemic Emergency Unemployment Compensation (PEUC) which provides additional unemployment to individuals who previously collected and exhausted their standard unemployment.
Shuttered Venue Operators Grant
There is no doubt that the pandemic has hurt many businesses, but some of the worst hit have been in the hospitality industry. In addition to CDC guidelines many states and municipalities shut down or severely restricted bars, restaurants and entertainment venues. The latter has been the hardest hit in this category as they have not been allowed to open, even partially. As a result, the Shuttered Venue Operators Grant (SVO) was established under the CAA and will be administered by the SBA. SBA is not accepting applications right now but click the hyperlink for details and keep an eye on it. Additionally, as time is of the essence for many venue operators, the National Independent Venue Association (NIVA) is raising funds to help those in need under their NIVA Emergency Relief Fund with the Giving Back Fund as its 501(c)3 sponsor. It is important to note that venue operators may NOT obtain the SVO AND a PPP loan, so it is recommended that they partner with their preferred tax professional to determine the best avenue for their company. A venue operator may apply for the PPP loan while waiting for the grant but will need to decide as to which one to move forward with when the time comes.
