One of the biggest pieces of legislation to come out of the recent appropriations bill is a second round of PPP loans. Additional business relief is included as well. Please read on for more information.
- Payroll Protection Program (PPP)
- Single biggest piece of news here: Congress clarified that PPP recipients may now deduct expenses paid for with PPP funds, even if the loans are forgiven.
- Simplified application for forgiveness for loans up to $150K (1 page in length!).
- New round of PPP funding for those who have used (or will use) the full amount of the first PPP loan.
- Must have a 25% reduction in gross receipts for any quarter in 2020 relative to the same quarter in 2019.
- Max amount is 2.5 X average monthly payroll costs in the one year prior to application (certain restaurants/hospitality industry businesses receive 3.5 X).
- Funds must be spent at least 60% on payroll.
- Expands eligible expense categories for new loans, including certain accounting and operations software and worker protection expenditures such as PPE.
- Most of the rest matches round one of PPP.
- Comment: We can provide you with records we maintain for your application. We cannot, however, process the application for you or make any representation regarding your eligibility to the funds. Please work with a trusted bank.
- Meals deduction – 50% limitation does not apply to eligible food/beverage expenses provided by a restaurant in 2021 or 2022
- This is easily one of the most abused expenses of the tax code. Please be sure all such expenses meet a legitimate business purpose and that you have documentation to substantiate the expense.
- Paid Sick and Family Leave
- In March, Congress approved refundable tax credits for employers providing paid sick and family leave related to Covid-19 as enacted in the FFCRA; this is extended through 03/31/2021.
- Self-employed individuals are allowed to use their reported wages from 2019 instead of 2020 to compute the credit.
- Comment: The per-employee daily maximums remain the same, so employees may have already used their eligible hours.
- Employee Retention Credit
- Modified significantly from previously enacted version that expired 12/31/2020.
- Must have a 20% reduction in gross receipts in 1Q or 2Q in 2021 relative to the same quarter in 2020 (though an election can be made to use preceding calendar quarter).
- Max of $10K in eligible wages per employee per quarter.
- Credit equals 70% of gross wages (up to $10K max).
- Cannot combine FFCRA or PPP funded payroll with this credit.
- Comment: This credit provides a significant refund opportunity. The credit may be claimed on either Form 941 for the relevant quarter or as an advance using Form 7200.
- Comment 2: Applying for this credit may involve a substantial investment of time. Our office will gladly assist you at our normal hourly rates.
- California Considerations
- In September, CA agreed to conform to federal treatment of forgiven PPP loans, excluding them from gross business income. However, at this time, there is no provision to allow the expenses paid for with such funds to be deducted on the tax return.
- CA has approved two rounds of grants for struggling small businesses. Applications for the first round are due 01/08/2021 (second round is TBD). More information may be found at https://covid19.ca.gov/business-and-employers/