Important Updates on Recent Stimulus Bill
PPP Round 2 & ERC Guidance
January 8, 2021
President Trump signed the Consolidated Appropriations Act 2021 (the Act) on Sunday, December 27. Highlights of certain COVID-19-related provisions that may impact taxpayers, mainly in 2020 and 2021, were outlined in previous communications with regard to additional PPP funding and other relief and other pandemic provisions.
Below, we highlight some additional recently received guidance and additional opportunities for the hardest hit businesses seeking relief. Should you have any questions, please contact your HBE advisor.
Payroll Protection Program – Round 2 (PPP2)
Late in the evening on January 6, 2021, the SBA issued additional guidance specifically regarding the Payroll Protection Loan provisions, focusing primarily on the second round of funding available for certain business (PPP2).
The SBA announced today that the PPP loan program will be re-opening next week. Community-based financial institutions will start being able to initiate First Draw PPP loan applications beginning Monday, January 11. Eligible businesses are generally those that did not take an initial PPP loan but are currently qualified to do so. Second Draw PPP loans will start being available through these same lenders on Wednesday, January 13. (At this point, it does not appear that the SBA has released the Second Draw loan application, Form 2483-SD, but they are expected to do so at any time.) The program will re-open to remaining lenders shortly thereafter.
Some key revisions from the guidance and PPP2 program include:
- Loan applications can be made up until March 31, 2021
- Generally available to employers who employ 300 or fewer employees (or per location for restaurants and accommodations)
- Maximum loan amount of $2 million
- Loan amount calculated based on same 2.5 months of average annual payroll costs (3.5 months for restaurants and accommodations)
- Payroll costs calculated similar to prior PPP funding and can use same 2019 payroll information or 2020 calendar year payroll
- Simplified filing for PPP2 if using the same 2019 payroll costs as PPP1 and using the same lender from PPP1
- Must have 25% reduction in gross receipts in any quarter in 2020 compared to corresponding quarter in 2019
- Future guidance may address certification required for applicants regarding an economic need for PPP funds, as no detail has been released currently
- Application Form 2483-SD (not yet released)
- Loans over $150,000 will need to provide documentation for 25% revenue reduction based on tax forms, quarterly financials, bank statements, or other support at time of application
- Loans under $150,000 will need to provide documentation at time of forgiveness
We encourage businesses who are or who believe they are eligible for PPP2 funding to start gathering documentation related to gross receipts and be in touch with your lender.
Employee Retention Credit (ERC)
The Employee Retention Credits (ERC) is another relief provision that should be considered for businesses facing 50% revenue declines or full or partial shutdowns due to COVID-19 related to government shutdown. Initially, the ERC was not available to PPP loan recipients, but that has been revised by the 2021 Act. Some key provisions that are important to know with regard to the ERC include:
- 2020 Credit
- 50% refundable tax credit for up to $10,000 of wages per employees ($5,000 credit) paid by an eligible employer
- Eligible employers are those whose operations were suspended due to COVID-19 related government shutdown OR had any calendar quarter with great than 50% reduction in revenue
- Partial shutdowns for a variety of reasons tend to be included in suspended operations definitions
- Applies to all eligible employer wages for businesses with less than 100 full-time equivalent employees
- Employers with over 100 FTE’s can only claim for wages paid to employees who got paid but did NOT work
- 2021 Credit
- The credit was extended into the first two quarters of 2021, but includes some notable changes to the credit for these quarters
- Expanded to 70% of wages up to $10,000 per quarter or maximum credit of $14,000 per employee
- 2021 gross receipts test reduced to a 20% revenue decline comparing 2021 quarter to the same quarter in 2019, or the immediately preceding quarter
- 100 FTE’s calculation for only allowing the credit for employees paid who didn’t work during the impacted period has been increased to 500 for the 2021 credit
- Refundable credits are claimed on Form 941 as a payroll tax credit
- Should be able to catch up on 4th quarter 941, rather than amending, for 2020, but guidance on this is still missing
- Additional guidance expected regarding the interplay between PPP payroll costs and ERC
- Eligible businesses that haven’t yet filed forgiveness on their PPP loan should wait for guidance before proceeding
The ERC is a complicated calculation, but a significant tax benefit for eligible businesses. We urge you to review your eligibility both in 2020 and 2021. You may need to consider reporting credits on your fourth quarter Form 941 or amend prior tax forms in order to claim these credits.
As you can see, there are many new and complex business updates included within the new relief bill. However, there is much more yet to be unpacked. Additional considerations of note include:
- Business meals will be 100% deductible in 2021 and 2022
- Second round of direct stimulus payment to individuals up to $600 single or $1,200 joint filers
- Extension of unemployment assistance
- Extension of the above the line charitable contributions for individuals that do not itemize to cover both 2020 and 2021 tax years ($300 single, $600 joint filers)
HBE will continue to analyze the impacts of this latest relief bill and provide updates as more information becomes available.
This communication and any applicable contents pertaining to COVID-19 employer relief provisions is based on our professional judgment given the facts provided to us and the COVID-19 employer relief provisions guidance as of the date of the communication. Subsequent developments changing the facts provided to us, or differences in the final guidance and regulations once they are issued, may affect the advice provided. These effects may be material.