The new stimulus bill has been signed – what does this mean for my business?
The President has just signed the Consolidated Appropriations Act of 2021 which includes a $900B COVID-19 relief package. The relief package includes several key provisions which may provide a significant benefit to businesses throughout the Country. The following is an overview of certain business relief provisions included in the bill.
PPP Round 2
Many have already navigated through “Round 1” of the Paycheck Protection Program (PPP) and are now in the process of applying for forgiveness or awaiting SBA approval of their forgiveness application.
The new relief bill expands the PPP loan program into a “second round” which is welcome news for businesses impacted by COVID-19. The bill earmarks an additional $284 billion for a new round of forgivable small-business loans under the PPP and contains a number of important changes to the PPP. It expands eligibility for loans, allows certain particularly hard-hit businesses to request a second loan, and provides that PPP borrowers may deduct PPP expenses attributable to forgiven PPP loans in computing their federal income tax liability and that such borrowers need not include loan forgiveness in income (THIS IS BIG!). To this point, tax planning has been a challenge for all PPP recipients…
Here are a few key points about PPP Round 2:
- Am I Eligible? –
- Eligible employers are those entities, including nonprofit organizations, housing cooperatives, veterans’ organizations, eligible self-employed individuals, sole proprietors, independent contractors or small agricultural cooperatives.
- Employ less than 300 people (Businesses with more than 300 employees must meet the SBA’s usual criteria to qualify as a small business)
- Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019
- How much can I borrow under PPP2?
- Borrowers may receive a loan amount of up to 2.5 (3.5 for accommodation and food services sector businesses) times their average monthly payroll costs in 2019 or the 12 months before the loan application, capped at $2 million per borrower, reduced from a limit of $10 million in the first round of PPP loans.
- What are the eligible expenses?
- PPP2 covers payroll-related costs and also includes several new cost categories, including certain operational expenditures, supplier costs, and worker protection costs.
- Does loan forgiveness work just like PPP Round 1?
- Yes, PPP loan recipients generally are eligible for loan forgiveness if they apply at least 60% of the loan proceeds to payroll costs (subject to the newly added eligible expenditures, as noted above), with partial forgiveness available where this threshold is not met. Loans that are not forgiven must be repaid.
- There will be a new simplified application for loans of $150,000 or less.
The SBA is expected to draft final rules with respect to PPP Round 2 within the next few weeks. In the meantime, we encourage you to reach out to us to discuss whether you qualify for PPP Round 2 and open up dialogue with your lender.
Employer Retention Credit (ERC)
When introduced in the CARES Act, the ERC provided a refundable tax credit equal to 50% of up to $10,000 in qualified wages (i.e., a total of $5,000 per employee) paid by an eligible employer whose operations were suspended due to a COVID-19-related governmental order or whose gross receipts for any 2020 calendar quarter were less than 50% of its gross receipts for the same quarter in 2019.
The ERC received little attention when the CARES Act was initially signed into law in the early part of 2020 since most businesses who were eligible for a PPP loan applied for one. In other words, businesses could not apply for a PPP loan AND claim the ERC.
However, the new COVID-19 relief bill includes language that could be SIGNIFICANT for companies who have experienced a decline in revenues for COVID-19 related reasons, regardless of whether the business has already take out a PPP loan. Here is why:
- Retroactive Provision – If you received a PPP loan during 2020, and suffered a full or partial suspension of business as a result of a government order or your gross receipts for a quarter in 2020 were reduced by more than 50%, compared to the same quarter in 2019, you can amended 2020 Form 941s to claim a credit for wages not used for PPP loan forgiveness if they are eligible wages for ERC.
- From January 1, 2021 through June 30, 2021 –For this extension period, the following changes to the ERC are effective:
- Employers who see a 20% decline in revenue may now claim the credit (the previous requirement for quarters in 2020 was a 50% decline in revenue when compared to the same quarter in 2019)
- The credit rate is increased from 50% to 70% of qualified wages and the limit on per-employee wages is increased from $10,000 for the year to $10,000 PER QUARTER!!!
- Companies with up to 500 employees may now claim the ERC.
- For 2021, the test is satisfied for any quarter of the first half of 2021 in which gross receipts is less than 80% of the same quarter in 2019. Thus, in the first quarter of 2021, a business would compare its receipts in that quarter to the first quarter of 2019, NOT the first quarter of 2020.
In the coming weeks, the IRS is expected to release final rules and requirements regarding the new ERC provisions and the SBA is also expected to issue guidance on the interaction between PPP and ERC.
The FFCRA paid emergency sick and child-care leave and related tax credits are extended through March 31, 2021 on a voluntary basis. In other words, FFCRA leave is no longer mandatory, but employers that provide FFCRA leave from January 1 to March 31, 2021 may take a federal tax credit for providing such leave. Some clarifications have been made for self-employed individuals as if they were included in the FFCRA.
Let Us Help
In addition to PPP2, ERC, and FFCRA, the COVID-19 relief bill includes many other provisions which may impact you as well.
Please contact the Wessel team member you currently work with or our office at (814) 536-7864 to further discuss how these provisions might impact your business.