Check out our 3-page PDF below for the latest COVID relief options currently available. Once the SBA releases information on the programs listed on the 3rd page, we’ll be sure to update our resource. As always, please reach out with any questions you have!COVID-relief-as-of-3-20
The American Rescue Plan Act of 2021 was signed into law on March 11th. Most of the relief in this $1.9 trillion plan comes in the form of tax credits and stimulus checks, which the IRS has already been sending out. We’ve summarized the main tax-related points below for you.American_Rescue_Plan_Act_of_2021_2021
This afternoon, the IRS issued a notice extending the filing deadline and payment deadline (regardless of the amount of tax owed) for individual returns to May 17. This extension automatically applies; therefore, no form needs to be filed in order for the change to take effect. The relief does NOT apply to estimated tax payments that are due on April 15th; those estimates are still due on 4/15. For more information, check out the IRS newsletter.
Update: On 3/18/2021, it was announced that Illinois would also extend the filing and payment deadline for individual tax returns through May 15th. However, just like with the federal extension, 1st quarter estimates are still due April 15. See the full news release here.
Today, the Treasury and SBA issued the guidance on updated PPP loan procedures for qualified Schedule C filers applying for a first or second draw loan. In order to benefit from these new regulations, a sole proprietor, independent contractor, or self-employed individual must file a Schedule C with their individual income tax return. It is also important to note that these new regulations only apply to new PPP loans. If a Schedule C filer already submitted its application, the borrower cannot go back and recalculate the PPP loan. Below are a few additional takeaways from the new guidance—
- The new calculation if the Schedule C does not have any employees:
- Step 1: From your 2019 or 2020 IRS Form 1040, Schedule C, you may elect to use either your line 31 net profit amount or your line 7 gross income amount. (If you are using 2020 to calculate payroll costs and have not yet filed a 2020 return, fill it out and compute the value.) If this amount is over $100,000, reduce it to $100,000. If both your net profit and gross income are zero or less, you are not eligible for a PPP loan.
- Step 2: Calculate the average monthly net profit or gross income amount (divide the amount from Step 1 by 12).
- Step 3: Multiply the average monthly net profit or gross income amount from Step 2 by 2.5 (or 3.5 if the loan is a 2nd draw for a borrower with an NAICS code beginning with 72. This amount cannot exceed $20,833 (or $29,167 if the loan is a 2nd draw for a borrower with an NAICS code beginning with 72).
- Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any advance under an EIDL COVID19 loan (because it does not have to be repaid).
- The new loan calculation for Schedule C filers *with* employees:
- Step 1: Compute 2019 or 2020 payroll (using the same year for all items) by adding the following:
- at your election, either
- (1) the net profit amount from line 31 of your 2019 or 2020 IRS Form 1040, Schedule C, or
- (2) your 2019 or 2020 gross income minus employee payroll costs, calculated as Schedule C, line 7, minus your employee payroll costs reported on lines 14, 19, and 26 of Schedule C (for either option, if you are using 2020 amounts and have not yet filed a 2020 return, fill it out and compute the value). This amount is limited to $100,000;
- Plus 2019 or 2020 gross wages and tips paid to your employees whose principal place of residence is in the United States, computed using 2019 or 2020 IRS Form 941 Taxable Medicare wages & tips (line 5c, Column 1) from each quarter plus any pre-tax employee contributions for health insurance or other fringe benefits excluded from Taxable Medicare wages & tips; (limited to $100,000 per employee);
- Plus 2019 or 2020 employer contributions to employee group health, life, disability, vision and dental insurance (portion of IRS Form 1040, Schedule C line 14 attributable to those contributions); retirement contributions (IRS Form 1040, Schedule C, line 19); and state and local unemployment taxes.
- at your election, either
- Step 2: Calculate the average monthly amount (divide the amount from Step 1 by 12).
- Step 3: Multiply the average monthly amount from Step 2 by 2.5 (limited to $2,000,000 for 2nd draw borrowers).
- Step 4: Add the outstanding amount of any EIDL made between January 31, 2020 and April 3, 2020 that you seek to refinance. Do not include the amount of any advance under an EIDL COVID-19 loan (because it does not have to be repaid).
- Step 1: Compute 2019 or 2020 payroll (using the same year for all items) by adding the following:
- Documentation required to be submitted with the loan application:
- 2019 or 2020 Schedule C (whichever is used to calculate the loan)
- 2019 or 2020 1099-MISC, invoice, bank statement, or book of recorded that establishes you are self-employed.
- 2020 invoice, bank statement, or book of record to establish you were in operation on or around 2/15/2020.
- Quarterly 2019 or 2020 Form 941s and quarterly state unemployment returns if you have employees.
- Evidence of any retirement and health insurance contributions if you have employees.
- Payroll statement or similar document from the pay period that covered 2/15/20 to establish you were in operation on that date.
- Certification of necessity: If total gross income on Schedule C is less than $150,000, the borrower will automatically be deemed to have made the required certification regarding the necessity of the loan request in good faith. However, if gross income is greater than $150,000, the borrower may be subject to a review by SBA in order to certify the loan was necessary.
- Using the funds: Generally, Schedule C filers can use the funds for the same expenses as everyone else. A couple key differences do exist, though—
- Owner compensation replacement is limited to $20,833 and is calculated using 2019 or 2020
- Mortgage interest, business rent payments, and business utility payments are eligible expenses but only if the borrower claimed or was entitled to claim a deduction for the expenses on his 2019 or 2020 Schedule C. For example, if you did not claim or are not entitled to claim utilities expenses on your 2019 or 2020 IRS Form 1040, Schedule C, you cannot use the proceeds for utilities.
These rules apply to 1st and 2nd draw PPP loans. As of today, the government has not extended the due date for the applications; therefore, you’ll want to make sure you get your application submitted by the current March 31 deadline. As always, please reach out with any questions you have!
02/26/2021 – PPP Round 2 Changes for Sole Proprietors, Self-employed Individuals, and Independent Contractors
Earlier this week, the White House announced a number of changes to the Paycheck Protection Program. The SBA and Treasury have not issued any guidance on these updates as of this afternoon, so we are not sure how they will practically be put into play yet. In the meantime, we have summarized the key points below and will keep you updated with any further developments as they arise.
- Schedule C filers will now be able to calculate their PPP loans based on their gross receipts instead of their net income. Without additional guidance, we do not know how this new calculation will work, what it means for borrowers who already received funds, when the changes will be submitted, whether an amended application can be submitted, etc. However, since only about half of the current round PPP funds have been disbursed so far, it probably makes sense to hold off submitting an application until these questions are answered.
- An additional $1 billion in PPP funds will be set aside for schedule C filers.
- From 2/24 – 3/09/21, only businesses with fewer than 20 employees will be allowed to have their PPP applications submitted to the SBA. Businesses with more employees can continue submitting their applications to their lenders, but the lenders will not be able to send them to the SBA until 3/10.
- Visa and Green Card holders with Individual Taxpayer Identification Numbers (ITINs) will now be eligible to receive PPP loans if all other requirements are met.
- Any business with at least 20 percent ownership by an individual who is currently delinquent or has defaulted on federal student loan debt will now be eligible for a PPP loan if all other requirements are met.
Click here to see the full White House briefing. Stay tuned for additional information!
The SBA released multiple documents last night related to 1st and 2nd round PPP draws in 2021 as well as forgiveness applications submitted in 2021. The links on our PPP Page have been updated to reflect these new applications.
Another document the SBA issued consolidated all of the rules they had previously issued related to PPP forgiveness into one document and added any relevant information from the Economic Aid Act. This 62-page document can be found here.
The SBA also released a new interim rule to clarify how borrowers should calculate their revenue reduction and maximum loan amounts for the 2nd round of PPP draws. This document can be found here.
The last item that was released was a document to help eligible borrowers obtain a 1st round PPP draw if they had not previously received on. This document can be found here.
As always, let us know if you have any questions!
Before the Consolidated Appropriations Act 2021, any employer who received a Small Business Administration Loan under the Paycheck Protection Program (PPP loan) of the CARES Act was ineligible to receive the employee retention credit (ERC). The Consolidated Appropriations Act 2021 now allows eligible businesses who previously received PPP loans to claim the employee retention credit retroactively to March 13, 2020 for qualifying wages not covered by the PPP loan. This could be a substantial credit for many businesses! There are certain complexities with how the ERC interrelates with PPP loan forgiveness. We can strategize with you to determine your eligibility and maximize the benefits of the new ERC provisions along with your PPP loan forgiveness. See more details here.
01/15/21 – Employee Social Security Tax Deferral (updated to reflect changes in Consolidated Appropriations Act (CAA))
The Consolidated Appropriations Aid Act extended the repayment period of deferred employee taxes. On August 8, 2020, President Trump signed a Presidential Memorandum directing Treasury Secretary Mnuchin to permit the postponement of the withholding, deposit, and payment of the employee’s share of Social Security tax (6.2%), as well as the employee’s share of Railroad Retirement Tax Act (RRTA) Tier 1 taxes on wages and compensation paid from September 1, 2020 through December 31, 2020 for employees whose amount of wages or compensation, payable during any biweekly pay period generally is less than $4,000, or the equivalent amount with respect to other pay periods.
Employers are required to collect and remit the deferred taxes by December 31, 2021 (previously April 30, 2021). If the tax is not paid by this time, penalties and interest will accrue starting January 1, 2022. If an employee leaves between September 1, 2020 and December 31, 2021 and does not have enough wages in the final paycheck to cover the deferral, employers will have to find another way to collect the tax, or pay it out of their own pockets.
01/14/21 – Paid Sick Leave and Expanded Family and Medical Leave (updated to reflect changes in Consolidated Appropriations Act)
The Consolidated Appropriations Act contains provisions that extend the refundable tax credits associated with paid sick and family leave under the FFCRA. It extends the refundable tax credits available to employers who provide paid sick and family leave related to the coronavirus (COVID-19) pandemic as enacted in the FFCRA through March 31, 2021. Note that the mandated paid leave for COVID-19 related reasons was not extended. The credits are applied to employers who voluntarily provide such paid leave.
Since there is so much confusion about when you have to pay an employee who might have COVID, how much you have to pay him, how long you need to pay him, etc., we decided to highlight some of the key points below.
Under the Emergency Paid Sick Leave Act, if you have less than 500 employees, you are required to pay an employee up to 80 hours of paid sick leave at his regular rate of pay if he meets any of these criteria:
- the employee is under a Federal, State, or local quarantine or isolation order related to COVID-19;
- the employee has been advised by a health care provider to self-quarantine due to concerns related to COVID-19;
- the employee is experiencing symptoms of COVID-19 AND seeking a medical diagnosis
- the employee is caring for an individual subject to an order described in (1) or self-quarantine as described in (2);
- is caring for a child whose school or place of care is closed (or child care provider is unavailable) for reasons related to COVID-19; or
- is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
How much you have to pay the employee and how long you have to pay him is dependent upon the reason behind the leave. The Department of Labor has summarized the various rates and lengths here. They have also created a tool for employees to determine if they are eligible for the paid sick leave or not, which can be found here.
Here is the information your employee needs to provide in order to receive the paid sick leave:
- Dates for which he requests leave
- Reason for leave
- A statement that he is unable to work because of the above reason
You as the employer are then eligible for a reimbursement on the next payroll tax return you file equal to the required paid sick leave you pay plus half of the Medicare tax you pay. You do NOT have to pay the employer’s portion of Social Security tax on these wages. The IRS found a very confusing way to try to get this credit to you early by allowing you to delay payment of certain payroll taxes. Basically, instead of making your normal tax deposits on EFTPS for the federal withholding, Social Security, and Medicare tax, the IRS has said that you can keep those payments as an advance of your credit. We know this is really confusing so here’s an example from the IRS website that will hopefully help clarify:
Example: An Employer paid $5,000 in COVID wages and is otherwise required to deposit $8,000 in payroll taxes for wage payments made during the same quarter as the $5,000 in qualified leave wages. The Employer may keep up to $5,000 of the $8,000 of taxes he was going to deposit and will not owe a penalty for keeping the $5,000. The Employer is then only required to deposit the remaining $3,000 on its required deposit date. The remaining $5,000 will be accounted for on the quarterly payroll tax return.
If the amount of paid sick leave wages you are required to pay exceeds the amount of the payroll taxes you are required to pay for the same quarter, then you can file Form 7200 to get an advance on the credit (in order to help fund the paid sick leave wages).
If you’d prefer to pay your full payroll tax deposits the way you normally do, that is also an option! In that scenario, you would receive your refund with the next payroll tax return you file.
A few other things to note–
- Self-employed individuals and owners of a business are eligible for the paid sick leave and corresponding credits.
- A part-time employee is entitled to leave for his or her average number of work hours in a two-week period. Therefore, you calculate hours of leave based on the number of hours the employee is normally scheduled to work. If the normal hours scheduled are unknown, or if the part-time employee’s schedule varies, you may use a six-month average to calculate the average daily hours.
- The Emergency Family and Medical Leave Expansion Act requires you to pay an employee for hours the employee would have been normally scheduled to work even if that is more than 40 hours in a week. However, the Emergency Paid Sick Leave Act requires that paid sick leave be paid only up to 80 hours over a two-week period. For example, an employee who is scheduled to work 50 hours a week may take 50 hours of paid sick leave in the first week and 30 hours of paid sick leave in the second week. In any event, the total number of hours paid under the Emergency Paid Sick Leave Act is capped at 80.
Here are a few other tools you may find helpful as you try to determine whether the Emergency Paid Sick Leave Act applies to your situation:Definition-of-Payroll-Tax-Credits-2nd-Quarter-2020
Late Friday night, the SBA announced that the application window for PPP loans would reopen today (1/11/21) for community financial institutions that serve minority- and women-owned businesses. Community financial institutions are private financial institutions that are 100% dedicated to providing funding to low-income, low-wealth, or other disadvantaged groups and communities. Eligible PPP borrowers served by these banks can begin submitting applications for 1st draw PPP loans today and 2nd draw PPP loans on Wednesday. In response, we have updated our links above for the new forms. The SBA has not provided a set date for other borrowers to submit their applications, but we will keep you posted. As always, let us know if you have any questions!