CARES Act Small Business Assistance
On December 27th the Consolidated Appropriations Act was signed into law, which provides much needed relief to small business owners by updating or extending some provisions that were included in the CARES Act. Within the Consolidated Appropriations Act in Division N, it discusses all of the Coronavirus aid and relief for small businesses.
Summary of the CARES Act Updates
The following are the key provisions related to the CARES Act updates included in the Consolidated Appropriations Act (many of the provisions of the CARES Act remain the same, so this will just cover the updates that we believe are most important):
The Paycheck Protection Program (PPP) was brought back, and funds were appropriated for both initial PPP loans if you had not gotten a loan previously and for second PPP loans for those that received an initial loan under the original program.
Eligible uses of PPP funds have been extended to include software and cloud computing services that facilitates business operations, property damage costs, supplier costs and worker protection expenditures. These are defined in detail in the Act, so only certain items actually qualify. These changes do not apply to any loans already forgiven.
For PPP loans up to $150k a simplified forgiveness application will be created that will be no more than 1 page in length and just requires some basic information that should be very easy to complete. You must still certify that you met the requirements, and you must retain all necessary records for 4 years as you can still be audited by SBA.
It was made clear that employee insurance benefits include not only health costs, but also dental, life, disability and vision.
They made it very clear that if you were not in operation on February 15, 2020 you are not eligible for a PPP loan.
They authorized second PPP loans to businesses with not more than 300 employees if gross receipts during the first, second, third or fourth quarter of 2020 are at least 25% less than from the same quarter in 2019. The eligible loan amount for second loans is 2.5 times the average monthly payroll costs for the 1-year period before the date on which the loan is made or calendar year 2019 up to a max of $2M. For businesses with a NAICS code beginning with 72 (restaurants and accommodation businesses) you can get up to 3.5 times the average monthly payroll costs.
You will have to provide documentation that you met the revenue loss standard of the second PPP loan in order to obtain forgiveness.
PPP loan funds forgiven, EIDL grants and SBA loans with forgiven payments are now tax free for federal tax purposes but may still be taxable for state tax purposes depending on if your state confirms to the changes made at the federal level.
The FFCRA provisions have been extended to March 31, 2021 instead of ending on December 31, 2020. These are benefits that allow small businesses to get reimbursed for compensating employees who meet certain eligibility criteria for sick and family leave. You are no longer required to provide this benefit, but other rules of who qualifies and other items remained the same from the original CARES Act.
If you applied for EIDL loan and received an advance less than $10k you may be eligible for the difference if your business is located in a low-income community and you have a gross receipts reduction of more than 30% and you have fewer than 300 employees. The gross receipts test is an 8-week period between March 2, 2020 and December 31, 2020 relative to a comparable 8-week period immediately preceding March 2, 2020 or during 2019. Low-income communities are those that are eligible for the new markets tax credits.
The EIDL advances are back for new EIDL applications but still not much funding appropriated to them so if you have not applied previously should apply soon. It appears it will still be based on number of employees unless you meet the low-income community and gross receipts test.
The EIDL advance no longer reduces your forgiveness amount on the PPP loans which makes the PPP loans fully forgivable even if you received an EIDL advance also.
Employee retention credit was extended to June 30, 2021 and the credit was increased to 70% of payroll costs for 2021. You can now do employee retention credit even if you got a PPP loan as well, but you can’t double dip and use same wages for both. Additionally, the $10k limit per employee is now a per quarter limit instead of a total limit for first quarter and second quarter of 2021. Employers are now eligible if they had gross receipts less than 80% during first quarter and second quarter of 2021 when compared to the same quarter of 2019. Meaning if your revenues went down by 20% you are eligible. The threshold for no longer being eligible is still 80% of your prior revenues. Other items related to the employee retention credit remained unchanged including your ability to take it if you have been shut down either fully or partially due to the Coronavirus pandemic. There is a chance the updated provisions could be retroactive for 2020 and not just impacting 2021.
If you did the employee payroll tax deferral you have until December 31, 2021 to pay the taxes now instead of April 30, 2021.
Business meals deduction for 2021 and 2022 is 100% as long as the meal is at a restaurant, it appears it can be take-out or dine in.
CARES Act Consultation Services
Given all of the changes and the ability to do the employee retention credit even if you got a PPP loan, it might make sense to modify the plan for forgiveness applications for PPP in order to maximize the employee retention credit as well, assuming you qualify for both. We can even take the employee retention credit on a retroactive basis by filing amended Form 941 payroll tax returns.
We can help you to assess your options and figure out which of these items you as a small business owner are eligible for and then help you either apply or provide services to get you the payroll tax credits to the extent you did not already receive them. If you have employees there is a good chance that we can save you some money and/or get you some additional funding or tax credits.
To sign up for a consultation on the CARES Act updates click here and a team member will help you figure out what will help your small business. If you need assistance with your forgiveness application for an initial PPP loan, please schedule some time by clicking here and a team member will assist you.
While we cannot guarantee a specific outcome from the consultation, we generally will identify money saving strategies and/or ways for you to obtain funding for your small business that will more than justify the fees.
Example Paycheck Protection Program (PPP) Loan
1. Assume a sole proprietor with no employees 2019 tax return line 31 of Schedule C shows $50,000 as business profit, you may be eligible for an initial PPP Loan of $10,416.
2. Assume a S-corporation with 2019 payroll costs of $100,000, you may be eligible for an initial PPP Loan of $20,833.
3. Assume restaurant taxed as S-corporation received an initial PPP loan, has used all of the funds, can show a 25% reduction in revenues between Q3 2020 and Q3 2019, and has 2019 payroll costs of $50,000, you may be eligible for a second PPP Loan of $14,583.
These are just some examples your actual loan amount will depend on your specific facts and circumstances.
Example Sole Proprietor or Partnership With No Employees
If you are a sole-proprietor or partnership that files Schedule C or Form 1065 with no employees your eligibility for PPP loan is limited to your net profit in 2019. If you have a net loss in 2019 you are not eligible for PPP loan unless you have employees. To calculate your eligible loan take line 31 of Schedule C or line 22 of Form 1065 and divide by 12 and multiply by 2.5. We recommend you do this calculation prior to signing up for a consultation.
Example Employee Retention Credit
Small business with employees (including S-Corporation shareholder-employees), had a 50% reduction in gross receipts during Q4 2020 when compared to Q4 2019 and had $10,000 in payroll costs during that quarter, you would be eligible for a $5,000 employee retention credit. The employee retention credit offsets your payroll taxes that you owe and is refundable. You may also be eligible even if you did not have a significant reduction in gross receipts if you were shutdown partially or full due to a governmental order.
If you would like to learn more about CARES Act options, please visit our YouTube page for videos at this link.
Ignatius L. Jackson CPA, LLC is here to assist you, schedule a consultation now to speak with a team member about your options.