On Sunday, December 27th, President Trump signed a major legislative package (The Consolidated Appropriations Act, 2021) that includes $900B in COVID-19 relief and $1.4T in government spending for the next fiscal year. The bill has a significant impact on small businesses and provides relief in several key areas, including expansion of and revisions to the Paycheck Protection Program (PPP), expansion of the Employee Retention Credit (ERC), expansion of the Economic Injury Disaster Loan (EIDL) program, extension of FFCRA paid leave payroll tax credits, extension of unemployment supplements, and another round of individual stimulus payments at $600 per eligible adult and dependent child. Below is a summary of the key relief opportunities from the new legislation.
Paycheck Protection Program (PPP)
- Allows PPP borrowers to claim a federal income tax deduction for expenses paid with the proceeds of a PPP loan, even if the loan has been (or will be) forgiven. This provision reverses the position taken by the IRS earlier this year that expenses attributable to PPP loan forgiveness could not be deducted.
- Provides a second round of PPP loans (PPP2) for business with 300 or fewer employees that have experienced a 25% reduction in revenue in any quarter of 2020 versus the same quarter in 2019. The eligible loan amount is 2.5 times average monthly payroll (3.5 times for business in the accommodations and food services industries) in the prior year (2019 or rolling 12 months). The maximum loan amount is limited to $2M for PPP2.
- Reopens the original PPP round by earmarking $35B for those who did not already participate.
- Simplifies the loan forgiveness application process for PPP loans under $150,000 by allowing the borrower to sign and submit a one-page certification form without providing additional documentation to support forgivable expenses or headcount. This is for the original round of PPP loans and PPP2.
- Eliminates the previous requirement to reduce PPP forgiveness by the amount of a EIDL grant received ($10,000 for many). Borrowers can now received full forgiveness on PPP loan balances while still receiving an SBA EIDL grant of up to $10,000.
- Expands forgivable expense categories for which a PPP loan my be used to include operation costs (software, cloud computing, and other human resources and accounting needs), property damage costs due to public disturbances that occurred during 2020, supplier costs, and PPE expenditures for workers. Borrowers must continue to use at least 60% of PPP loan proceeds for payroll costs to be eligible for full forgiveness of the loan.
- 501(c)(6) organizations, such as local chambers of commerce, economic development organizations, and tourism offices, that have 300 or fewer employees and are not lobbying organizations are now eligible to obtain PPP loans.
Employee Retention Credit (ERC)
- Enhancement of the Employee Retention Credit (ERC) by allowing businesses to now receive both a PPP loan and claim the ERC in both 2020 (Q2-Q4) and 2021 (Q1-Q2). Previously, .PPP loan recipients could not claim the ERC. Note that the same wages cannot be used for both PPP forgiveness and the ERC.
- The ERC is a refundable tax credit against employer payroll taxes equal to a portion of the qualified wages an eligible employer pays to employees. As originally enacted, the credit was only available for 50% of up to $10,000 in qualified wages per employee paid through December 31, 2020. The legislation extends the credit from January 1, 2021 through June 30, 2021 and increases the credit rate to 70% of qualified wages for that period, and increases the per-employee limit on creditable wages to $10,000 in qualifying wages per quarter (not per year).
- The credit is available to employers that experience either:
- The full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
- A significant decline in gross receipts (50% reduction versus prior year quarter in 2020 reduced to a 20% reduction versus a prior year quarter for 2021)
SBA EIDL Program, Debt Relief Program, and Grants for Shuttered Venue Operators
- Provides $20B for new EIDL grants for businesses in low-income communities, $43.5B for continued SBA debt relief payments, and $2B for enhancements to SBA lending. An additional $15B of dedicated funding is set aside for live venue operators.
- EIDL recipients who did not receive the full $10,000 grant due to funding limitations will now be able to request the remaining portion of the grant not received up to $10,000.
- Extension of the SBA Debt Relief Program with the SBA paying an additional three months of principal and interest on existing Section 7 loans beginning in February 2021 (the SBA previously paid six months of principal and interest on loans under the CARES Act)
- Provides grants for shuttered live venue operators who can demonstrate a 25% reduction in revenue for a quarter in 2020 versus the same quarter in 2019. The grant will be 45% of gross revenue for 2019 up to a maximum of $10M and must be used for payroll costs, rent, utilities, interest, PPE, and other ordinary and necessary expenses to maintain operation of the business.
FFCRA Paid Leave Payroll Tax Credits
- The FFCRA mandated that certain employers provide additional paid leave benefits to employees who needed qualifying leave related to COVID-19. This included up to 80 hours of paid sick leave and up to 10 weeks of paid family and medical leave.
- The new legislation does not extend the FFCRA paid leave mandates to employers (both expired on December 31, 2020), but the payroll tax credits for both types of leave have been extended through March 31, 2021. Eligible employers (employers with fewer than 500 employees) may voluntarily offer paid leave through March 31, 2021, and may obtain a payroll tax credit to be reimbursed for the paid leave.
- An employer could voluntarily offer paid leave that goes beyond the 80 hours of creditable sick leave and 10 weeks of creditable paid family leave, but any paid leave beyond those limits would be ineligible for the tax credits.
Individual Stimulus Payments
- The legislation authorizes a second round of individual stimulus payments. Households may receive up to $600 for each adult (maximum of $1,200) and $600 for each dependent child. Eligibility for payments would begin to phase out for individuals with adjusted gross income of more than $75,000 ($150,000 for married couples), phasing out completely at $87,000 ($174,000 for married couples). Eligibility will initially be based on income levels and dependents during 2019, but households with lower income or additional dependents in 2020 may be able to request additional payments when filing their 2020 income tax returns. If income increases in 2020 versus 2019, taxpayers will not be required to pay back any of their received stimulus payments with their 2020 tax returns.
Unemployment Benefits
- The legislation provides supplemental federal unemployment benefits of $300 per week for weeks of unemployment beginning after December 26, 2020, and ending on or before March 14, 2021.
Other Notable Tax Relief
- Expansion of the deduction for business meals to 100% for 2021 and 2022
- The above-the-line charitable contribution deduction is extended through 2021 at $600 for those married filing jointly and $300 for other filers. Taxpayers will be able to take the standard deduction and deduct up to $600 in charitable giving. For the 2020 tax year, taxpayers could deduct up to $300 in above-the-line charitable contributions.
- Flexible Savings Account (FSA) balances can be rolled from the 2020 tax year into 2021, and 2021 balances can be rolled into 2022 to assist taxpayers with unused balances for childcare expenses that would normally lose the value of the FSA balance at the end of the year
This legislation provides small businesses and individuals with several significant relief opportunities, but planning is required to maximize benefits from the potential relief programs. Our team will be hosting a webinar on January 6th at 1:00 PM CT to discuss the details of this bill and the top planning opportunities available.
When: January 6, 2021 1:00 PM Central Time (US and Canada)
Topic: COVID-19 Relief Planning - Update on the New Tax Bill
Register in advance for this webinar: https://us02web.zoom.us/webinar/register/WN_Rnm3He1NT_ugbMu89GMS3Q
If you are unable to join the webinar but would like more information on these updates, please do not hesitate to contact our office, or visit our website at www.ongandcompany.com to schedule a COVID-19 Relief Planning meeting. Our team is here to help!