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New Coronavirus Bill Shows Promise for Individuals and Small Businesses

On December 21, 2020, Congress revealed its newest spending bill, H.R. 133, the “Consolidated Appropriations Act (CAA), 2021” which includes division N – Additional Coronavirus Response and Relief (ACRR), and Division EE – Taxpayer Certainty and Disaster Tax Relief Act of 2020 (TCDTR).  The bill was approved by the Senate with a 92-6 vote at about 11:45pm yesterday evening just a few hours after the house approved it 359-53.  The bill is on its way to President Trumps desk, who is expected to sign it into law.  This could take a few days, as the bill needs to be printed and signed by the appropriate House and Senate officials before being submitted to the President for signature.  Please note that the below is a highly summarized version of some of the provisions we feel are most relevant to our client base, in general.  The bill clocks in at just over 5,500 pages, so do expect to see more information coming to light as we and other professionals have more time to read through the bill.

Notably, and what most have been waiting to hear about, the bill includes $600 stimulus payments to individuals making up to $75,000 ($150,000 for married couples), as well as a $600 payment for each child dependent. The bill also adds $300 in extended weekly unemployment benefits and provides more than $300 billion in aid for small businesses.

Another neat and notable provision of this bill, Business Meals.  To drum up business for restaurants throughout the country, the bill is allowing a 100% business expense deduction for meals (as opposed to the normal 50%) so long as the expense is for food or beverages provided by a restaurant.  The provision is effective for expenses incurred after December 31, 2020 and expires at the end of 2022.

PPP Update and Second Round Funding

Everyone reading this newsletter is likely already aware of the PPP loans available under the CARES act, which provided businesses cash-flow assistance through an SBA loan, which is 100% forgivable so long as businesses comply with a couple of stipulations, notably payroll cost and headcount (Full-Time Equivalents). The Paycheck Protection Program Flexibility Act (PPPF) made a few changes to the original requirements of the PPP loan, notably lowering the payroll cost requirement from 75% to 60%, freeing up cash from the loan to be used on rent, mortgage interest and utilities. The SBA began processing PPP forgiveness applications and remitting payments to lenders on October 2, 2020.

PPP Expense Deductibility: Something that has been in the news a lot lately and what business owners have been in the dark on – is my PPP loan forgiveness taxable income and are the expenses I paid with the loan tax deductible.  Logically speaking from a tax perspective, we would normally err on the side of caution and say the forgivable loan would be taxable income, which would then make the expenses of that loan deductible, OR the loan would be not taxable income, and the corresponding expenses would also NOT be deductible.  However, going against all logic, it seems the government has made the decision to allow taxpayers to “Double Dip,” not be taxed on the loan forgiveness, and deduct all the expenses they paid with their PPP money.  It is an unprecedented move to aid small businesses in getting back on their feet amidst the seemingly never-ending pandemic.

Economic Injury Disaster Loan: the bill repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.

ACRR permits additional PPP loan funds to be disbursed by lenders.  Due to some of the lessons learned in the first round of funding, representatives worked hard to close loopholes exposed by certain companies such as Shake Shack and Ruth’s Chris.  Accordingly, the ACRR permits certain businesses who experienced a 25% reduction in gross receipts to take a second draw from the PPP of up to $2 million.  To be eligible for this funding, your business must meet the following conditions:

• Employ no more than 300 employees per physical location;
• Have used or will use the full amount of their first PPP loan; and
• Demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same quarter in 2019. You may also choose to use the fourth quarter of 2020, so long as your application is submitted on or after January 1, 2021.

The following are eligible entities for this loan program: for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independents contractors, and small agricultural cooperatives.

Funding: So long as a business meets the above conditions, it may apply for a second loan with similar terms to the first round of PPP funding, with some exceptions.  For most businesses, the maximum loan amount will be 2.5 times the average monthly payroll costs in the one year prior to the loan (trailing 12 months) or the calendar year (2019 if applying in 2020, or 2020 if applying in 2021), up to $2 million.  There is a special stipulation for borrowers in the hospitality or food services industry, which permits loans up to 3.5 times the average monthly payroll cost, still capped at $2 million.  This is sure to be a huge help for our hospitality and food services clients that have been hardest hit by this pandemic.  Obviously, only a single second draw from the loan program is permitted per business.

The bill also allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.

Simplified Certification of Revenue, Forgiveness, and eligible expenses: Another interesting piece of this second round of funding is a new simplified forgiveness process.  In short, if your loan amount is $150,000 or less, you may submit a certification, on or before the date the loan forgiveness application is submitted, attesting that the business meets the applicable revenue loss requirement. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.

Like the first round of funding, the second loan will be forgivable so long as at least 60% of the proceeds are used for payroll costs, and the remaining 40% are used on nonpayroll costs such as rent, mortgage interest and utilities.  The second round of PPP funding also allows other expenses, such as:

• Covered worker protection and facility modification expenditures (i.e., masks, personal protective equipment to comply with COVID-19 federal health and safety guidelines, barriers between desks, etc.)
• Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations
• Covered operating costs such as software, cloud computing services and accounting needs

Application of exemption: ACRR extends the current safe harbors on restoring full-time employees and salaries and wages.  Specifically, loan forgiveness will be reduced for the business that reduces headcount or employees’ salaries more than 25%.

Grants for Shuttered Venue Operators

Section 324 of the bill specifically sets aside $15 billion for the SBA to make grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues and was fully operational on February 29, 2020.

As of the date of the grant under this section venue operator or promoter must be currently or intending to resume operations organizing, promoting, producing, managing, or hosting future live events.

The awarding of grants by the SBA will be in a tiered system to ensure those who need aid most will receive it before funding runs out.  The first priority window for grants will last for 14 days, and grants will be awarded to venues/individuals whose revenue, for the period April 1, 2020 through December 31, 2020 is not more than 10% of the revenue for the eligible venue/individual during the period beginning on April 1, 2019 and ending on December 31, 2019, due to the COVID-19 pandemic.  In other words, if you had a 90% or more drop in revenue for 2020 compared to 2019 for April-December, you are eligible for funding in the first window.

The second priority window will run for the next 14 days and will be for any venue/individual with revenue that is not more than 30% of prior year (you experience a 70% or more drop in revenue from April 2019-December 2019 compared to April 2020-December 2020).

After the initial 28-day period, any other eligible person or venue may apply for a grant.

The bill also specifically sets aside a minimum of $2 billion to be granted to venues or persons who employ less than 50 full-time employees during the first 60 days of granting.

Extension of Paid Sick and Family Leave Credits

Section 286 of the ACRR extends the refundable tax credits available to employers who provide paid sick and family leave related to the coronavirus pandemic.  This provision was originally enacted under the Families First Coronavirus Response Act and was set to expire on December 31, 2020.  It is now extended through March 31, 2021 and requires certain employers to provide paid leave to workers who are unable to work due to circumstances related to COVID-19.

Section 287 of the ACRR similarly extends the credits available to self-employed individuals and allows them to use reported wages from Tax Year 2019, instead of Tax Year 2020 when computing any credits.

Section 288 aligns the definitions of qualified wages for paid sick and family leave with the Internal Revenue Code – it allows employers paying employees under this provision to exclude these payments from employer Social Security employment taxes.

Deferred Payroll Taxes

Many recall on August 8, 2020 when Trump signed a Presidential Memo directing the Treasury Secretary to permit the postponement of the withholding, deposit, and payment of the employee’s share of Social Security tax (6.2%).  While the intention of this memo was to provide Americans an additional 6.2% of take-home pay, the President does not have the authority to eliminate these taxes, and unless further legislation is passed, Americans will ultimately be required to pay back the amounts not withheld.  As a result, few, if any, employers have suspended collecting these amounts from employees pay.

For any employers that did postpone the collection, Section 274 of ACRR extends the repayment period of the deferred taxes through December 31, 2021.  It also provides that penalties and interest will not begin to accrue on the deferred amounts until January 1, 2022.

Employee Retention Credit Expansion

The CARES Act provided an Employee Retention Credit (ERC) which provided a payroll tax credit for 50% of qualified wages up to $10,000 per employee, for a maximum credit of $5,000 per employee.  Under CARES, the ERC may be claimed for wages paid after March 12, 2020 and before January 1, 2021.  Eligible employers for this credit included private-sector businesses and tax-exempt organizations whose operations have been fully or partially suspended because of a government order limiting commerce, travel, or group meetings.  The credit is also provided to employers who have experienced a greater than 50% reduction in quarterly receipts, measured in a year-over-year basis.

Section 206 and 207 of TCDTR expands upon the ERC afforded under CARES with the following changes (we are included only those we feel would be relevant to our clients):

• ERC Credit is now available until the middle of 2021
• The ERC rate is increased from 50% to 70% of qualified wages
• Increases the limit on per-employee creditable wages from $10,000 for the year to $10,000 for each quarter.
• Provides rules to allow new employers who were not in existence in all or part of 2019 to be able to claim the credit
• Increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees

Unemployment Extensions and Provisions

Earlier in 2020, the federal government enacted legislation which included unemployment-related provisions in the CARES Act and the FFCRA.  Notably, COVID-19 relief included an additional $600 per week in unemployment compensation, which lasted through July 31, 2020.  A Presidential Memo created a “Lost Wages Assistance” program through FEMA which allowed for an additional $300 per week in unemployment benefits after the additional $600 per week benefit expired.

Section 201 of the CAA extends unemployment assistance for the pandemic through March 14, 2021.  Individuals may continue to receive unemployment assistance through April 5, 2021, so long as the individual has not reached the maximum number of weeks (which has been increased from 39 to 50 weeks).  Section 203 of the bill restores the Federal Pandemic supplement to all state and federal unemployment benefits at $300 per week, starting after December 26, 2020 and ending March 14, 2021.  Section 251 of the bill requires states to have methods in place to address situations when claimants of unemployment compensation refuse to return to work or refuse to accept an offer of suitable work without good cause including a reporting method for employers to notify the state when an individual refuses employment.
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