As businesses move beyond operating in pandemic crisis mode, many are facing a significant financial aftermath and considering their options. If you haven’t yet taken advantage of all available programs to help your company, it’s not too late for some assistance.
Late in 2020, the Consolidated Appropriations Act (CAA) of 2021 provided $900 billion in additional funding for COVID-related aid. This second round of funding extends certain programs and broadens the application of funding—in some cases retroactively. Here are two updates to consider:
Paycheck Protection Program (PPP)
The deadline for 2021 PPP applications has passed, but loan forgiveness applications will be available later this year. If your company received a PPP loan for less than $150,000, you can take advantage of a simplified forgiveness process that requires only a one-page certification letter attesting to the number of employees retained, the amount spent on payroll costs, and the total loan value.
Also, the CAA expanded the eligible expenses for PPP loans, which now include additional employer-paid benefits, mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. Additionally, the covered period is more flexible, between 8 and 24 weeks.
The IRS also released new guidance regarding deductibility of PPP loan proceeds. IRS Revenue Procedure 2021-20 allows taxpayers who reduced their deductions for expenses paid using forgiven PPP loan proceeds to elect to take those deductions in the following taxable year rather than amending their current year return.
Taxpayers who filed returns on or before December 27, 2020 (when the CAA was enacted), may now elect to claim the lost deductions on the following year’s return by attaching a statement to the return.
Employee Retention Tax Credit (ERTC)
In 2021, the ERTC is available to any sole proprietor, LLC, S Corp, or C Corp with fewer than 500 full-time employees (up from 100 in 2020) that experienced a decline in gross receipts by more than 20 percent in any quarter of 2020 compared to the same quarter in 2019.
For wages paid between January 1, 2021 and before July 31, 2021, this payroll tax credit is 70 percent of qualified wages up to $10,000 per employee per quarter. (This does not include owners and their family members with combined ownership greater than 50 percent.)
The maximum credit any employer can receive in 2021 is $14,000 ($7,000 per quarter) per employee. For 2020, there is a maximum of $5,000 per eligible employee, computed at a rate of 50 percent of qualified wages up to $10,000 for the year.
Significantly, the new law also allows qualified companies to take advantage of both the ERTC and PPP. PPP funds and ERTC can’t be used to cover the same payroll costs, but it is possible to coordinate these benefits with good planning and record keeping.
As expected, there are many rules and limitations to these programs, so be sure to talk with your tax advisor to see if and how your company qualifies.
We are familiar with the ins and outs of COVID relief and can help you determine eligibility.