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On December 21, 2020, Congress passed a year-end bill to fund the government through September 30, 2021 and provide economic relief in response to the coronavirus pandemic. President Trump signed the bill into law on Sunday, December 27. The package includes $900 billion for COVID-19 relief. In addition to direct payments to a segment of the U.S. population, there are a host of benefits for business owners, as well.

We’ve outlined some important highlights for business owners. Specifically, the bill:

  • Provides an additional $284 billion to the U.S. Small Business Administration (SBA) for PPP forgivable small business loans. In addition, PPP eligibility is expanded to include all nonprofits, including 501 (c)(6) organizations. Businesses that already received a PPP loan will be eligible to get a second one under new terms.
  • Allocates $20 billion in Economic Injury Disaster Loans (EIDL) grants for smaller business.  On December 30, the U.S. Small Business Administration announced that the deadline to apply for the Economic Disaster Loan (EIDL) program for the COVID-19 Pandemic disaster declaration is extended to December 31, 2021.  Pending the availability of funds, EIDL loan application will continue to be accepted through December 2021.
    • EIDL’s have a 3.75% interest rate for small businesses and 2.75% interest rate for nonprofit organizations
    • 30 year maturity
    • Automatic deferment of one year before monthly payments begin.
    • New bill eliminates the EIDL grant from reducing any potential PPP loan forgiveness amount
  • Allocates $166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent.    
  • Allocates $120 billion for an extension of expanded unemployment insurance. The bill extends unemployment programs for 11 weeks. Specifically, the bill provides $300 per week supplement for all workers receiving unemployment benefits, from December 26 through March 14, 2021.

There are also Changes to the Employee Retention Tax Credit (ERTC):

  • The bill extends to wages paid through June 30, 2021 and expands the refundable ERTC, which was established in the CARES Act. The credit rate is increased from 50 percent to 70 percent of qualified wages; expands eligibility for the credit by reducing the required year-over-year gross receipts decline from 50 percent to 20 percent and provides a safe harbor allowing employers to use prior quarter gross receipts to determine eligibility; increases the 100-employee delineation for determining the relevant qualified wage base to employers with 500 or fewer employees, and allows businesses with PPP loans to qualify, among other changes.

Changes to Health and Dependent Care Flexible Spending Arrangements (FSA):

  • The bill allows taxpayers to rollover unused amounts in their health and dependent care FSA’s from 2020 to 2021 and from 2021 to 2022. This provision also permits employers to allow employees to make a 2021 mid-year prospective change in contribution amounts.

Work Opportunity Tax Credit (WOTC):

  • The bill extends WOTC through December 31, 2025. WOTC is a federal tax credit available to employers that hire and retain individuals from certain groups that have consistently faced significant barriers to employment

Modifications to the Employer Credit for Paid Sick Leave and Family Leave:

  • The FFCRA made paid leave a requirement for employers with a refundable payroll tax credit. The requirement to offer paid sick and family leave expired on December 31, 2020. The bill extends the tax credit through March 2021 for employers that continue to voluntarily offer paid sick and family leave to their employees. The extension on the tax credit does not mean that the amount of time an employee can take for leave increased in any way, but if an employer decides to continue with the tax credit, an employee could be entitled to the same options as what was offered before.
    • Two weeks (up to 80 hours) of paid sick leave at the employee’s regular rate of pay where the employee is quarantined and/or experiencing COVID-19 symptoms.
    • Two weeks (up to 80 hours) of paid sick leave at two-thirds the employee’s regular rate of pay where the employee needs to care for an individual subject to quarantine, or to care for a child whose school or child care provider is closed or unavailable due to COVID-19.
    • Up to 10 weeks of paid expanded family and medical leave at two-thirds the employee’s regular rate of pay where an employee is unable to work due to a need to care for a child whose school is closed due to COVID-19.

Extension of employer credit for Paid Family and Medical Leave:

  • The Tax Cuts and Jobs Act of 2017 provided for a federal tax credit for employers that provide paid family and medical leave to their employees. This bill extends the employer credit through December 31, 2025 and applies to wages paid in taxable years beginning after December 31, 2020.

Extension of deferred payroll taxes:

  • President Trump previously authorized the deferral of the employees’ share of social security taxes from September 1, 2020 through December 31, 2020, and required employers to increase withholding and pay the deferred amounts ratably from wages and compensation paid between January 1, 2021 and April 31, 2021. Beginning on May 1, 2021, penalties and interest on deferred unpaid tax liability will begin to accrue. This bill extends the repayment period through December 31, 2021 and penalties and interest on deferred unpaid tax liability will not begin to accrue until January 1, 2022.

The return of the Paycheck Protection Program (PPP), or as some are referring to it as PPP2, have many similarities to the first round of PPP but also several differences. The following is some common questions related to PPP2.

1. What organizations can apply for the new round of PPP?

Businesses, some nonprofit organizations (now including 501(c)(6) organizations), self-employed workers and independent contractors are among those eligible. Existing PPP borrowers may apply for a second loan, provided they have 300 or fewer employees and can demonstrate they experienced a 25% reduction in gross receipts during a quarter in 2020 compared with the same quarter in 2019. First-time PPP borrowers will be subject to the program’s original eligibility rules. The original PPP program was generally open to businesses with up to 500 employees, and there was no requirement to demonstrate a revenue loss.

2. How much is a business eligible for?

The maximum for second-draw loans is $2 million, less than the $10 million cap for PPP’s first round. Loan amounts will be based on an applicant’s payroll, consistent with the program’s original terms. Second-time PPP borrowers will generally be eligible to borrow an amount equal to 2½ times their average monthly payroll costs, up to $2 million. A notable exception: applicants in the accommodation and food services industries, as designated by the SBA, are eligible for loans equal to 3½ times their average monthly payroll, up to $2 million.

3. What are the forgiveness requirements?

Borrowers are still required to spend at least 60% of the funds on payroll to receive full forgiveness. The other 40% may be used on eligible costs. As before, these costs include certain mortgage expenses, rent and utility payments. The bill expands forgivable expenses to include expenditures for group life, dental, disability and vision insurance; personal protective equipment and other gear to protect workers; supplier costs; operations expenditures, such as software; and property damage costs due to public disturbances during 2020. Borrowers remain responsible for any amount not forgiven by the SBA.

Importantly, the legislation also clarifies that businesses that received PPP loans may take tax deductions for the expenses covered by forgiven loans.  In making the decision to apply for this latest round of PPP, organizations should consult with their legal, tax, accounting, or financial advisors, as necessary.

4. Anything else to know?

The law provides a simplified forgiveness process for PPP loans under $150,000 for this round of loans. These borrowers will need to complete a one-page certification attesting they complied with program requirements, along with providing other information. Previously, the SBA and the Treasury issued a two-page forgiveness form meant to simplify the process for borrowers with loans of up to $50,000. We will know more details when the SBA issues the new forms and guidelines on or about January 6.

For more updates or information, contact your TRICOM representative or follow us on Facebook, Twitter and LinkedIn.

For additional guidance and up-to-date information, visit:

The SBA Website:
https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources

Current IRS News Releases:
https://www.irs.gov/newsroom/news-releases-for-current-month

SBA New Guidance:
https://www.sba.gov/article/2021/jan/08/sba-treasury-announce-ppp-re-opening-issue-new-guidance

 

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