Happy New Year to our clients and welcome to the 2021 Tax Filing Season!
2020 has been an exciting year for tax law changes, relief packages and stimulus payments. Our office has been hard at work the last few weeks keeping up with the almost daily snippets of information released about the new Covid Relief Package.
NCPE Fellowship has developed a wonderful summary of these changes and important details about the Paycheck Protection Program (PPP) “Second Draw” that is now available to applicants. A big question that my clients, who were recipients of the First Round of PPP Funding, are asking is “Am I Eligible”? The answer is YES! If you were eligible for the first round, you may also be eligible for the second draw. Many lenders are awaiting final guidance to be release in order to prep their application process using the revised application rules. See the additional details below and check with your lender for application availability!
Excerpt from NCPE Fellowship Document:
Section 304: Additional Eligible Expenses.
- Makes the following expenses allowable and forgivable uses for Paycheck Protection Program (PPP) funds:
- Covered expenditures for operations. Payment for any software, cloud computing, and other human resources and accounting needs.
- Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Covered supplier costs. Payments to a supplier pursuant to a contract, purchase order, or order for goods that was in effect prior to taking out the loan and was essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- Covered worker protection expenditure. Investments in personal protective equipment and other adaptive costs to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.
- Allows loans made under PPP before, on, or after the enactment of this act to be eligible to utilize the expanded forgivable expenses except borrowers that already had their loans forgiven.
Section 306: Selection of Covered Period for Forgiveness.
- Allows the borrower to elect a covered period ending at the point of the borrower’s choosing between 8 and 24 weeks after loan origination.
Section 311: Paycheck Protection Program Second Draw Loans.
- Creates a second PPP loan called a “PPP second draw” loan for smaller and harder-hit businesses, with a maximum new loan amount of $2 million.
- In order to receive a PPP loan under this section, an eligible entity must: o Employ not more than 300 employees;
- Have used or will use the full amount of its 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 2019 quarter. Provides applicable timelines for businesses that were not in operation in Q1, Q2, Q3, and Q4 of 2019. Applications submitted on or after January 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020.
- Eligible entities include businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
- Ineligible entities include: (1) entities listed in 13 C.F.R. 120.110 and subsequent regulations except entities which have otherwise been made eligible by statute or PPP implementation guidance, including nonprofits and religious organizations; (2) entities involved in political and lobbying activities including engaging in advocacy in areas such as public policy or political strategy or otherwise describes itself as a think tank in any public document, entities affiliated with entities in the People’s Republic of China; (3) registrants under the Foreign Agents Registration Act; and, (4) entities that receive a grant under the Shuttered Venue Operator Grant program.
- Loan terms. In general, borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs during the year prior to the loan or the previous calendar up to a maximum of $2 million, subject to the following exceptions: o Seasonal employers may calculate their maximum loan amount based on a 12-week period beginning February 15, 2019 through February 15, 2020.
- New entities may receive loans of up to 2.5X the sum of their average monthly payroll costs.
- Entities in industries assigned to NAICS code 72 (Accommodations and Food Services) may receive loans of up to 3.5X average monthly payroll costs.
- Businesses with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location.
- Waiver of affiliation rules that applied during initial PPP loans apply to a second loan.
- An eligible entity may only receive one PPP second draw loan.
- Fees are waived for both borrowers and lenders.
- For loans of not more than $150,000, the entity may submit a certification attesting that the entity meets the revenue loss requirements on or before the date the entity submits its loan forgiveness application and non-profit and veterans’ organizations may utilize gross receipts to calculate their revenue loss standard.
- Loan forgiveness. Borrowers of a PPP second draw loan are eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period. Full forgiveness will still require the same 60/40 allocation between payroll and non- payroll costs that applies to initial PPP loans.
- Application of Exemption Based on Employee. Existing safe harbors on restoring FTE and salaries and wages are extended. Specifically, the statute applies the rule of reducing loan forgiveness for the borrower reducing the number of employees retained and reducing employees’ salaries in excess of 25%. Allows the SBA and Treasury Department to jointly modify any date in section 7(a)(d) consistent with the purposes of PPP.
We are very excited to have a second round off PPP funding available to small businesses.
- Don’t forget if you are self-employed, 1099-Misc Recipient and file a Schedule C, you may also qualify for this round of funding.
- Non- Profits now qualify for funding
- Under the new provisions the accounting community finally received clear guidance on the deductible nature of expenses paid for with PPP funds. Business owners will be happy to know that you WILL be able to deduct those expenses covered under the forgiveness provision. This is great news and just in time for tax season.
- EIDLE Advances that were issued from the SBA directly will no longer be deducted from the forgiveness calculation
- Simplified Forgiveness Forms are available for loans of less than $150K. Lenders will be awaiting final guidance and regulations before updating their online applications with the shorter form.
- Forgiveness covered periods were expanded from 8 weeks to 24 weeks from the date of receiving PPP Funds. Under the prior forgiveness regulations, you had to choose between one of the two covered periods. The forgiveness application will now allow you to choose your covered period, so long a it falls within the 8 – 24-week period. If you were able to exhaust the PPP funds in less than 24 weeks, you may adjust the covered period on the application.
Our office is here and ready to assist you with your PPP Forgiveness Applications and with your “Second Draw” applications. Give our office a call at (941)708-5300 or schedule your appointment online at www.ataxshelter.com.
We look forward to working with you during the 2021 filing season!
Tarah Van Fossen, EA