Last Updated: 1/29/2021
The COVID Relief bill replenishes the PPP loan program and includes a number of changes.
Loan recipients can potentially benefit from additional relief. The legislation clarifies that forgiven loans are not taxable income and allows businesses to claim tax deductions on expenses that were covered by forgiveness. Certain companies may qualify to receive a second PPP loan with an amount up to 2.5x the monthly payroll costs for most companies (subject to a $2 million cap).
The eligibility requirements for companies to qualify are:
Must have 300 or fewer employees
Can provide documentation of a 25% reduction in gross receipts in 2020
Additionally, companies that have previously received a PPP loan are no longer precluded from participating in the Employee Retention Tax Credit.
The bill mandates a simplified forgiveness application be created for any loans under $150,000. The scope of forgivable costs for any loans not already forgiven have expanded, such that forgivable expenses now include: operations expenses such as software, cloud computing, and other human resources and accounting needs; certain property damages costs not covered by insurance; certain pre-existing supplier costs; and PPE and other worker protection expenditures.
The bill further clarifies that additional employer-provided group insurance benefits are included in payroll costs, including group life insurance, disability insurance, vision insurance, and dental insurance. Update: We’ve updated the Paycheck Protection Program (PPP) report in Justworks to support new PPP applications based on the latest legislative changes. This makes it easier for customers to calculate their average monthly payroll (AMP), as well as to maximize their new first- or second-draw Paycheck Protection Program (PPP) loan amount. You can learn more about the updated PPP report in our Help Center article.
The CARES Act created a few tax relief opportunities for eligible employers, including the employer Social Security tax deferral and the Employee Retention credit. There are important updates for each of these programs.
The employer Social Security Tax Deferral from the CARES Act has not been extended by the COVID-19 relief bill. Without further legislative action, the tax deferral program will end on December 31, 2020. Employers that took advantage of the deferral throughout 2020 will be required to repay the deferred tax amounts, with 50% of the deferred amount due by December 31, 2021 and the remainder due by December 31, 2022.
The relief bill extends the Employee Retention Tax credit program through the first two tax quarters of 2021 (meaning it will end on June 30, 2021).
For the 2021 program, more employers may expect to become eligible for tax credits. In 2020, employers must either have had their operations suspended in the quarter or have suffered a 50% decline in gross receipts for the quarter. Under the new law, a 20% decline in gross receipts will suffice, and employers will have the ability to look to determine eligibility based on such a decline in the immediately preceding quarter.
Additionally, businesses that have applied for or received a PPP loan are no longer precluded from participating in the Employee Retention Tax Credit.
Eligible employers can receive higher credits in 2021 as well. The amount of the credit increases from 50% to 70% of applicable wages. Additionally, credits are available on up to $10,000 in qualified wages per eligible employee per quarter (up from $10,000 total), for a potential quarterly credit per employee of $7,000 ($14,000 total for 2021).
Under CARES, there were fairly stringent restrictions on how employers with over 100 employees could utilize the credit — e.g. they were only available for wages paid to employees who were not actually working — which going forward will apply to employers with more than 500 employees.
The Families First Coronavirus Response Act (FFCRA) mandate covered small and midsize employers to provide eligible employees with paid sick leave and paid family and medical leave for certain specific COVID-19-related qualifying reasons. It also allowed employers to claim tax credits to help cover the cost of providing paid leave.
The mandate requiring employers to pay employees on FFCRA leave is still set to expire on December 31, 2020. However, the ability to receive tax credits on qualifying emergency paid sick and emergency family leave has been extended thru March 31, 2021.
This means that employers can optionally continue to pay employees on leave for situations that were previously covered under FFCRA as part of their company policy, and continue to receive tax credits up to the applicable caps.
Update: We’ve updated the FFCRA leave tool accordingly in the COVID-19 Relief Center in Justworks. Customers can now place employees on qualifying emergency leave for FFCRA, for dates in the future, until the program extension expires on March 31, 2021. You can learn more about placing employees on FFCRA leave in our Help Center article.
The information here is not a comprehensive recap of all that is included in the relief bill. It covers the updates we believe are most relevant to the small business community who may be leveraging or hope to leverage available relief.
We will continue to update this post as things change and more information is made available. In the meantime, you can find more about government and other COVID-19 programs via the DOL, IRS, SBA, Department of Treasury, CDC, and WHO as they make updates. You should also consult your tax professional or legal counsel to discuss your specific situation.
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