Contained within this summary:

  • Changes implemented as a result of H.R. 133 being signed into law on December 27, 2020 as part of the $1.4 trillion omnibus spending bill ($900 billion stimulus package) for:
    • Small Business Administration (SBA) Paycheck Protection Program (PPP)
    • Employee Retention Tax Credit extension (and expansion)
    • Economic Injury Disaster Loan (EIDL) extension (and expansion)
    • Families First Coronavirus Response Act (FFCRA)
    • Pandemic Unemployment Insurance (PUI)
    • Temporary Allowance of Full Deduction for Business Meals
  • Pennsylvania $145 million funding for small business
  • Montgomery County $5.0 million COVID-19 Grants for Restaurants & Food Service businesses
  • BLBB EFM Strategy Options

After much debate, positioning, and negotiating, Congress and the Administration have passed the long hoped for extension to the PPP and various other economic programs to support the economy until the COVID-19 vaccines become more generally available and we can return to a more normal level of economic activity. The final bill was rushed through Congress, leaving those not involved in the drafting with just several hours to review the 5,593-page, $1.4 trillion bill before it was voted on. The SBA has up to 24 days to issue more specific rules and to adjust application procedures for new programs, but below are some preliminary observations:

 

SBA PPP Changes:

  • Allocation of $284 billion for a second draw on SBA PPP funding (Section 311) for both those businesses who already received prior PPP funding in the first draw and those businesses who initially qualified for SBA PPP funding in draw one who did not receive funding, to receive it if they apply and are funded. See Subtitle B – COVID-related Tax Relief Act of 2020 (starting on page 1815 if you download H.R. 133 as a pdf). This is in line with the original CARES Act (the Act) passed on 3/27/20 for $350 billion and the 4/24/20 addition of $310 billion.
    • Program funding expires 3/31/21. Funding is limited, so get your application requests in asap. If you have an existing PPP loan from the first draw, our assumption would be that this would be a second draw from that same bank/financial institution – so contact them directly for procedural guidance.
    • Second Draw Loan funding requirements per Section 311 include:
      • A maximum of 300 employees
      • Gross receipts reduction for any one quarter in 2020 of at least 25% less than that same quarter in 2019 (i.e., the decline from 2Q19 to 2Q20 must be 25% or more)
      • Draw 2 may not exceed $2.0 million; the sum of Draw 1 and Draw 2 may not exceed $10.0 million
      • Amount of Draw 2 can be 2.5 times the average monthly payroll for either 2019 or 2020.
      • Accommodation and Food Service businesses (NAICS 72) get 3.5 times the average monthly payroll.
      • New entities get 2.5 times (sum of monthly payroll $/# months payroll incurred)
      • Additional expenses above those originally deemed eligible are now allowable per Section 304, such as business software or cloud computing, Operating and Capital Expenditures relating to governmental guidelines (i.e., masks, filters, plexiglass shields) and property damage from vandalism not covered by insurance.
    • First time Borrowers are subject to the original eligibility rules (i.e., < 500 employees, no requirement to demonstrate revenue loss).
    • 501©(6) organizations are now eligible to apply (i.e., Chambers of Commerce)
  • Allows full deductibility of expenses used to support PPP Loan Forgiveness via section 276 (a) (1)(i)(2) “no deduction shall be denied, no tax attribute reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1)”. As noted in BLBB’s 12/17/20 Update, the Treasury’s Rev Rule 20-27 interpreting the intent of Congress to exclude deductibility was heavily challenged and Congress clearly over-rode this Treasury rule to allow full deductibility.
  • EIDL advances are no longer required to be deducted from eligible expenses for loan forgiveness, see Section 333 and SBA additional guidance which must be issued by January 11.
  • Loan Forgiveness Application Changes:
    • Simplified Forgiveness Application (<= $150,000 not more than 1 page in length); SBA must issue by January 20 per Section 307. They also reduced the amount of required backup to be submitted with the Forgiveness Application; however, this backup is still required to be kept for four years on payroll related expenses and three years for other expenses.
    • Changed application process for $150,000 to $2,000,000 Loan Forgiveness requests
    • Loan Necessity Questionnaire for loans >$2.0 million (Form 3509 or 3510 Non-profit) focusing on Business Activity Assessment and Liquidity Assessment

Employee Retention Tax Credit expansion:

  • It appears PPP Borrowers may no longer be excluded from taking this tax credit per section 206 and 207 of the Act. There are provisions which prevent “double dipping” or double counting of the same payroll dollars for PPP Loan Forgiveness (offering 100% forgiveness) and the Employee Retention Tax Credit (offering 50% or 70% refundable tax credit). Please see BLBB EFM Strategy Options.
  • Credit is extended to 6/30/21.
  • Fully refundable tax credit for employers equal to 50% of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees [1].
  • Eligible Employer is defined as an entity which carries on a trade or business, including tax exempt organizations, that either (i) fully or partially suspends operation during any calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings due to COVID-19; or (ii) experiences a significant decline in gross receipts during the calendar quarter [2].
  • Per section 207, the eligible wages are increased from a total of $10,000 per employee to $10,000 per employee per quarter. The credit rate is increased from 50% to 70%. The original revenue drop threshold for this benefit was 50%; H.R. 133 has relaxed that revenue drop to only 20% or more.
  • Qualified wages are those paid from 3/13/20 through 6/30/21.

Economic Injury Disaster Loan (EIDL):

  • Section 331 of the Act targets eligible entities who (i) apply for the loan; (ii) are located in a low-income community; (iii) suffered an economic loss greater than 30%; (iv) employs <300 people and (v) appears to provide for a $10,000 EIDL loan which is forgivable. To the extent the covered entity may have received a loan of less than this amount, they may be entitled to apply for, and receive, the difference.

Families First Coronavirus Response Act (FFCRA):

  • The law requiring employers to provide this type of Leave was not extended beyond 12/31/20, so lapses.
  • The Federal Tax Credit is still allowable for employers who voluntarily extend their FFCRA policy through 3/31/21 per Section 286.

Pandemic Unemployment Insurance (PUI):

  • Benefit was extended through 3/14/21 at $300/week on top of state benefits. This is reduced if Adjusted Gross Income (AGI) is <$75k individual; <$150k married filing jointly.

Temporary Allowance of Full Deduction for Business Meals:

  • The deduction for ordinary and necessary business meals was increased from 50% to 100% from 1/1/21 through 12/31/22. This does not apply for 2020. It may include both in-restaurant and take-out dining.

Pennsylvania $145 million funding for small business:

  • On December 23, Governor Wolf of the Commonwealth of Pennsylvania announced a $145 million program with money transferred from funds in the Workers’ Compensation Security Fund to be appropriated by the state legislature into grants for businesses whose operations and revenue were significantly hurt by the pandemic [3].

Montgomery County COVID-19 Grants:

  • Montgomery County announced a $5 million program created to support restaurants and other food service businesses hurt by the COVID-19 pandemic [4].

BLBB EFM Strategy Options:

  • Companies can now take BOTH the SBA PPP and the Employee Retention Credit. Previously the company had to select one or the other.
    • Be cautious of “double dipping” the same payroll dollars in both programs and seriously evaluate whether an entity qualifies for both the SBA PPP and the Employee Retention Credit and allocate the payroll and other eligible expenses to maximize the benefit. Added guidance is necessary from the Treasury Department, but it appears that this change will allow employers to seek tax credits for periods of pay when they are not applying for loan forgiveness. It may also allow tax credits to the extent there were excluded wages from the PPP loan forgiveness calculations during a period of overlap, for example: compensation during the PPP covered period in excess of $100,000 per year annualized for employees.
    • The new law’s relaxation of the original 50% or more quarterly revenue reduction to 20% may now make an employer eligible in 2019 for either the original test of covered period quarter to prior year’s same quarter (i.e., 2Q20 to 2Q19) or using the Alternative Quarter Election of the immediately preceding quarter (i.e., 2Q20 to 1Q20). Companies not meeting the revenue decline threshold may still qualify under the government-ordered full or partial suspension test.
  • When completing your Loan Forgiveness Applications:
    • Pay attention to the “short form” eligibility: <$50,000 and the new 1 page <$150,000
    • Most payroll providers are supplying the required supporting worksheets for the SBA PPP Loan Forgiveness Schedules.
  • Keep in mind the optional FTE calculation method if you were able to take advantage of the planning technique we first outlined in our May 5 update https://blbb.com/blog/paycheck-protection-program-loan-forgiveness-application-update/
  • If you are applying for a PPP loan for the first time, financial institutions generally require an existing deposit or loan account relationship to provide an SBA PPP loan making it administratively more efficient to reach out to the financial institution you are currently banking with. If you want to obtain an SBA PPP loan through another institution, it would be a good idea to set up an account there asap, which may be a simple business checking account.
  • If you are going for Loan Forgiveness of $2.0 million or more, you will need to complete a Loan Necessity Questionnaire (i.e., Form 3509 or 3510). This questionnaire must be completed within 10 business days from receipt and has some limited text response fields: be succinct. Consider FAQ-53 published on 12/9/20 in formulating your response.
  • The $10,000 EIDL advance no longer needs to be deducted from the loan forgiveness request. If you have not submitted the forgiveness request, don’t subtract the advance. If you have, reach out to your bank/financial institution for guidance on the procedures for resubmitting your request to receive the additional $10,000 in PPP Loan Forgiveness [5].
  • Disappointingly, the new CARES Act did not afford any basic liability protection for businesses sued by employees or customers alleging they contracted COVID-19 on the premises while those businesses were following the CDC and State Health department guidelines. It remains in a business’s best interest to document compliance with all CDC and State Health Department guidelines on an ongoing basis.

The January IRS Federal Applicable Rate (FAR) rates are: Short Term (<3 years) 0.14 %; Mid-term (3 – 9 years) 0.52 %; and Long-term (>9 years) 1.35 %[6].

Additional resources:

The SBA PPP program requirements are constantly changing. Borrowers should periodically check for updated guidelines prior to submitting any PPP Loan Forgiveness Application to a Lender.

BLBB does not provide tax advice nor practice law. Please see your licensed tax or legal professional who can advise you based on your particular facts and circumstances.

 

[1] https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-general-information-faqs

[2] Ibid

[3] https://nepascene.com/2020/12/gov-wolf-approves-145-million-pa-businesses-urges-congress-provide-covid-19-relief/

[4] https://whyy.org/articles/montco-announces-new-grant-program-specifically-for-the-restaurant-industry/

[5] Lenders need time to review and implement the new SBA procedures.  After submitting your request, consider setting a calendar reminder 1 month out to follow up.

[6] https://www.irs.gov/pub/irs-drop/rr-20-26.pdf

 

[Download BLBB EFM Management January 2021 Update]