Huge New Stimulus Credits in the Consolidated Appropriations Act of 2021 Available to Employers Impacted by the Pandemic

Last year, the CARES Act granted businesses and nonprofits a payroll tax credit, but due to its several restrictions most clients were unable to qualify. The newly passed Taxpayer Certainty and Disaster Tax Relief Act of 2020, a part of the Consolidated Appropriations Act of 2021, drops many of the restrictions. In so doing, the new law frees up potentially millions in credits for qualified employers due to the expanded Employee Retention Tax Credit (ERTC), now applicable through the first two quarters of 2021. The major changes are:

• increase the credit percentage from 50% to 70% of qualified wages.
• increase the creditable limit on per employee wages from $10,000 for the year to $10,000 for each quarter.
• reduce the required year-over-year gross receipts decline from 50% to 20%.
• increase from 100 to 500 in the number of employees counted when determining which qualified wage base applies.

Contact our office for a complimentary assessment on whether your business qualifies. Many of our clients, both large and small, are anticipating receiving from thousands to hundreds of thousands of dollars and up in dollar for dollar payroll tax credits.
 

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Paycheck Protection Program Second Draw Loans

The Paycheck Protection Program (PPP) now allows certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP Loan with the same general loan terms as their First Draw PPP Loan. Second Draw PPP Loans can be used to help fund payroll costs, including benefits. Funds can also be used to pay for 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. 

Full Forgiveness Terms

Second Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement: 

• Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan; 
• The loan proceeds are spent on payroll costs and other eligible expenses; and 
• At least 60 percent of the proceeds are spent on payroll costs. 

Targeted Eligibility

A borrower is generally eligible for a Second Draw PPP Loan if the borrower: 

• Previously received a First Draw PPP Loan and will or has used the full amount only for authorized uses; 
• Has no more than 300 employees; and 
• Can demonstrate at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020. 

Borrowers can apply for a Second Draw PPP Loan until March 31, 2021, through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, eligible non-bank lender, or Farm Credit System institution that is participating in PPP. All Second Draw PPP Loans will have the same terms regardless of lender or borrower. At least $25 billion is being set aside for Second Draw PPP Loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low- or moderate-income neighborhoods. To promote access for smaller lenders and their customers, SBA will initially only accept Second Draw PPP Loan applications from community financial institutions starting on January 13, 2021. The PPP will open to all participating lenders for Second Draw PPP Loans shortly thereafter. Visit www.sba.gov or www.treasury.gov for more information and details.

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PPP Highlights of the New Covid Relief Legislation

After months of negotiations, Congress finally passed the Consolidated Appropriations Act late in the evening last night, and the new legislation includes a little something for everyone. Here are some of the highlights relating to the Payroll Protection Program (PPP):

• The bill provides that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. Also clarified is that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness.

• Additional eligible expenses that qualify for forgiveness now include covered operation expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures. 

• Borrowers may select the end of their covered period to be anytime between 8-24 weeks from receipt of their loan.

• Simplified Loan Forgiveness process for borrowers with less than $150,000 of loans. 

• Payroll costs now include employer payments for group life, disability, vision, and dental insurance payments. 

• Borrowers can amend their original application to request increased loan amounts due to changes in PPP loan rules if the original loan amount was less than the amount that would have otherwise applied.

• No eligibility for PPP loan if the business was not in operation as of February 15th, 2020. 

• Small businesses with less than 300 employees and a 25% or more drop in revenue (gross receipts for non-profits) are eligible for a second round of PPP. 

• Borrowers can elect to calculate the second round based on 2.5x the average monthly payroll costs during any one year period prior to the date of the loan or the 2019 calendar year. 

• The bill provides clarification of all existing safe harbors and exceptions for reduction in employee headcount (FTEs), and provides that the SBA may modify dates of safe harbors in order to comply with intent of PPP. 

• The legislation allows borrowers to reapply even if they have returned their loan amount or if a change in the rules would allow them to receive a larger PPP loan. 

• The legislation makes it clear the Schedule F Farmers are eligible for PPP loans based on 2019 Schedule F income.

• Most 501(c)(6) entities are eligible for the receipt of a PPP loan. 

• $100,000 salary/wage limitation applies on an annualized basis. 

• March 31, 2020 is the new deadline to apply for and receive a PPP Loan.

• $15 Billion set aside for special Shuttered Venue Grants (movie theatres, live theatre venues) for venues that had a 25% reduction in revenue in first, second, or third quarter of 2020 as compared to the same quarter in 2019.

We work with clients who have both large and small Payroll Protection Plan loans, and we are working with their lenders on the new loan necessity requirements for those with loans in excess of $2 million, and on forgiveness compliance. Given the many changes made to the program, employers and businesses would be prudent to pay close attention to the program’s new requirements.

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Employers: Changes Coming to Mandatory FFCRA Leave Requirements

The Families First Coronavirus Response Act (FFCRA) that was passed in March required specified employers to provide emergency paid sick leave, as well as emergency paid leave under the Family and Medical Leave Act (FMLA), to employees. FFCRA leave ends this month, but tax credits continue for leave voluntarily extended to employees.

Highlights include:

• Mandated FFCRA Leave ends on December 31, 2020.
• As of January 1, 2021, covered employers may voluntarily provide emergency paid sick leave or emergency paid FMLA Leave under FFCRA (as adopted earlier this year) and take the tax credit associated with this leave.
• The tax credit may only be taken for leave through March 31, 2021.

FFCRA leave is no longer required, but if covered employers voluntarily provide these leave benefits through March 31, 2021, they are eligible to take the tax credit, for the leave bill allows covered employers to voluntarily provide emergency paid sick leave or emergency paid Family and Medical Act Leave under the Families First Coronavirus Response Act (FFCRA) as adopted earlier this year, which is set to expire on December 31, 2020, and to take the tax credit associated with this leave through March 31, 2021. In other words, FFCRA leave is no longer required, but if covered employers voluntarily provide these leave benefits, they are eligible to take the tax credit for the leave. While employers with fewer than 500 employers will no longer be required to provide paid leave under federal law as of January 1, 2021, they should be mindful of other paid leave requirements under state and local laws, as well as their own paid leave and PTO policies.

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Understanding the Current PPP Landscape

The Paycheck Protection Program (PPP) provided a lifeline for thousands of small businesses across the nation, helping struggling owners pay employees to remain in business during the pandemic. Once borrowers provided lenders and the Small Business Association (SBA) with verification that the proceeds were used appropriately, the loans would be forgiven. Small businesses hope for a second round of stimulus in the coming months to help offset the second COVID waive.Businesses that received loans this year are either beginning to apply for loan forgiveness, or are planning to do so, but confusion remains about the timing of the application process, as well as the tax implications. Investigations of PPP recipients are gaining steam as reports of waste and abuse have captured the attention of government watchdogs and the public. Authorities are targeting businesses that did not apply for loans in good faith or use the funds appropriately for payroll, utilities, rent, or other permitted expenses.

A second stimulus bill is appearing likely, unlocking a second round of available funds for businesses. Regardless of where your business stands, it is important to mitigate risks associated with the application or forgiveness process. There are several takeaways and common misconceptions that have arisen over the past several months of the PPP as investigations heat up:

• Misuse of proceeds is not the only focus. There are many reports of businesses receiving loans despite exceeding the 500-employee workplace limit, taking more money than they were eligible for, or using funds on ineligible expenses. Investigators are also looking at technical or clerical errors with statements made on original PPP applications.

• Investigations are not isolated to large sum loans. Loans under $50,000 are facing scrutiny.

• Investigations are not isolated to the largest U.S. districts. Assignment of multiple Assistant U.S. Attorneys, along with dedicated law enforcement officers and resources in such federal law enforcement agencies as the HHS, FBI, Department of Homeland Security, Department of Postal Investigation Services, among others, highlights a sharpened focus on discovering and prosecuting criminal conduct related to COVID-19.

• The trigger for flagging a loan for investigation varies, and could be spurred by a whistleblower, the lender, or the federal agencies pursuing instances of fraud.

As you proceed with any component of the PPP process – from loan forgiveness to new loan origination – it is important to understand the legal background. During and after the loan forgiveness process, PPP loans can also complicate certain types of corporate transactions. PPP borrowers that are considering a sale transaction, a financing, or other significant corporate transaction should thoroughly understand the PPP landscape.

We represent a number of clients with both small and large Payroll Protection Plan loans, and we are working with their lenders and advisors on the new loan necessity requirements for those with loans in excess of $2 million, and on forgiveness compliance. Given the many changes made to the program on the fly, we anticipate that being prepared for the audit process will be highly prudent. 

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Illinois Employers Must Conduct Sexual Harassment Training by 12/31/20

Last year Illinois enacted the Workplace Transparency Act (WTA), which requires employers provide sexual harassment training to employees. In Illinois, it is a civil rights violation for any employer to engage in sexual harassment, and due to the Illinois General Assembly’s finding that tolerance of sexual harassment has a detrimental influence on the workplace environment, employers are encouraged to adopt and actively implement policies to ensure their workplaces are safe for employees to report concerns about sexual harassment without fear of retaliation, loss of status, or loss of promotional opportunities.

For All Employers:

Training must occur at least once per year, and failure to provide training subjects an employer to fines ranging from $500 to $1,000 for first offenses, $3,000 for second offenses, and $5,000 for third offenses. The law covers any employer who has at least one employee, and covers all employees, including those only working part-time. To avoid enforcement of these fines, it is recommended that employers have each employee sign a certificate of completion for the employer to keep as part of their records. 

The State of Illinois Model Sexual Harassment Prevention Training Program for all employers can be found here, but the training must, at a minimum, meet four requirements: 

1. It must define the various types of harassment such as quid quo pro and hostile work environment harassment; 
2. The training must provide samples of harassment; 
3. It must summarize the relevant statutory provision governing harassment and the remedies to employees covering harassment; and
4. The training must explain the employer’s obligations to prevent, investigate, and take appropriate corrective action against harassment.

For Restaurants and Bars:

In addition to the above requirements for all employees, restaurants and bars must provide supplemental training by developing their own training program or utilizing the model training program provided by the IDHR. The Illinois Sexual Harassment Prevention Training For Bars & Restaurants can be found here, but at a minimum, the supplemental training must include: 

1. Specific conduct, activities, or videos related to the restaurant or bar industry;
2. An explanation of manager liability and responsibility under the law; and
3. English and Spanish language options.

Should you have any questions regarding the above requirements as they apply to you or your business, please contact us. 

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You have spent your PPP funds, now what?

The Paycheck Protection Program (PPP), provides loans and loan forgiveness based on borrower’s certifications and documentation provided by the borrower. The SBA has announced that it will begin auditing these applications once the filing of the forgiveness request is made. Due to the many and ongoing changes in guidance and rules, we recommend early filing for forgiveness, as the rules then in effect will govern the application. For example, the SBA just issued a procedural notice to those businesses/not for profits who are thinking of selling or merging their businesses, who will now need to notify their PPP lender of the contemplated transaction and provide the PPP Lender with a copy of the proposed agreements. So what should a business or non-profit expect, and what will be considered?

Although the SBA has said it is reviewing all loans in excess of $2 million, the SBA may audit any applicant for loans in any amount. If SBA does decide to audit a given PPP loan, the borrower/recipient will be notified by the lender or the SBA by mail.  

The borrower/recipient must retain PPP documentation for six years after the date the loan is forgiven or repaid in full, and the following factors will be examined:(1) whether a borrower was originally eligible for a PPP loan, i.e., that economic uncertainty made the loan request necessary to support the ongoing operations of the Applicant, and any borrower/recipient with a loan greater than $2 million will need to be ready to establish that they qualified based on their individual circumstances, (2) whether a borrower calculated the loan amount correctly, (3) that the borrower used the proceeds for the central purpose of keeping workers paid and employed, and that proceeds have been spent on allowable uses: payroll costs, interest on mortgages, rent, utilities, and interest on any other debt obligations incurred before February 15, 2020.

The SBA may request additional information and will consider all information provided by the borrower in response to such an inquiry. If a borrower fails to respond to such a request for information, the SBA may determine the borrower was ineligible for the loan, or for forgiveness in whole or in part. As such, it is crucial your business responds promptly and thoroughly to any and all requests.

If an adverse finding is made by the SBA, the borrower/recipient has 30 days to prepare and file an appeal. The appeal will be heard by the SBA Office of Hearings and Appeals (OHA) after (1) the appellant’s receipt of the final SBA loan review decision, or (2) notification by the lender of the final SBA loan review decision, whichever is earlier. Note an appeal by a borrower of the SBA’s decision does not extend the deferral period of the PPP loan.

The SBA has only just begun the review process, and any application filed now will likely take months to be reviewed. It is prudent to be sure to update your lender on any address/personnel changes to be sure that you receive any notifications.  

We represent PPP recipients in understanding the SBA requirements, completing the forgiveness application, and preparing and defending the audit. Should your company require assistance, please contact us. 

How employers can respond to the Presidential order on payroll taxes

A Presidential directive was issued on Saturday, August 8, 2020, deferring collection of certain U.S. payroll taxes normally withheld from employees’ paychecks from September 1 through the end of the year. 

 

The IRS issued guidance on August 28, 2020, attempting to implement the directive, allowing employers to defer withholding the employee portion of certain payroll taxes (where pretax wages or compensation during any biweekly pay period is less than $4,000) during the last four months of 2020. But this is no free lunch, as the withholding and payment of these taxes is only postponed until the period beginning Jan. 1, 2021, and ending April 30, 2021.

 

The deferral only applies to any pay period in which the employee is paid less than $4,000. The notice leaves unclear whether this limit applies solely to wages and compensation or if items such as bonuses, commissions, or overtime hours should be included. Deferral of Social Security tax for self-employed persons is entirely unaddressed. 

 

The burden of repaying any deferred taxes is on the employer, not on the employee. If an employer elects to defer withholding under the notice, then the employer must either withhold and pay or pay the deferred taxes during the period from Jan. 1, 2021, to April 30, 2021. Interest, penalties, and additions to tax will begin to accrue on May 1, 2021, with respect to any unpaid taxes.

 

This leads to several problems. Employees may object when they realize that the employer is withholding at a higher than normal rate (essentially double) during early 2021. While employers are allowed to “make arrangements to otherwise collect the total applicable taxes from the employee,” there are no details on allowable alternatives. Also, if an employee leaves the company after having taxes deferred or has insufficient wages to pay back the tax, the employer is left holding the bag for the deferred taxes which would otherwise have been the employee’s obligation.

 

The Guidance does not address whether deferral is optional. Businesses are left to re-tool their payroll systems to withhold the proper amount of tax from certain employees’ paychecks, and to figure out how to coordinate this with state and local tax withholding. Employers with collective bargaining agreements will need to determine if they are permitted to adjust withholding under those agreements before implementing any changes.

 

We are advising our clients that, unless additional guidance makes it clear that the deferral is mandatory, they may disregard the Presidential directive. Any short-term cash flow benefit to employees is highly unlikely to be justified by the cost of retooling their payroll systems, the potential confusion or unhappiness of their employees from increased withholding in 2021, and the possibility of the employer being responsible for deferred taxes if an employee leaves or has insufficient wages before fully repaying the deferred taxes. 

 

Should you have any questions regarding these developments, or on any matter, feel free to contact us. 

 

Major Changes Are Coming to Double Your PPP Loan, and Automatic Forgiveness

After acting decisively to support the economy in March, Congress has failed to agree on a subsequent round of spending. Key economic supports, like the $600 supplement to unemployment insurance payouts and a moratorium on evictions, were allowed to expire at the end of July. Presidential executive orders to continue certain protections are not likely to be very effective, resulting in a need for a more comprehensive legislative response. Should that be forthcoming, the Continuing Small Business Recovery and Payroll Protection Plan Protection Act recently introduced in Congress has wide support.

The Act is intended to correct problems with the current program while allowing many to qualify for new funds.  Those eligible for new money are businesses, certain non-profit entities, veterans organizations, tribal businesses, self-employed individuals, sole proprietors, and independent contractors or small agricultural cooperatives with 300 or fewer employees who have had a 50% or greater fall in receipts from the: (1) 1st quarter of 2019 to the 1st quarter of 2020, OR (2) 2nd quarter of 2019 to the 2nd quarter of 2020. The loan amount is almost identical to the original PPP program, capped at $2 Million, with limited exceptions allowing certain applicants to reach $10 Million.

The 8 to 24 week covered period during which a recipient has to spend sufficient amounts to receive forgiveness will now be selected by the recipient, starting on the day after the borrower receives the funds, and ending on any day selected by the borrower, but no later than December 31, 2020.

New categories of forgivable expenses are also being added, including payment for any software, cloud computing, human resources and accounting needs, certain payments pursuant to a contract for goods essential to a recipient’s current operations, and payments for personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines.

Borrowers with loans under $150,000 will not be required to submit the previously issued application and must simply attest to a good faith effort to comply with PPP requirements. In addition, borrowers who received PPP loans that could have received larger loans due to SBA Interim Final Rules issued after receipt of the loan can submit a request to increase the loan to the maximum amount that could have been borrowed under the most favorable rules. This will apply regardless of whether the sponsoring bank has filed a Form 1502 and will enable many seasonal businesses and entities taxed as partnerships to borrow more at this time.

Let us know if you have any questions on the PPP or this new legislation’s potential effect on your business.

 

 

 

 

 

 

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Senators Agree PPP Forgiveness Application Requires Legal, Accounting Help to Complete, Ask SBA for Simplification

Senators on Friday urged the Treasury Department and Small Business Administration (SBA) to simplify the process for businesses to receive loan forgiveness under the Paycheck Protection Program (PPP). “In this public health and economic emergency, we must do all we can to make sure our small businesses have the support and assistance they need to weather the crisis,” they said in a letter to Treasury Secretary Steven Mnuchin and SBA Administrator Jovita Carranza.

 

Under the PPP, which was created by coronavirus relief legislation signed in late March, businesses and non profits can get loans that are forgivable if they maintain their payrolls. Treasury and the SBA released an 11 page form last month for businesses to use to apply for loan forgiveness.

 

The Senators said they were concerned that the complexity of the form would be an additional barrier to businesses choosing to participate in the program. They also said they were concerned that many businesses will feel that they need to hire lawyers and accountants in order to complete the loan-forgiveness form.

 

A copy of the letter to the SBA can be found here.

 

Should you have any questions on the PPP, feel free to contact us.

 

 

 

 

 

 

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