BREAKING NEWS: CONGRESS/TRUMP PASSES NEW COVID-19 LEGISLATION TO AID TAXPAYERS AND BUSINESSES
By: Edward Nieh, December 29, 2020
Late Sunday, President Donald Trump signed into H.R.133 whch consolidated appropriations for FYE 09/30/2021, provided a new round of Covid-19/tax relief worth almost $900 billion dollars as part of an even larger tax and spending bill worth up to $2.3 trillion dollars, among others. There are many things to unpack with the new legislation. The team at Doyle, Schultz & Bhatia, PLLC break it all down and examine how each aspect of the legislation could impact your taxes in 2020 through 2022.
1. 2ND DRAW PPP LOANS: Many of our clients have enjoyed the benefits of the paycheck protection program (“PPP”) when it was first introduced. The new act provides $284 billion in new funding for the paycheck protection program loans, available to both current and 1st time borrowers. The new loan also expanded on who may be elgible, what funds can be used for (including costs to protect employees and customers from COVID-19), when they can be spent and possible covered period end. We highly recommend all who intend to apply to begin preparing immediately. There are no dollar limits and these rules apply to all loans:
i. Loan is opened for businesses with fewer than 300 employees, or 300 or fewer per physical location and have sustained a 25% revenue loss from 2019.
ii. Business that received a 1st round PPP loan must have used or have plans to use its full amount before applying for a 2nd draw.
iii. The waiver of affiliation rules included in the original round of PPP loans will again apply.
iv. Businesses must have been in operation on February 15th, 2020 to be eligible for the new initial draw and second-draw PPP loans.
b. Loan Amount:
i. Lesser of $2 million or 2.5 times the average total monthly payment for payroll costs during calendar year 2019 or the one year period before the date the loan is made.
ii. Those who are in the food and accommodation industry (NAICS code starting with 72) may get 3.5 times the average total monthly payroll amount.
iii. Calculations are provided for seasonal employees.
c. Loan Forgiveness:
i. Borrowers may choose between 8 or 24 week covered period ending no later than March 31st, 2021.
ii. The allocation between payroll and non payroll costs must be at least 60/40.
d. Expanded definition of Covered Expenses subject to forgiveness: (This also applies to loans received before the passing of this legislation if forgiveness not yet applied for)
i. Covered Operational Expenditures: Software, HR and Accounting needs.
ii. Property Damage as a result of 2020 public distrubances.
iii. Covered Supplier Costs: payments for supply of essential goods related to contracts.
iv. Covered Worker Protection Expenditures: investment in PPE, facility modification for safe operations such as ventilators and filtration systems.
v. Employer-Provided Group Insurance: now counts as payroll costs including disability, dental & vision.
e. The Simplified Loan Forgiveness Process: The new law directs the SBA to prepare within 24 days from December 27, 2020 a new 1 page application form for PPP forgiveness for loan amounts under 150,000. The following will likely be required on the 1 page application:
i. Description of number of emplopyees they were able to retain.
ii. The total loan ampoint.
iii. Attestation of accuracy and compliance.
It appears that additional loan documentation will not be required. As discussed, any loans under 150,000 may be 100% forgivable and there will be no requirement to reduce expenses.
Your team at Doyle, Schultz & Bhatia, PLLC are eager to assist you in each step of the PPP process from application through forgiveness. We have already helped numerous clients throughout the entire process.
2. DEDUCTIBILITY OF EXPENSES COVERED BY FORGIVEN PPP FUNDS: Earlier this year, the Internal Revenue Service (“IRS”) declared that expenses covered by forgiven PPP loan proceeds would not be deductible, resulting in potentially significant tax liabilities as a result. The new law essentially reversed course on this stance, to the delight of many people. This could have significant ramifications for 2020 or 2021 taxes. There is still time left in the year to get tax planning done as we wind down 2020. Please note that states and other local jurisdictions may decouple from this deduction.
Forgiven loan proceeds are still not includible in taxable income for any amount that the taxpayer has received forgiveness. Per the law, this looks to be applicable to all loans.
3. OTHER GRANTS AND AID PROVIDED:
a. Economic Injury Disaster Loan (EIDL) Advance: The new stimulus bill allocates another $20 billion largely to help those eligible businesses who applied but did not receive the full $10,000 as promised when the program first came out. The EIDL grant is a NON TAXABLE and covered expenses are still deductible. Any amount received is in addition to the PPP.
i. Located in a low-income community
ii. Have suffered an economic loss of 30% of greater
iii. Employ less than 300 employees.
iv. Can be a small business, cooperative, ESOP Tribal concern, with fewer than 300 employees
v. Can be an individual who operates under as a sole proprietorship, with or without employees, or as an independent contractor.
vi. Businesses must be in operation by 01/31/2020.
vii. Must be directly impacted by COVID-19.
viii. Economic loss is defined as gross receipts of a covered entity declined during an 8 week period between March 2nd 2020 and December 17, 2021, relative to a comparable 8 week period preceding March 2nd 2020 or during 2019.
ix. Once Trump signs the bill into law, the SBA will release guidance regarding requests for loans. There have been reports that the SBA will have 21 days to review a business owner’s request to verify its qualification.
b. $15 billion provided for independent live entertainment venue operators including movie theaters, museums that were affected by the stay at home order.
i. Those receiving grants through this program are not eligible for the PPP.
c. Direct payments of up to $600 per person including adults and children:
i. The amount is based on 2019 income. Payment will start to decrease starting at $75,000 per person or $150,000 for married filing jointly. Those who earned $99,000 (or $198,000 if married filing jointly) or more will not get a payment.
ii. Treasury Department’s Steve Mnuchin has said the payments would start to go out December 29, 2020.
iii. Please note that $2000 direct payment will get a vote in the Senate but it is unlikely to garner sufficient support among the Republican Senate.
4. Other Tax Provisions:
a. The new legislation expanded several number of expiring tax provisions:
i. Work Opportunity Tax Credit
ii. New Markets Tax Credit
iii. Empowerment Zone Tax Incenctives
iv. Employer Credit for Paid Family and Medical Leave
v. Exclusion for Certain Employer Payments of student loans
vi. Energy Credit
vii. Credit for Electricity Produced from Certain Renewable Source
b. A full deduction of business meals provided by a restaurant during 2021 and 2022.
c. The Employee Retention Tax Credit from the CARES act is now expanded and extended.
d. A $300 above the line deduction for cash charitable contribution to a 501(c)(3) organization has been extended through 2021.
e. Cash charitable contribution deductions to 501(c)(3) that were limited to 60% of adjusted gross income is now deductible without limitation for 2020 and 2021.
Like we mentioned, there are plenty of things to unpack with the new legislation. This impact of this legislation is monumental. The team at Doyle, Schultz & Bhatia, PLLC are ready to help individuals and businesses navigate the complexity behind this legislation and also help maximize the many benefits and program it provides.
Please reach out to your dedicated professional for an assessment of how we can be of service to you!!
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and Doyle, Schultz & Bhatia, PLLC, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.
Edward Nieh, CPA, MST
Senior Tax Manager