On December 21, 2020, Congress passed the Emergency Coronavirus Relief Act of 2020 (ECRA) with the assumption it will be signed by the President and passed into law. We wanted to give a brief analysis of important points that we feel will affect the majority of our clients. Please keep in mind that there is nothing in any of this that requires immediate attention. As with the previous Act. we need to let the dust settle and gather more details in order to properly advise you. In addition, our office is closed from Friday the 25th through Sunday, January 3rd and our ability to consult with you, now, is very limited.
Before we review ECRA, we wanted to share some good cheer through a poem written by Fluence partner and Poet Extraordinaire Jess Bogumil.
Twas days before Christmas,
And all through the land,
Not a creature could eat dine-in,
Or go see a band.
When all of a sudden,
In the last hour,
Congress made a decision,
We crossed our fingers in hope it not sour.
But alas, it was the right call,
We are now more relaxable,
Our prayers have been answered,
The PPP is NOT taxable!
As the poem indicates, one of the most important features about ECRA involves the PPP loan (more about that soon). What follows are the key points regarding ECRA.
For Individuals, the Act includes:
- Enhanced Unemployment payment of $300 per week from December 26, 2020, through March 14, 2021.
- Additional direct payment of $600 for Single tax filers making up to $75,000 and $1,200 for Married Filing Jointly couples making up to $150,000. Plus $600 per eligible child dependent.
For Small Businesses, the Act includes:
- PPP Is NOT Taxable and Expenses ARE Deductible
- The much anticipated, final direction involves the ability to deduct the payroll expenses covered by the PPP loan money. The PPP money is deductible and is not taxable. This can be difficult to understand, but the bottom line is that the amount you received from the SBA for the PPP loan, assuming that it is totally forgiven by the SBA, is a 100% cash infusion to your business. You do not need to distribute this money as W-2 wages; you do not need to pay it out as a dividend. It won’t increase your tax liability.
- For many businesses, the best use of this money will be to keep it in reserve as a cash infusion to your business and allow for you to better handle temporary dips in income. The pandemic continues to be fluid, and we do not know what will come next. Having extra cash in your business as a cushion will be very helpful to make sure you successfully navigate any obstacles.
- However, if you want to or need to distribute this cash or if you want to use the extra cash for an equipment purchase, upgrade, or something else, we recommend you reach out to us to help you make decisions.
- If you have 1/15/2021 tax estimates due and have not already received an email from us, we will be reaching out to you in early January on any adjustments you should make.
- New PPP Money Available
- The Act provides a second PPP forgivable loan for the hardest-hit small businesses and non-profits with 300 or fewer employees that can demonstrate a loss of 25% of gross receipts in any quarter during 2020 when compared to the same quarter in 2019.
- The Act creates a dedicated $15 billion set-aside for lending through community financial institutions, including Community Development Financial Institutions and Minority Depository Institutions, to increase access for minority-owned and other underserved small businesses and nonprofits.
- It creates a set-aside for very small businesses with 10 or fewer employees and for small businesses located in distressed areas.
- It adds PPE expenses, costs associated with outdoor dining, and supplier costs as eligible and forgivable expenses.
- The Act simplifies the forgiveness process for loans of $150,000 and less.
- We don’t know what this will look like yet, but we are happy that the application process should be easier for businesses with loans of $150,000 and less.
- At this point, most banks are no longer allowing the submission of PPP loan forgiveness applications until the Administration comes out with further guidelines. As soon as this is released, we will finish helping you with PPP application packets—if you had asked for our help.
- The Act repeals the requirement of deducting an EIDL Advance from the PPP forgiveness amount.
- This is an interesting provision we did not expect. If you have already applied and been approved for PPP forgiveness, you had to pay back any amount equal to the EIDL grant you received. This has now been repealed, and we would assume you will get your portion of the PPP loan, equal to your EIDL grant money, back from the SBA.
- If you have submitted your application and the SBA has asked you to pay the amount equal to the EIDL grant back, we recommend you wait and do not pay it back until further direction has been given.
Our New PPP Money Analysis:
At this point, it is difficult to advise our small business clients regarding the new PPP money. From a big picture perspective, Congress wants to make sure this money goes out to the small businesses that truly need the money. We would recommend you determine if you are a business that truly needs this money and if you think you can meet the new requirements. We think most of our dental practice clients can demonstrate that they were down more than 25% in the second quarter of 2020 compared to the second quarter of 2019. However, if your practice is now back and operating at full or near full capacity, you may not need this additional PPP money.
This new PPP money is extended through March 31, 2021, and the SBA has not yet provided guidance on how to get the money. Congress has given the SBA 10 days from when the bill is signed into law, but we feel the SBA may need even more time given the holiday and year end schedule. We recommend that if you think you need this money and are eligible, you reach out to us in early January so that we can help advise you.
Finally, we would assume that this money will be distributed on a first come, first serve basis, so if you are a business that needs it and you are passing the 25% Gross Revenue Test, you will want to reach out to your bank and make sure you are starting the application process as soon as your bank is ready to accept it. It is our understanding that banks will not have the ability to start accepting applications until the SBA comes out with guidelines. The bill has given the SBA 10 days after the bill is signed by the President to come out with these guidelines; therefore, we do not anticipate seeing anything until the first of January.
Other Points of Interest in the Act:
- Extension and Expansion of the Employee Retention Tax Credit (ERTC)
- The bill importantly extends and expands the refundable Employee Retention Tax Credit (ERTC), which was established in the CARES Act. The extension of this tax credit, through July 1, 2021, will help keep additional U.S. workers on payroll and more small businesses and nonprofits across the country afloat
- Extension of Paid Leave Credits Through FFCRA
- The bill extends the refundable payroll tax credits for paid sick and family leave that were established in the Families First Coronavirus Response Act (FFCRA), through March 31, 2021. The bill also allows self-employed individuals to use their average daily self-employment income from 2019, rather than 2020, for purposes of computing these credits.
- While the bill supports paid sick leave for certain COVID-related reasons, it will work differently than in 2020. Mandated FFCRA leave still ends onDecember 31, 2020. After December 31, 2020, employers are not required to provide paid FFCRA leave to employees. However, employers can voluntarily provide leave. If employers provide employees with paid sick leave for COVID-related reasons, they may still claim the FFCRA tax credit through March 31, 2021.
- Even if you voluntarily continue to offer FFCRA leave, employees may have already exhausted that leave. If an employee used the 80 hours of Emergency Paid Sick Leave (EPSL) earlier this year, there will not be a new EPSL allocation as of January 1, 2021. Employers will not be allowed the EPSL tax credit if an employee has already taken the maximum EPSL leave allowable under FFCRA.
- Relief for Individuals with Flexible Spending Arrangements (FSAs)
- The legislation provides relief for individuals with health and dependent care FSAs, ensuring U.S. workers and families do not unfairly lose out on these employer-sponsored benefits at the end of the year through no fault of their own. Specifically, it allows individuals to carryover any unused health and dependent care FSA benefits from 2020 into the 2021 plan year along with other FSA plan flexibilities.
- EIDL Grant Program – $20 Billion
- This bill includes $20 billion for EIDL Advance grants. Small businesses and nonprofits in low-income communities are eligible to receive $10,000 grants. Any small businesses and nonprofits in low-income communities that received an EIDL Advance previously are also eligible to receive the full $10,000 if their award was less in the first round of grants.
As you can tell, the Act is quite extensive. We will be providing additional guidance in early January as more information and guidelines become available.
We also want to take an opportunity to wish everyone a wonderful Holiday Season!