December 28, 2020 Update: President signed this bill into law yesterday and we will be hosting a webinar on the contents this Wednesday, December 30th at Noon.
The New Stimulus (or Relief) Package that was passed by Congress earlier this week, also named the Consolidated Appropriations Act of 2021 was close to 6,000 pages and included both a $1.4 Trillion Omnibus (Budget) and a $900 Billion Relief Package. Also, this bill has not been signed into law by the President yet, so we will be waiting to see if anything changes. We hope to be doing a webinar on this package next week, so if you are interested in learning more or have some questions, please be on the lookout for more details.
There is an awful lot in this bill because it does contain the budget, so I will try to break it down into pieces.
What applies to everyone?
Economic Impact Payments: This is where there has been a lot of consternation, and even some frustration from President Trump. Currently, the bill gives $166 Billion for direct payments of $600 per individuals, including $600 for each child dependent. This will start to phase out at $75,000 of income for an individual and $150,000 for Married Filing Jointly based on 2019 AGI (find out more about Adjusted Gross Income here). Please note that this is another 2020 refundable credit, so if your 2020 income is lower than your 2019 income, you can qualify for both this and the first round of payments when you file your taxes.
Charitable Giving: The CARES Act allowed for a $300 deduction for charitable givers in 2020 for non-itemizers (so keep your receipts this year). This bill extended that through 2021 and even doubled it for Married Filing Jointly to $600.
Deduction for Business Meals: Business meals will now be 100% deductible for 2021 and 2022.
What applies to the Unemployed?
There is an 11-week extension of unemployment insurance compensation benefit first provided by the CARES Act, which was set to expire the day after Christmas. This includes the extra $300 per week of Federal Pandemic Unemployment Assistance that was on top of state UI compensation, as well as allowing Independent Contractors, Gig Workers, etc to be eligible.
Unemployment benefits paid through the Pandemic Emergency Unemployment Compensation, which allowed for an additional 13 weeks of UI benefits, will also be extended an additional 11 weeks or until March 14th 2021.
There is also an additional $100 per week available for workers with at least $5000 in self-employment income to adjust for a lower UI base payment. If you are interested in learning more about this, you can check out the Indiana DWD website, although the information about this bill has not been added as of yet.
What about the Paycheck Protection Program or PPP?
There was additional funding of $284 Billion for the Paycheck Protection Program to provide forgivable loans to 1st and 2nd time borrowers. Also, this is just an overview, and the SBA has 10 days to finalize the program. It looks like someone will be working hard over the Holidays! I will try to break this up into two sections:
What applies to all PPP Loans?:
- Businesses will now be allowed to deduct expenses paid with forgiven PPP loans. This is in direct contrast to what we have learned before from the IRS and the Secretary Treasury, but should be able to save businesses a ton when they need it the most.
- There is a new simplified forgiveness form for PPP loans of $150,000 or less. While we do not know what is on that form, we will be on the lookout for it. There was previously a streamlined forgiveness for PPP Loans of $50,000 and less, but this looks to be even easier. Here is all we know about this upcoming forgiveness form.
- “Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.”
- Now all borrowers can choose an 8-week or 24-week covered period.
- If you received round 1 of PPP, you are now also allowed to participate in the Employee Retention Tax Credit through June 30th. The ERTC is also expanded and includes:
- An increase in the credit rate from 50% to 70% of qualified wages.
- An increase in the per employee creditable wages from $10,000 annually to $10,000 per quarter.
- A decrease in the eligibility criteria, now allowing year-over-year declines of 20% instead of the 50% used prior.
- Rules allowing new employers who were not in existence for all or part of 2019 to claim the credit.
- If this is your second go round of PPP you have to:
- have 300 or fewer employees
- Used all of your first PPP loan
- Can show at least a 25% drop in gross receipts in a 2020 quarter compared to the same quarter in 2019.
- $25 Billion of this amount is earmarked for independent contractors, self-employed and other small businesses with 10 employees or fewer.
- Added covered expenses in excess of the 60% spent on payroll:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
- Maximum loan size is $2 Million , and borrowers can receive a loan of up to 2.5 times their average monthly payroll costs in the year prior (just like PPP1). Hotels and Restaurants can get up to 3.5 times their average monthly payroll costs, though.
- PPP 2 Loans will also be available to first-time borrowers that are in one of the following groups:
- 501c6 business leagues such as local Chambers, Visitors’ Bureaus, etc.
- Businesses with 500 or fewer employees that are eligible for other SBA 7 (a) loans.
- Sole Proprietors, independent contractors, and eligible self-employed individuals.
- Nonprofits, including churches
- Accommodation and food service operations with fewer than 300 employees per physical location.
- Or if you returned all or part of a previous PPP loan.
Economic Injury Disaster Loans (New EIDL Grants):
First off, the new relief bill repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount. This was a huge question mark, and should be a relief to the businesses that received both the EIDL grant and the first round of PPP.
$20 Billion was allocated to EIDL Grants as well. These were up $10,000 grants with a limit of $1000 per employee that acted as up-front payments of the EIDL loans and did not have to be paid back, but the funds ran out shortly after the program began. In order to qualify for the full amount of this new grant a business must:
- Be located in a low-income community
- Have suffered an economic loss of 30%+
- Have 300 or less employees.
In addition to these, the businesses have to qualify as an eligible entity as put forth in the CARES Act:
- A small business, cooperative, ESOP Tribal concern, with fewer than 300 employees
- An individual who operates under as a sole proprietorship, with or without employees, or as an independent contractor; or
- A private non-profit or small agricultural cooperative.
- The business must have been in operation by January 31, 2020
- The business must be directly affected by COVID-19
In Summary, as of the writing of this post on Wednesday, December 23, this bill has not been signed into law yet, and it may be different when it is, so please check back for more information. We hope to have a webinar next week to discuss these issues and some others that will be pertinent to Small Businesses and others.
Thanks and we will see you soon.
As always, this is not legal advice and we are not CPA’s or your Financial Advisors and do not know your specific situation. Please consult your tax professional or advisor.
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