If you have been following our Coronavirus Newsroom updates, you probably felt like we were issuing legislative articles daily. Things have been relatively quiet for the last several weeks, but we have a few issues we wanted to bring to your attention.
Applying for PPP Loan Forgiveness
The most-asked questions ATKG receives these days relate to PPP (Paycheck Protection Program) loan forgiveness. Many of our clients are anxious to apply for forgiveness to get this PPP escapade behind them. At this point, though, our best advice is to be patient because there may be even more PPP changes coming our way. As you will read below, the proposed HEALS Act includes a multitude of changes to the PPP.
Keep in mind that a PPP borrower has ten months following the Covered Period’s completion to submit its loan forgiveness application. Most banks are not yet ready to file applications, but we encourage you to contact your PPP lender for more information on its specific loan forgiveness process.
Another reason to settle your urgency is the possibility of automatic loan forgiveness for certain PPP loans. Last Monday, Senate Republicans introduced the Continuing Small Business Recovery and Paycheck Protection Program Act, which includes a provision for simplified forgiveness applications for PPP loans that are less than $150,000. Such action would significantly reduce the burdens on both borrowers and banks.
The HEALS (Health, Economic Assistance, Liability Protection, and Schools) Act
The HEALS Act is the Senate Republicans’ response to the House-Democrat-backed HEROES Act introduced in the House of Representatives on May 12. Back in May, the White House and Republican Senate leadership chose to delay consideration of the next COVID-19 relief bill until mid-summer to see whether economic and healthcare conditions had improved. Well, mid-summer is finally here, and negotiations have begun on this new phase of financial relief. Some of the notable provisions are as follows:
Paycheck Protection Program Expansion
The HEALS Act provides an additional $190 billion to support second draw loans from the PPP fund. Firms must have fewer than 300 employees and have experienced a 50% reduction in gross revenue to qualify. Companies can request up to 2.5 times monthly payroll costs, up to $2 million. Loan forgiveness is available when at least 60% is used to cover payroll costs. Note: Forgivable expenses include worker protection costs and certain supplier costs.
Increased Employee Retention Tax Credit (ERTC)
The ERTC currently provides a refundable payroll tax credit for employers who have experienced a 50% reduction in quarterly gross receipts compared to the same quarter last year. The credit is equal to 50% of wages paid to specific employees. Up to $10,000 of wages per employee are eligible (meaning you could claim a credit of up to $5,000 per eligible employee). The HEALS Act expands the credit to employers who experience a 25% reduction in quarterly gross receipts, increases the percentage of payroll refunded from 50% to 65%, and expands the eligible wages per employee from $10,000 to $30,000. Note: Under current law, PPP borrowers are ineligible for ERTC. The HEALS Act would allow PPP borrowers to claim the ERTC as long as they do not use the same payroll costs for both programs.
New SBA Loan Program
The HEALS Act authorizes the SBA to provide low-cost loans (20-year terms with a 1% interest rate) to “recovery sector businesses.” Qualifying businesses are seasonal businesses and businesses located in low-income census tracts that meet the SBA revenue size threshold, have fewer than 500 employees, and experience at least a 50% decline in gross revenues.
Expansion of the Work Opportunity Tax Credit (WOTC)
The HEALS Act temporarily expands the credit to include a new targeted group for 2020 qualified COVID-19 unemployment recipients. The maximum credit for this new group would be $5,000 (50% of the first $10,000 of qualified first-year wages). Note: Even without the HEALS Act, you may be able to claim WOTC for hiring specific employees. If you plan on hiring new employees, contact your ATKG representative for information on WOTC.
Temporary Full Deduction for Business Meals through 12/31/2020
Entertainment expenses remain nondeductible.
The Second Round of Direct Payments
This round includes $1,200 for single individuals, $2,400 for married couples filing jointly, and $500 for each dependent (unlike last time, all dependents, regardless of age, are eligible for this payment). These benefits phase-out starting at incomes of $75,000 (single), $112,000 (head of household), and $150,000 (married filing jointly).
Reduction in Federal Unemployment Insurance Benefits
The $600 federal unemployment payments, which expired at the end of July, will be reduced to $200 and will only be available until September 30. Starting in October, payments will equal 70% of a person’s lost wages combined with state benefits. It is essential to note. The Democrats’ HEROES Act would extend the $600 supplemental benefits from the CARES Act through January 31, 2021. Unemployment benefits are among the most significant points of contention between Republicans and Democrats for this new round of stimulus.
The HEALS Act, including its applicable PPP provisions, will enter the negation phase alongside the House Democrats’ HEROES Act. News stories indicate that before Friday, the last day the Senate is in session before its recess, could result in an agreement. Time will tell the compromises made to address the ongoing COVID-19 crisis. ATKG is committed to keeping you updated with the latest changes during these challenging times. Please contact your ATKG advisor with any questions or concerns.
For further information on this topic or other tax questions please contact your ATKG tax advisor at 210.733.6611 or firstname.lastname@example.org.
Co-authored by Kristina Dravis and Jenna Flexner:
Kristina Dravis is a tax senior with ATKG. She graduated Cum Laude from The University of Texas at San Antonio with a double major Bachelor of Business Administration in Accounting and Finance. Kristina begins her ATKG career as an intern in 2016.
Jenna Flexner graduated from Trinity University with a Bachelor of Science in Finance and Accounting. She served as editor-in-chief for the university’s yearbook, The Mirage, for three years, and was a contributor to the Trinitonian newspaper. For the past two years, Jenna has been a contributor to the Mindful in Life and Work newsletter. Jenna is currently a part of ATKG’s internship program and is working closely with its tax practice.