Passage of COVID-19 Relief Law PPP Loans & Other Key Provisions
On December 27, 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law which included additional COVID-19 related relief.
Tax Deductibility for Paycheck Protection Program (PPP) Expenses
The CAA specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes disputed IRS guidance (Notice 2020-32 and Rev. Rul. 2020-27) that such expenses could not be deducted. The CAA clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. The provision is effective as of the date of enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The provision provides similar treatment for second draw PPP loans, effective for tax years ending after the date of enactment of the provision.
Restart of PPP Loans
New PPP loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:
• Have 300 or fewer employees
• Have used or will use the full amount of their first PPP loan
• Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019
Borrowers from the following groups are still eligible for the program even if they didn’t take out a loan in the first round:
• Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans
• Sole proprietors, independent contractors, and eligible self-employed individuals
• Not-for-Profits, including churches
• Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location
PPP Loan Terms
As with earlier PPP funding, the costs eligible for loan forgiveness in the new PPP funding include payroll, rent, covered mortgage interest, and utilities. The new PPP funding also makes the following potentially forgivable:
• 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
• Covered property damage cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either 8 or 24 weeks — the same parameters earlier PPP funding had when it stopped accepting applications in August 2020.
PPP Loan Forgiveness
The CAA creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower will 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 CAA’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.
Additionally, the CAA repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
Another year is ending and has this year been a doozy! Smith & Associates wants you to know that we are here for you and ready for the upcoming tax season! With so many changes and considerations this year, we hope you have been able to navigate through. Here in the office, we presently remain open BY APPOINTMENT ONLY for drop off and pick-up, with face coverings/mask required. We are following Maine CDC guidelines and regulations. Please follow the link below for more information.
For this upcoming tax season, we will be mailing out client organizers within the first two weeks of the New year. This will also include an Extension Policy that would need to be filled out and returned if you are asking Smith & Associates to file an extension for you. The IRS website has provided guidance for people to consider when preparing and gathering information for your 2020 tax return. Please follow the link below to view IRS article.
As always, please feel free to reach out to speak with a Tax professional for tax planning or questions.
At Smith & Associates we wish everyone a Happy and Healthy Holiday Season!!
President Trump has signed into law the Paycheck Protection Program Flexibility Act. This law will:
- Relax rules under the Paycheck Protection Program to give borrowers up to 24 weeks instead of 8 weeks to spend the funds;
- Give borrowers more flexibility in how the money is spent by reducing the amount of the loan required to be used on payroll expenses from 75% to 60% and still be eligible for loan forgiveness;
- Extend the minimum loan repayment term from 2 years to 5 years for loans that are not forgiven;
- Allow borrowers to defer payroll taxes without penalty and still be eligible for loan forgiveness; and extend the rehiring safe harbor to from June 30, 2020 to December 31, 2020.
We will update this information as we receive formal guidance and updates in the coming weeks.
Some stimulus checks are being sent by prepaid debit cards. They will arrive in a plain envelope from “Money Network Cardholder Services.” Please follow the link below for additional information.
To our Smith & Associates Clients:
Beginning June 1, 2020 Smith & Associates will be opening the office for pick up and drop off of information BY APPOINTMENT ONLY. If you do not have an appointment you will be asked to come back at a later time.
In consideration of our employees who are at high risk, we ask that access to our office be limited to necessary visits. If you can provide the information in a manner that does not require an in person visit, ie. USPS, or utilizing a secure client portal, please do so. We encourage the use of telecommunication and telephone and will be happy to accommodate those appointments.
- Face covering/mask must be worn
- Maintain 6 feet of distance between client and employee
- Use hand sanitizer provided or wash hands with soap and water
- Keep in office time brief
We look forward to the time when we are able to meet with our clients again and conduct “business as usual”. Until then, we ask that you respect our guidelines as we protect our clients and employees. We truly appreciate your patience and understanding.
Smith & Associates, CPAs
The IRS recently released additional information on their Economic Impact Payment (EIP) Information Center webpage regarding the eligibility of deceased taxpayers. The updated information addresses payments issued to deceased taxpayers declaring their ineligibility of the EIP (Q10) and how to return funds (Q41). Please note IRS FAQs are not legal authority or formal guidance and can change at any time. In addition, the FAQs do not address how or when enforcement of the repayment will be handled. Considering the language used within the FAQs, that the payment “should be returned” rather than “must be” or “is required to be returned”, recipients of these payments, on behalf of deceased taxpayers, may want to consider holding off taking immediate action until further authoritative guidance is made available. We will continue to monitor the updates and information as it is made available. For those clients with specific questions related to their situation, please call the office to speak with one of our tax professionals.
Governor Mills has announced the gradual reopening of Maine businesses with a four stage plan scheduled to begin May 1st. Read more at this link https://www.maine.gov/covid19/restartingmaine Complying with CDC and State recommendations, the Smith & Associates office will be re-opening to the public on June 1st. This decision is subject to change based on State and CDC monitoring of COVID-19 progress. Smith & Associates will continue to practice social distancing in the office while disinfecting workspace’s and common areas and surfaces for the protection of our clients and staff. We encourage communication during this time by email email@example.com and phone 207-846-8881.
Also known as Stimulus Payments, the below link will take you to the most up to date information from irs.gov.
The IRS has updated guidance related to the rebates under the CARES Act. Payments will be made initially based on a qualifying individual’s most recently filed tax return (2018 or 2019). The payment is an advance on a refundable credit on your 2020 return. Individuals who otherwise do not qualify for the credit based on phase out limits on their 2018 or 2019 return may find that income on their 2020 return results in receiving the rebate when they file in 2021.
Rebates equal $1,200 per qualifying individual plus $500 for each qualifying child (generally children under 17 who qualify for the child tax credit). Phase outs begin when AGI exceeds: $75,000 for individuals; $112,500 for head of household; and $150,000 for joint filers.
Additional information is available at the IRS website including updates for how to change your direct deposit information or payment method.