More New Law Dec 2020

After a bunch of bipartisan criticism on the delay, the bill has finally been signed into law, without any change to the dollar value of the subsidy transfer.  More on this below, as well as the new PPP loan expansion, and a VERY important change to the payroll tax credit for employers for 2020.  Please note, there is a lot more to this bill that I am not covering, like extended unemployment benefits, tenant benefits, etc.  Also, this is a quick overview – not an in-depth analysis. 

1. Cash subsidy $600 ($1200 for joint returns). 
   1. Nonresident aliens are not eligible
   2. Persons who can be claimed as dependents by another person are not eligible.
   3. Supposed to be paid, electronically if possible, by January 15.
   4. Will be paid using the bank account information provided with your last tax return, or if you have not filed a return, info with the Social Security Administration, etc. 
   5. Phases out starting at Adjusted Gross Income of $75,000 ($150,000 for joint returns) – based on your 2019 filing information
   6. Treated as an advance credit, so not taxable to you, and if your actual credit is less, you are not required to pay anything back. 
2. New PPP Loans
   1. More expenses qualify – only for loans for which forgiveness has NOT already been applied for.  If you have not applied for forgiveness yet, you can use these rules.   These are VERY big changes and should be welcome news for lots of businesses. 
      1. Payroll costs, rent, utilities, mortgage interest are still included in costs eligible for forgiveness
3. The rule that non-payroll expenditures cannot exceed 40% of total costs eligible for forgiveness still applies. 
   1. “Covered Operations Expenditure”.  Business software or cloud computing service that facilitates

2. Business operations
3. Product or service delivery
4. Processing, payment, or tracking of payroll expenses
5. Human resources
6. Sales & billing functions
7. Accounting
8. Tracking supplies, inventory, records & expenses
   1. “Covered property damage cost”.  Costs related to property damage & vandalism or looting due to public disturbances that occurred during 2020, not covered by insurance or otherwise.
   1. “Covered supplier cost”.  Expenditure to a supplier of goods for goods that

2. Are essential to operations
3. Nonperishable goods:  were under contract before the “covered period” (see below – you get to pick the period)
4. Perishable goods: under contract anytime.
   1. “Covered worker protection”.  Costs related to:

2. Sanitation
3. Social distancing
4. Any other worker or customer safety requirement related to Covid-19. 
5. Items required by CDC, OSHA, or DHH
6. Includes specifically the purchase, maintenance or renovation of property that creates or expands:
   1. Drive-through window facility
   2. Air or air pressure ventilation or filtration system
   3. Physical barriers like sneeze guards
   4. Health screening
   5. Expansion of indoor, outdoor, or combined business space
   6. NOTE: does not apply to residential real estate or intangible property
7. Personal protective equipment
8. New rules for “covered period”
   1. Old rule was that you could pick 8 weeks or 24 weeks
   1. New rule: you can pick 8 weeks, 24 weeks, or any date in between.
9. Streamlined forgiveness for loans under $150,000
   1. One page form — banks will need to redo their form
10. New round of loans Borrowers will need to prove they had at least a 25% drop in gross receipts during a quarter in 2020 compared to the same quarter in 2019.  This is a NEW requirement.  The old PPP loan rules did not contain this bright line test.  So if you took a PPP loan and did not meet this requirement – you still get to use the expanded definition of what costs count.  If you apply now for a PPP loan, you will need to pass the test. 
11. NOTE: if you already took one PPP loan, you can apply for a second one.  This test applies to the second one. 
    1. Loan maximum is average monthly payroll for 2019 x 2.5 (3.5 for restaurants, bars & hotels)
    1. Maximum loan is $2M
    1. If you cut headcount or payroll, you will need to work through the calculation to see if the amount eligible for forgiveness decreased. 

3. Employee Payroll Tax Deferral
   1. No one was very excited about this when it was issued as an executive order.  If employers choose, employees can defer Social Security tax from 9/1/2020 – 12/31/2020 and repay them by (new extended date) 12/31/2021. 
   2. There is no further clarity about what happens if the employee quits before their share of the tax is repaid.  Is the employer liable to repay, or not?  Employees are not excited about getting 3 months of taxes reduced which they have to repay later.  Employers are not excited about being on the hook to cover the repayment. Consequently,  I don’t believe there is a lot of participation in this program. 
4. Employer Payroll Tax Credit for Retention vs PPP Loan – 2020
   1. This one is a very big deal.  Under the prior rules, any taxpayer who got a PPP loan was not eligible to take the payroll tax credit on wages paid to employees in 2020.   Now employers are allowed to go back & see if they had any wages that qualified in 2020 for the credit that were NOT used to generate PPP loan forgiveness.  That is, if you had $100,000 of wages, and you used $30,000 to qualify for a PPP loan, you can now look at whether you could get a payroll tax credit on the $70,000 balance. 
   2. Taxpayers allowed to claim the credit must have:
      1. Been shut down by government order, or
      1. Experienced a big drop in gross receipts in some quarter in 2020 vs the same quarter in 2019 – more than 50% less. 
      1. And if the business had > 100 employees, only wages paid while employee is not working count. 
5. The credit for 2020 is
   1. 50% of qualified wages, maximum credit of $5000 per employee. 

4. Health insurance coverage counts as wages, even if employee was furloughed and not receiving wages.
5. It’s not totally clear whether you should file amended payroll tax returns to claim the credit, or “true up” on the Oct – Dec 2020 payroll tax return that you will file by 1/31/2021 – we are waiting for guidance.  Let me know if you think this may apply to you & we can help with the calculation & looking at the options. 
   1. First thing is to check whether you meet the “shut down”/”loss of revenue for a quarter” test. 
6. Employer Payroll Tax Credit for Retention – 2021 – thru July 31
   1. Another very big deal. 
   2. Credit is
      1. 70% of qualified wages, maximum credit PER QUARTER $7000
7. Taxpayers must have:
   1. Been shut down by government order, or
   1. Experienced at least a 20% drop in gross receipts vs 2019.   From my read, it looks like you will be comparing Jan- Mar 2021 and April – June 2021 to those quarters in 2019 to see if you are eligible. 
8. Loosens up some of the rules for claiming the credit.  Again, let us know if you think this may apply to you.