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Member of Russell Bedford International, a global network of independent professional service firms.
On December 27, 2020, President Trump signed a number of bills, including one that breathes new life into the Employee Retention Credit (ERC). While the headline was that employers receiving Payroll Protection Program (PPP) loans could now also claim the ERC, did you know the credit was significantly enhanced? Especially in 2021, we see the expanded credit as an incredible opportunity for employers.
Established by the CARES Act, the Employee Retention Credit was designed to incentivize employers to maintain their payroll during the coronavirus pandemic. For the period from March 13, 2020 to December 31, 2020, eligible employers could claim a 50% retention credit for qualified wages. Eligible employers included:
Qualified wages for employers of less than 100 full time equivalent employees consisted of any wages paid, assuming the business met one of the above tests. For employers of more than 100 full time equivalent employees, qualified wages were only those wages paid to employees for not working.
Annual qualified wages per employee were capped at $10,000, meaning a potential annual credit of $5,000 per employee. It should be noted that any payroll costs used on the PPP loan forgiveness application cannot be claimed as ERC creditable wages.
Effective from January 1, 2021 to June 30, 2021, the eligibility requirements have changed. Now, businesses that had a reduction in gross receipts of 20% or more during a calendar quarter as compared to a prior quarter will qualify for the ERC. The comparison is between 2021 results and 2019; additionally, the immediately preceding quarter results can be used to determine eligibility. For example, for the first quarter of 2021, an employer could compare fourth quarter 2020 results to fourth quarter 2019 results for determination of the reduction in gross receipts.
The good news doesn’t stop there! The 100 full time equivalent employee rule noted above was changed to a 500 full time equivalent employee requirement. This means employers of between 100 to 499 full time equivalent employees can include any qualified wages paid, not just wages paid for not performing services. Qualified wages are also clarified to include qualified health plan expenses.
Finally, the credit has been expanded. Qualified wages per employee are now $10,000 per quarter, instead of per year. The credit rate is now 70% of qualified wages, instead of 50%.
It’s important to note that similar to the prior provisions, payroll costs used on a PPP loan forgiveness application cannot be claimed as ERC creditable wages.
As a business owner, we expect that you are already aware of the heightened urgency in closing your accounting books in a timely manner to prove a reduction in gross receipts. Both the second round of PPP loans and the ERC require you to show a precipitous drop in your gross receipts. Timely financials will allow you to determine your eligibility more quickly, and perhaps speed up the receipt of additional loan funds and/or tax credits.
As the ERC is based on qualified wages that are not also claimed on the PPP loan forgiveness application, care should be taken in determining the costs deemed paid with PPP funds. However, for those businesses that have already filed for forgiveness, there continue to be questions on the interplay of the ERC and PPP. We will look out for developments as it relates to the payroll costs used for both ERC and PPP, as well as how to claim retroactive credits.
The Employee Retention Credit is an exciting development for businesses. Please contact us if you’d like to discuss the potential credit to your business.
Please note that this blog is based on tax laws effective in December 2020, and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
On January 19, 2021 additional guidance was released to assist borrowers in applying for the second round of PPP loans. These loans became available based upon legislation passed by Congress and signed by President Trump in late December and included in the Consolidated Appropriations Act of 2021. The first round allowed loans to businesses with 500 or fewer employees and to certain businesses with multiple locations, for which each location could not have more than 500 employees. Congressional intent with the second round of PPP loans was to put additional requirements in place to specify a more targeted group of eligible businesses.
Unlike the prior loan program, this round will be limited to small businesses that incurred revenue losses. Eligibility is limited to businesses that satisfy the following:
The eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives. Churches and religious organizations are eligible for loans if they otherwise meet the requirements, and the legislation prevents future administrations from making them ineligible.
The legislation establishes a maximum loan size of 2.5 times the average monthly payroll costs for the twelve months prior to the loan, or the calendar year 2019, up to $2 million. Since loan applications are being prepared in January, borrowers are able to use calendar year 2020 for the twelve-month prior clause. There is an exception for borrowers in the hospitality or food services industries, who may receive PPP Second Draw Loans of up to 3.5 times average monthly payroll costs. Only a single PPP Second Draw Loan is permitted to an eligible entity.
Loan amounts that are not forgiven will be subject to a 5-year maturity and will incur interest at 1%.
To apply for a second round of funding, please use Form 2483-SD.
Like the first PPP loan, full loan forgiveness is available if the borrower spends at least 60% of the second draw on payroll costs (this time including additional group insurance payments, including vision, dental, disability and life insurance), with allowable nonpayroll costs of 40%.
The allowable non-payroll expense category – which was originally limited to rent, mortgage interest, and utilities – has been expanded to include the following:
A few additional notes on the loan forgiveness:
Congress recently passed legislation that taxpayers whose PPP loans are forgiven are allowed deductions for deductible expenses paid using PPP loan proceeds. In addition, the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. This applies retroactively to the first round of PPP loans as well.
The legislation requires the SBA to prepare regulations and implement the second-draw PPP within 10 days after the bill was signed into law (December 27, 2020) and for the program to continue through March 31, 2021.
If you did not receive a PPP loan yet, you still have time. Use Form 2483 to apply for round one of the PPP loan. For this loan you would not be subject to the revenue reduction eligibility requirements and the rules governing would include those enacted under the first round of funding.
If you have any questions about the second round of PPP loans, please contact Cray Kaiser today. We’re here to help.
Please note that this blog is based on tax laws effective in January 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
One of the more tax-troubling issues this year has been the distribution of the Economic Impact Payments, also known as stimulus checks. These payments were meant to provide financial assistance to individuals and families struggling during the initial outbreak of the COVID-19 pandemic, but many people are reporting a missing stimulus check. In this blog we’ll go through the details of the stimulus checks and how to claim a missing check on your 2020 return.
Round One
Congress authorized the first stimulus check payment in March 2020 as part of the CARES Act. Each filer was to receive $1,200 ($2,400 if married and filing a joint return) and $500 per dependent child under age 17. However, the payments were phased out for higher-income taxpayers at a rate of 5% of the taxpayer’s adjusted gross income (AGI) in excess of a threshold, also based upon the taxpayer’s AGI:
Round Two
As part of the COVID-Related Tax Relief Act (COVIDTRA), Congress authorized another set of stimulus checks to be issued in January 2021. Each filer was to receive $600 ($1,200 if married and filing a joint return) and $600 per dependent child under age 17.
Similar to round one, the stimulus payments are phased out for people with higher incomes. The phase out income levels are the same as round one; however, the payments are more quickly phased out as compared to round one. For example, a married couple filing jointly with AGI of more than $174,000 will not receive the second stimulus payments.
It’s important to note that the stimulus checks are actually a refundable tax credit on the 2020 tax return. To meet the Congressional mandate, the IRS issued the payments in advance based upon each family’s makeup and income on a prior tax return.
If you are among those eligible for a check who haven’t yet received it, or the amount you received is less than what you are allowed, take heart. Since it is really a credit on the 2020 tax return, you can claim your missing or additional amount when you file your 2020 return. But this means that if you wouldn’t normally have to file a return, you will need to do so in order to get your payment.
However, here is yet another potential problem: when you claim the rebate credit on your 2020 return, it will be based upon your 2020 AGI and family makeup, which may or may not be to your benefit. Here are some situations that you may encounter:
These are only a few examples of the many situations that a change in filing status, dependents, and/or AGI can create with regard to the recovery rebate credit when filing your 2020 tax return. One good thing is that Congress wrote the law so that if the payment you received was larger than the recovery rebate credit you are entitled to on your 2020 return, you will not have to pay back any of the difference. On the other hand, if your check was less than what’s allowed on your 2020 return, you can claim the difference as a credit on the 2020 return.
Be sure to keep the confirmation that the IRS sent you showing the amount of your stimulus check; you’ll need it when preparing your 2020 return.
If Cray Kaiser is preparing your tax return this year, we will automatically take care of reconciling the advance rebate with the amount determined on your 2020 return. Please call us at 630-953-4900 if you have specific questions about your missing stimulus check.
Please note that this blog is based on tax laws effective in January 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.
In this audio blog, CK Principal Karen Snodgrass addresses some common questions surrounding potential future COVID-19 relief, including:
Of course, we don’t know exactly what will happen in the coming months. With a new administration and the pandemic still surging, there is a lot at play. Rest assured, as developments occur, we’ll be sure to keep you informed on our blog. In the meantime, you can listen to Karen’s current insights and predictions of future COVID-19 relief below:
If you have any questions about current or future COVID-19 relief, please don’t hesitate to contact Cray Kaiser today.
Please note that this blog is based on laws effective on Friday, January 15 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
Please note that this blog is based on laws effective on December 28, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
On December 27, 2020, President Trump signed the COVID-Related Tax Relief Act of 2020 (COVIDTRA). Below are the main, non-time sensitive provisions of COVIDTRA. Click here to read Part One of this series about the time-sensitive provisions.
Before COVIDTRA, the employee retention credit (ERC) was set to expire on December 31st, 2020. Effective January 1, 2021 through June 30, 2021 the credit is available and is even more valuable to qualified employers. Qualified employers are those that either 1) have had their business suspended due to the COVID-19 pandemic or 2) have a 20% reduction in gross receipts in 2021 as compared to the same period in 2019. The credit is enhanced with an increased credit percentage from 50% to 70% of qualified wages of up to $10,000 per employee per quarter.
In an assumed effort to assist the food and beverage industry, COVIDTRA provides that business meals will be fully deductible in calendar years 2021 and 2022, as opposed to the current 50% limit on deductibility.
The 2020 provision that qualified cash charitable contributions are not subject to an income limitation has been expanded to the 2021 tax year as well. The ability to claim up to a $600 cash charitable contribution deduction for those taxpayers claiming the standard deduction has also been extended.
The refundable payroll tax credits were set to expire on December 31st, 2020. However, COVIDTRA extends the payroll tax credits through the end of March 2021.
Both the child tax credit and the earned income credit are computed based on taxpayer’s earned income. For tax year 2020, taxpayers may elect to compute the credit based on 2019 earned income if it is greater than the taxpayer’s earned income for 2020.
Extended to December 31st, 2025 is the exclusion from income of cancellation of principal residence indebtedness. Up to $750,000 of qualified debt discharged will be excluded from taxable income.
While the COVID-Related Tax Relief Act has been passed, it is now up to other governmental agencies (the Treasury and SBA, notably) to write the regulations associated with the Act. As these regulations are written we will keep you informed of additional developments. In the meantime, please contact us today with any questions.
Please note that this blog is based on laws effective on December 28, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
On December 27, 2020, President Trump signed the COVID-Related Tax Relief Act of 2020 (COVIDTRA). Below are the main, time-sensitive provisions of COVIDTRA. Click here to read about some of the non-time sensitive provisions.
In a major win for many businesses, COVIDTRA clarifies that expenses paid with forgiven PPP loans are deductible. This counters the IRS’ previous position that the expenses would be nondeductible. COVIDTRA also confirms the same tax treatment for forgiven Economic Injury Disaster Loans (EIDL).
COVIDTRA provides a refundable tax credit to eligible individuals in the amount of $600 per eligible family member. The credit is $600 per taxpayer ($1,200 for married filing jointly), in addition to $600 per qualifying child. The credit phases out starting at $75,000 of modified adjusted gross income ($112,500 for heads of household and $150,000 for married filing jointly). The advance payments will be distributed in a similar fashion to the first round of payments.
The credit will be based on the income shown on the 2020 tax return. If a taxpayer receives advance payment(s) that exceed the amount of the computed eligible credit, the excess is not required to be repaid. If the computed eligible credit exceeds the advance payment(s) received, that amount will be treated as a tax credit on the 2020 tax return.
The SBA Administration is required to establish regulations within 10 days of enactment; therefore, we will keep our eyes out for more details on this. Here is what we know about entities that qualify for the second round:
COVIDTRA now allows businesses to retroactively request a PPP loan and claim an Employee Retention Credit (ERC) in 2020. In our experience, businesses generally requested a PPP loan and elected to forgo the ERC, as the PPP loan was deemed more valuable.
The ERC is a refundable payroll tax credit available to businesses that suffered either a full or partial suspension of operations (due to government orders) during at least one quarter in 2020 or had a more than 50% drop in gross receipts in the first, second, third quarter, or fourth quarter of 2020 relative to the same 2019 quarter. Affected businesses are eligible for a maximum credit of $5,000 per employee. As the government will not allow businesses to double dip (meaning claim PPP benefits and the ERC on the same payroll costs), we will need more guidance on exactly how to claim the ERC on a retroactive basis.
Individuals claiming the standard deduction can take an above the line deduction of qualified charitable contributions in 2020. Qualified charitable contributions are cash contributions to qualified charities (generally, 501(c)(3) organizations; notably donor advised funds are not a qualified charity for this purpose). Before COVIDTRA, the limit was $300; but the Act clarifies that the 2020 limit is $600 for married filers. If you claim the deduction, be sure to have proper documentation as the penalty for tax underpayments due to overstating this deduction is significant: 50%.
While COVIDTRA has been passed, it is now up to other governmental agencies (the Treasury and SBA, notably) to write the regulations associated with the Act. As these regulations are written we will keep you informed of additional developments. In the meantime, please contact us today with any questions.
Please note that this blog is based on laws effective on December 23, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
UPDATE 12/23/20: As you are probably aware, yesterday President Trump cast doubt on his willingness to sign the recently passed omnibus bill that includes long-awaited COVID-19 stimulus legislation. We want to assure you that we are aware of the ongoing situation and plan to stay fully alert to any developments, even during the Christmas holiday.
You can have full confidence that we will keep you apprised of any key developments, including whether the President signs the bill or not, if Congress makes any changes to the legislation, and, in the case of a presidential veto, whether Congress is expected to be able to override the veto.
On Monday, December 21, 2020 the House released the details of the $900 billion coronavirus relief package. The bill is expected to pass in short order.
This package includes a number of relief provisions specific to aiding individuals and businesses affected by the pandemic. Of particular interest to us, as tax advisors, was the inclusion of clarifying language as it relates to the deductibility of expenses paid with PPP loans. You may recall from our last update that the IRS believed that these expenses should not be deductible. The bill released today clarifies that these expenses are deductible. As the bill reads today, there is no limit to which taxpayers benefit from this treatment.
If you received a PPP loan, and expect to receive loan forgiveness, you can breathe a sigh of relief. The loan proceeds are not taxable and you will not have phantom income tax due to your not being able to deduct expenses paid with PPP loans.
The bill has many other provisions including another round of PPP loans for eligible businesses, stimulus checks for eligible taxpayers, and an extension of certain unemployment benefits and payroll credits. Please stay tuned to our blog for further updates. In the meantime, if you have any questions, contact us at 630-953-4900.
The IRS has warned taxpayers of a clever stimulus payment text scam by internet scammers that tricks taxpayers into revealing their bank account information under the guise of receiving the $1,200 Economic Impact Payment (EIP). The current scam is a text message that reads: “You have received a direct deposit of $1,200 from COVID-19 TREAS FUND. Further action is required to accept this payment into your account. Continue here to accept this payment…” The text includes a link to a fake phishing web address.
This fake phishing URL, which appears to come from a state agency or relief organization, takes recipients to a fraudulent website that impersonates the IRS.gov Get My Payment website. Individuals who visit the fraudulent website and then enter their personal and financial account information will have their information collected by the scammers.
The IRS is asking people that receive this stimulus payment text scam not to go to the fake website or enter their financial information. Instead, take a screenshot of the text message that was received and include it in an email to phishing@irs.gov with the following information:
Be aware that the IRS does not send unsolicited texts or emails. The IRS does not call people with threats of jail or lawsuits, nor does it demand tax payments on gift cards. If you encounter any such communication, you can forward it to phishing@irs.gov.
If you believe you are eligible for the EIP and have not already received it, you can go directly to IRS.gov and search for Get My Payment. Payments not received in advance can be claimed when you file your 2020 tax return next year.
If you have questions about any tax or financial text or email, please call Cray Kaiser at 630-953-4900 before taking action.
Please note that this blog is based on laws effective in November 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
When Congress initially authorized the Paycheck Protection Program (PPP), its intent was to provide loans that would be partially or completely forgiven if used for the intended purposes of helping businesses affected by COVID-19 stay afloat and maintain payroll. As part of the Small Business Administration’s (SBA’s) loan application, Form 2483 or the lender’s equivalent form, borrowers had to certify under penalty of imprisonment and monetary penalties to the following:
Needless to say, the contemplation of free money had businesses scrambling to take out PPP loans, whether they were impacted by economic effects of COVID-19 or not. Therefore, the Treasury had initially indicated the need for all PPP loans to be audited, but later specified only those of $2 million or more would be subject to an audit.
After a long wait, the SBA has initiated a compliance program to evaluate the good-faith certifications that borrowers made on their PPP Borrower Applications stating that economic uncertainty made the loan requests necessary. Accordingly, each borrower that, together with its affiliates, received PPP loans with an original principal amount of $2 million or greater will be required to participate in this compliance program, and will soon be receiving one of the following multi-page forms from their lender:
Sometimes referred to as a “loan necessity questionnaire,” the form and requested supporting documents must be submitted to the lender servicing the borrower’s PPP loan. The completed form is due to the lender within 10 business days of receipt. Among other things, the forms request:
The SBA is reviewing these loans to maximize program integrity and protect taxpayer resources. The information collected will be used to inform the SBA’s review of each borrower’s good-faith certification that economic uncertainty made their loan request necessary to support ongoing operations. Receipt of this form does not mean that the SBA is challenging that certification. After this form is submitted, the SBA may request additional information to complete the review. The SBA’s determination will be based on the totality of the borrower’s circumstances.
Failure to complete the form and provide the required supporting documents may result in the SBA’s determination that the borrower is ineligible for either the PPP loan, the PPP loan amount, or any forgiveness amount claimed, and the SBA may seek repayment of the loan or pursue other available remedies.
If you have any questions related to PPP loans over $2 million or need assistance completing the form and assembling supporting documentation, please contact Cray Kaiser today.
Please note that this blog is based on laws effective in November 2020 and may not contain later amendments. Please contact Cray Kaiser for the most recent information.
Please note that this blog is based on laws effective in November 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
The U.S. Treasury Department and Internal Revenue Service (IRS) released guidance on November 18th clarifying the deductibility of expenses where a Paycheck Protection Program (PPP) loan has not been forgiven by the end of the year the loan was received. Here are the key points from the announcement:
It is important to note the newly released guidance does not address taxpayers with a fiscal year.
CK’s tax department is keeping a close eye on these developments. It is possible that Congress will act to offset the Treasury’s decision on deductible expenses. As soon as we have more information we will post it on our website. In the meantime, if you have any questions about your PPP loan and the deductibility of expenses, contact us at 630-953-4900.
