Covid-19 Tax Updates For Business

Family and Medical Leave Act (FMLA)

Effective September 16, 2020, the U.S. Department of Labor’s Wage and Hour Division announced revisions to the expanded family and medical leave provisions of the Families First Corona Virus Response Act (FFRCA).  The changes largely reaffirm but also clarify specific sections of the legislation regarding documentation required to support an employee’s request for FFCRA leave and provide a more restricted definition of “healthcare provider” exempted from leave eligibility.

The new Coronavirus Relief Bill signed into law on December 27, 2020 extends Federal tax credits for sick and family leave to March 31, 2021.  However, it no longer requires employers with more than 50 employees to offer FFRCA emergency leave originally authorized on March 18, 2020. 

Starting January 1, 2021, employees who have not previously taken Covid-related leave may be granted

  • 2 weeks of emergency leave in order to care for a family member stricken with COVID-19 or care for children who are quarantined at home during government-mandated school closures
  • Another 10 weeks of paid leave through March 31, 2021, following the initial 2 weeks of emergency leave

Employers can receive 100% credit for the cost of providing FFRCA leave via against their payroll taxes. Payments above the specified limits for sick or family care leave are allowed but won’t be credited against 941 related taxes.

For more information visit the U.S. Department of Labor, the IRS, or contact your tax advisor at Diamond & Associates, PC CPAs.

Economic Injury Disaster Loan (EIDL)

The SBA has been providing disaster assistance to small businesses for many years through its EIDL program.  The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) authorized on March 18, 2020, made loan funds available to small businesses to cover general expenses, including rent, payroll, accounts payable and general operating expenses at a rate of 3.75% for a term of up to 30 years.  An additional $197 billion in EIDL loans were authorized on December 28, 2020 and is available to small businesses who have yet to apply for a Covid-19 EIDL loan.

Businesses that received loans through the Paycheck Protection Program may apply for EIDL funding as well.

Under the new CARES Act law, EIDL grants are not counted in gross income, do not affect allowable deductions, and do not reduce PPP loan forgiveness.

Information about EIDL is available here.

For more information visit SBA Disaster Assistance.

Paycheck Protection Program (PPP) – Round 2

The Paycheck Protection Program has provided loans to small business affected by the global health crisis to help them retain employees.  The CARES Act stipulated these loans would be forgiven if employers use at least 60% of the funds for payroll and associated expenses and benefits, interest on certain mortgage obligations, and for rent and utilities. Additionally, employers must have met requirements regarding employee retention during the period when loan proceeds were used to cover business expenses.

The newly authorized extension to the CARES Act makes available an additional $285 billion for PPP loans through March 31, 2021.  To apply for a second round PPP loan a business must

    • Have 300 or fewer employees
    • Have experienced a calendar quarter in 2020 where its gross revenue is 75% or less than the corresponding calendar quarter in 2019. In other words, the business has experienced a reduction in revenue of at least 25% during a calendar quarter in 2020 as compared with the corresponding calendar quarter in 2019.
    • Have exhausted all funds from round 1 PPP loan before applying for round 2 funding
    • Certify that the loan is “necessary” for the business.  The SBA has not specified how it will define a loan as “necessary”, but we expect clarification in the coming days.

A under the 2nd round PPP loan amount determination will be similar to the first round with the additional qualifications that

    • The maximum loan is $2,000,000 for any business that received earlier PPP funding, and
    • Businesses with an NAICS code starting with 72 (restaurants, bars, hotels, motels etc.) will be able to borrow 3.5 times the average 2019 monthly payroll instead of the 2.5 for other businesses.

Please contact us if you have questions about applying for PPP loans.

PPP Loan Forgiveness

The new CARES Act will greatly simplify PPP forgiveness application for loans of under $150,000. Businesses borrowing more than $150,000 will still need to demonstrate that they have not experienced a drop in employee staffing of more than 25% to achieve full loan forgiveness.

Borrowers with loans less than $150,000 are not required by the SBA to substantiate how they spent loan proceeds, but they must certify that they disbursed the funds according to the terms of the loan in their forgiveness application.  Because borrowers apply to their lender for loan forgiveness, however, rather than the SBA, lenders will have their own documentation requirements. To support their forgiveness application, borrowers must have documents like bank statements, tax forms and cancelled checks. The SBA states that all borrowers must keep records all records related their PPP loan for through six years from the date the loan was forgiven.

Businesses may apply for forgiveness when they have spent their PPP loan proceeds. Before completing the forgiveness application, we recommend that business owners seek professional guidance if they have any questions. Forgiveness rules have changed a great deal since the program began, including the expansion of the period to claim covered expenses from 8 to 24 weeks.

All PPP loan forgiveness application forms are currently under revision following the enactment of the new CARES Act on December 27, 2020.  For information regarding forgives application, visit the PPP website at the U.S. Department of the Treasury.

For the most current information regarding PPP loan forgiveness as it applies to your business, contact your tax advisor at Diamond & Associates, PC CPAs.

PPP Expense Deductibility

The new CARES Act allows for expenses paid with PPP loan funds to be fully deductible even if the PPP loan is forgiven. This overrides the IRS’ previous determination that those expenses would not be deductible.

Employee Retention Credit

On March 27, 2020, Congress enacted The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which is designed to encourage employers affected by the global health crisis to keep employees on their payroll, even if they are experiencing financial difficulties due. The IRS will provide eligible employers with an employee retention tax credit (Employee Retention Credit) to cover qualified wages, including qualified health plan costs.

The second CARES Act legislation enacted into law on December 27, 2020 extends the retention credit to June 20, 2021. The new law expands the provisions starting January 1, 2021 so that:

  1. It applies to $10,000 of wages per employee, per quarter (not year)
  2. The credit rate increases from 50%, for a maximum $5,000 credit per year, to 70% of wages, for a maximum of $7,000 per quarter.
  3. A gross income reduction is now defined as a 20% cut, not 50%.
  4. Eligibility can now be determined using prior quarter gross receipts.
  5. The credit is available for businesses with up to 500 employees.
  6. Businesses that were not existence in 2019 but between January 1, 2020 and February 15, 2020 are now eligible.

This new legislation makes changes that are retroactive to the effective date of the original CARES Act, March 27, 2020.  Business that received PPP loans and therefore were ineligible for retention credits under the earlier law may be able to qualify for credit on wages that were not paid with PPP loan proceeds. Additionally, employers who paid group health care costs for employees who were not paid other wages can now consider premiums paid as qualified wages.

For more information about the Employee Retention credit click here.

COVID-19 Resource Links

Internal Revenue Service

Commonwealth of Pennsylvania

State of New Jersey

New Jersey Emergency Business Assistance

New Jersey Treasury – Division of Taxation

Families First Coronavirus Response Act: Q&A