There are still opportunities for businesses to take advantage of pandemic-related assistance programs. The Paycheck Protection Program (PPP) and Employee Retention Tax Credit (ERTC) have evolved since they were initially signed into law. They may be worth a second look.
Paycheck Protection Program (PPP)
The deadline for 2021 PPP applications has passed, but loan forgiveness applications will be available later this year. If your company received a PPP loan for less than $150,000, you can take advantage of a simplified forgiveness process that requires only a one-page certification letter attesting to the number of employees retained, the amount spent on payroll costs, and the total loan value.
Also, the Consolidated Appropriations Act of 2021 (CAA) expanded the eligible expenses for PPP loans, which now include additional employer-paid benefits, mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations. Additionally, the covered period is more flexible, between 8 and 24 weeks.
The IRS also released new guidance regarding deductibility of PPP loan proceeds. IRS Revenue Procedure 2021-20 allows taxpayers who reduced their deductions for expenses paid using forgiven PPP loan proceeds to elect to take those deductions in the following taxable year rather than amending their current year return.
Taxpayers who filed returns on or before December 27, 2020 (when the CAA was enacted), may now elect to claim the lost deductions on the following year’s return by attaching a statement to the return.
Employee Retention Tax Credit (ERTC)
In 2021, the ERTC is available to any sole proprietor, LLC, S Corp, or C Corp with fewer than 500 full-time employees (up from 100 in 2020) that experienced a decline in gross receipts by more than 20 percent in any quarter of 2020 compared to the same quarter in 2019.
For wages paid between January 1, 2021 and before July 31, 2021, this payroll tax credit is 70 percent of qualified wages up to $10,000 per employee per quarter. (This does not include owners and their family members with combined ownership greater than 50 percent.)
The maximum credit any employer can receive in 2021 is $14,000 ($7,000 per quarter) per employee. For 2020, there is a maximum of $5,000 per eligible employee, computed at a rate of 50 percent of qualified wages up to $10,000 for the year.
Originally, companies were not allowed to utilize both PPP and ERTC, but that has changed. They can’t cover the same payroll costs, but with the right bookkeeping and coordination, businesses can take advantage of both. Of course, your tax advisor can offer insight into whether your company qualifies and how to make the most of these and all pandemic recovery programs.
Dembo Jones’ audit and accounting team has helped our clients maximize their tax savings and manage cash flow through the course of the pandemic, including through the PPP and the ERTC. Contact us today.