For those of you with first round funding from 2020, we had been advising you on waiting to apply for loan forgiveness until after year end. There were multiple reasons for this intended delay, including the Full Time Equivalent (FTE) safe harbor at December 31, 2020 as well as anticipated simplified applications for loans under $150,000.
With the addition of the second round of PPP funding in 2021, many lenders suspended the forgiveness application process so that they were able to handle this second round swiftly. With the extension of the original 8 week covered period to 24 weeks, most borrowers have until July or August 2021 to apply for and receive forgiveness as this is approximately 10 months after your covered period ends.
While there is plenty of time to do so, we recommend that as soon as your lender begins to accept these applications that you proceed with applying for forgiveness.
For those of you that may qualify for the second round of PPP funding, there may still be time to apply. The funds will expire on March 31, 2021 or whenever the funds are exhausted. There is a possibility of an extension of time until May 31, 2021 that has been discussed but not implemented. To qualify, you must be able to demonstrate that your gross income was down not less than 25% for any fiscal quarter of 2020 compared to the same period of 2019. You qualify even if you have just one fiscal quarter down by this percentage.
EMPLOYEE RETENTION TAX CREDITS – DO YOU QUALIFY?
The Employee Retention Tax Credits (ERTC) are a continually evolving opportunity for business owners. Just this past week as part of the new American Rescue Plan Act of 2021, the program was extended providing a greater opportunity for those business owners that qualify.
The credits work in general like this: for those qualifying wages, the government will give you a credit towards your employer social security costs. This credit will be refunded to you by amending your quarterly payroll tax returns. The offset is that there is a reduction of your payroll tax expense in your business. So you are receiving funds back dollar for dollar, and reducing a deduction on your business return, and losing out on the tax savings on that deduction. Its like earning $1 and it costs you 25 cents in tax. Overall, it is a great deal if you qualify.
In true government fashion, the qualification of the credit is rather complicated, and the calculation is even more complicated. There are two separate tests to qualify for this credit for 2020. You must have been subject to a partial or full government shutdown due to the pandemic (like a restaurant being forced to cease dine in options) and you must have had a decline in gross receipts of no less than 50% in any fiscal quarter as compared to the same period in 2019. Your eligibility ends on the 1st day of the 1st calendar quarter in which gross receipts are more than 80% of the same quarter in the prior year.
Wages paid to an owner (if a schedule C), wages used for another credit (FFCRA, WOTC, etc) or wages covered by a forgiven PPP loan (I would presume also means a loan EXPECTED to be forgiven) are not eligible towards this credit calculation.
To claim this credit, you would have to amend your quarterly payroll tax returns for the fiscal quarter impacted. Ideally, these amendments for 2020 payroll returns would need to be completed prior to filing your 2020 income tax returns. Otherwise, you would be forced to amend your income tax returns to reflect the change in deductible payroll taxes.
While your payroll company can amend these for you at what we have confirmed is a very reasonable cost, they cannot calculate this for you. We would love nothing more than to assist each and every one of you who qualify with this task, however we do not have the capacity for this work during our busy season.
We have instead teamed with a consulting firm, Think LLP, to help any of you interested in exploring this opportunity. This firm is a tremendous resource for compliance matters beyond what our firm provides. They handle specialty areas like these with a team of CPA’s and Tax Attorneys. The attached flyer has a brief summary of the ERTC opportunity for you to read and review and the contact information should you wish to pursue this credit.
Should you choose to proceed with their assistance, please let us know so that we can plan to extend filing your returns until the credits are calculated and the 941 returns amended.
Thank you as always for allowing us to be your Trusted Advisors.