COVID Stimulus programs recap—does your organization qualify?

With the COVID relief package passed in late December, many are still reviewing the rules to see if they qualify.  There were numerous changes retroactive to the beginning of the CARES Act (March 2020) and many new changes going forward in 2021 which has made this new bill cumbersome to navigate.  Based on the rules known today, we have provided different categories that most taxpayers are falling under, which we hope helps you navigate all the changes.

Your organization received PPP funds in the year of 2020, will my business qualify for the second round of PPP?

  • Many businesses and self-employed individuals fall in this category.  The first question you need to ask, have you experienced a 25% reduction in gross receipts during any quarter of 2020 as compared to the same quarter in 2019?  If so, then you might be eligible.  We do know the original PPP and EIDL grants are excluded from gross receipts, however, there is uncertainty as to whether the other stimulus funds should be included (Nebraska stabilization, HHS, CFAP, etc.).  For now, exclude all stimulus payments in your gross receipts so you can determine how your operations truly performed each quarter.  Note:  special rules apply if you started business in 2019.
  • If your original PPP loans have not been forgiven, you may be eligible to request a recalculation of your first round PPP and increase your eligible loan amount.  We recommend you talk with the lender that assisted you the first time to see if you are eligible for an increase based on the revised rules.

Your organization never received PPP funds in the year of 2020, can I apply?

  • For any business that had payroll and you didn’t apply for funds the first time for whatever reason, you can still apply.  You have time to apply as a “first-time” borrower if you feel the conditions warrant the needed funds for your business.  The criteria and rules for the most part follow the initial PPP funding rules (average monthly payroll multiplied by a factor of 2.5). 
  • For sole-proprietor farmers that file a Schedule F, special rules apply in computing eligible “payroll”.  Farmers can calculate their payroll by using Schedule F, line 9 gross income (capped at $100,000), divided by 12 months and multiplied by a factor of 2.5.   For a farmer with more than $100,000 of gross receipts and no employees, the max loan amount is $20,833.  If the farmer had employees, a slightly different computation is required.   If you received a lessor amount under the first round of PPP and your loan has not been forgiven, you can request the additional amount.   

Not eligible for any additional PPP, now what?

  • If you received first round PPP funding and you’ve already received loan forgiveness, there are still a few new benefits from the latest stimulus.  If you also previously received the EIDL grant, your loan forgiveness was likely reduced by the EIDL.  In a retroactive change, the EIDL no longer reduces the forgiveness amount, so lenders will be working with the SBA to ensure all borrowers receive full PPP loan forgiveness.  Watch for more communication from your lender on this.

Employee Retention Credit—credit to reduce payroll taxes:

  • Another stimulus credit that organizations need to be aware of is the Employee Retention Credit.  Under the CARES Act in March 2020, any business that received the PPP could not also use the Employee Retention Credit.   Under the new act, this has been repealed back to March 2020.  Essentially, businesses can potentially receive up to 50-70% refund of wages up to $10,000 of wages per employee by keeping their employees during the pandemic.  For 2020, analyze if your business revenues for Q2, Q3 and Q4 dropped by 50% or more as compared to the same quarters in 2019 OR if your organization was partially or fully suspended as mandated by the government.  If you meet either criteria, you may be eligible to claim the tax credit on your Form 941.  Special rules apply if you received the PPP, which guidance is forthcoming from the IRS/Treasury.