Two Key Provisions of the COVID-19 Relief Bill – PPP and ERC

Posted By: Jonathan Patterson, CPA, CVA

The COVID-19 Relief Bill was signed by President Trump on Sunday, December 27 and BLS prepared COVID-19 Relief Bill – What we know so far, which provided highlights of significant sections of the bill. There are two key provisions within the COVID-19 Relief Bill – Second Round PPP Loans and Extension of Employee Retention Tax Credit – that we want to outline in more detail to assist you when considering their potential applicability to you and your organization. Below is a high-level overview of the two key provisions.

 

 

Paycheck Protection Program (PPP) Loan

What we know now

Eligibility for a second PPP loan is available if:

  • You are a business, nonprofit including trade organizations, or self-employed
  • Your employee count does not exceed 300
  • You have used or will have used all of your first PPP loan by the application date
  • You incurred at least a 25% reduction in gross receipts from one calendar quarter in 2019 to the same calendar quarter in 2020

Loan amounts:

  • Borrowers can receive 2.5 times their average monthly payroll costs (3.5 times for accommodation and food service) of their 2019 or one-year average monthly payroll prior to application
  • There are expanded categories of expenses for how to use the new loan proceeds
  • The components of payroll costs have been slightly modified to now include, life, vision, disability, and dental insurance

Additional draw of first PPP loan:

  • Creates PPP Loan increase amount for recipients of the first round who did not apply for the full amount for which they are eligible

What we need more information about

We are currently awaiting more information from the SBA who has 10 days from December 27, 2020, to issue guidance surrounding the rules specific to a second PPP loan. The most important items we are hoping to gain additional clarification on are:

  • How will the SBA define gross receipts?
  • What documentation will be required to show a 25% drop in gross receipts?
  • What type of assertion will the SBA require from the borrower if they obtain a second PPP loan?
  • What are the details on the process of obtaining additional funds from the first PPP loan? (SBA has 17 days from December 27, 2020, on this item)
Employee Retention Credit (ERC)

The Cares Act, signed in March of 2020, provided employers with the ability to claim a retention credit on their quarterly payroll tax returns (941s) for maintaining employee salaries. Under the Act, employers were not eligible to claim these credits if they received PPP funds. The new COVID Relief Bill removed this limitation to allow businesses and nonprofit entities to claim employer retention credits even if they received PPP funding.

What we know now

  • The ERC is available from March 13, 2020, through June 30, 2021
  • The amount of wages allowed to be used for the credit is $10,000 per employee per year in 2020 and is $10,000 per employee per quarter in 2021
  • You can’t ‘double dip’ and use the same wages used for both the forgiveness of your PPP loan and the ERC
  • You need to show a 50% drop in revenue or be forced into a partial or full shutdown by the government to qualify for the credit
  • The ERC eligibility changes for 2021 such that the decline in gross receipts is reduced from 50% to 20%
  • The credit is claimed on Worksheet 1 of Form 941

What we need more information about

  • How is the retroactive credit applied for from March 13, 2020 to December 31, 2020?
  • How to determine which wages are allowed to be used for the credit assuming wages have already been used in the PPP forgiveness application?

Register for our Belfint Briefing Webinar: Highlights of the COVID-19 Relief Bill on January 26 from 8:30-10:30.

If you believe you qualify for either one of these programs or need more information, please contact your BLS Team Member directly or via our contact form to obtain more information. We will continue to update you on these programs as additional information and clarification become available.

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