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PPP Loans Open January 11th

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PPP loans re-opening and important California deadlines approaching

We have received many questions regarding new PPP loans and the California grant deadline. Both are addressed below.

PPP loans

The SBA has announced that the Paycheck Protection Program (PPP) will reopen the week of January 11.

When the program reopens, the following new PPP funds will be available to borrowers:

  • New “second draw PPP loans” for smaller businesses who have experienced a 25% decline in gross receipts; and
  • Supplemental funding for:
    • Original PPP loans where the loan amount would have changed due to new rules that have been released; or
    • Businesses that did not originally apply for first draw PPP loans.

Only community financial institutions will be able to accept first draw PPP loan applications on Monday, January 11, and second draw PPP loan applications on Wednesday, January 13. The PPP program will then open to all other participating lenders shortly thereafter.

The SBA also released new interim final rules that implement the new loans and answer some questions, including the following:

  • For the 25% decrease in gross receipts for second draw loans, the Consolidated Appropriations Act of 2021 states that they must show a decrease for a quarter in 2020 compared to a quarter in 2019. However, the interim final rules also say that businesses can compare calendar year 2019 to calendar year 2020 to show the 25% decrease;
  • First draw PPP loans will not be included in the gross receipts calculation for second draw loans;
  • In addition to showing that they have used, or will use, all of their first draw loan, second draw borrowers must have spent the full amount of the first draw loan on eligible expenses under the PPP rules to be eligible for a second draw loan. This means borrowers requesting second draw loans should prepare forgiveness applications for their first draw loans, because they are likely to be requested by the bank;
  • EIDL grants no longer reduce PPP forgiveness. Borrowers who previously had their PPP forgiveness reduced by the amount of the EIDL advance should contact their lender;
  • Borrowers in bankruptcy may not receive additional PPP funds; and
  • Businesses that have temporarily closed may still apply for PPP loans to help them reopen.

The interim final rules on first draw PPP loans can be found here:

www.sba.gov/document/policy-guidance-ifr-paycheck-protection-program-ppp-amended-economic-aid-act

The interim final rules on second draw PPP loans can be found here:

www.sba.gov/document/policy-guidance-ifr-paycheck-protection-program-ppp-second-draw-loans

California deadlines approaching

  • The deadline to apply for a California Relief Grant of up to $25,000 has been extended until Wednesday, January 15, 2021. Details on this program can be found at: https://careliefgrant.com/
  • The deadline to reserve the California Main Street Small Business Credit is Friday, January 15, 2021. Businesses that are currently closed may still apply if they had more full-time equivalent employees in July through November of 2020 than they did during the second quarter of 2020. Details on this program can be found at: https://cdtfa.ca.gov/taxes-and-fees/SB1447-tax-credit.htm

Please reach out with any questions about this article or to talk to one our CPA’s regarding your taxes.

info@mrarrachecpa.com

News on Good Faith Loans, PPP Audits & Other Questions

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Good news for PPP loan recipients(05-14-20)

The Treasury Department has announced the following news regarding the Paycheck Protection Program (PPP):

  • A new “current economic uncertainty” safe harbor applies for PPP loans of less than $2 million. These loan recipients will automatically be deemed to have made the required certification concerning the necessity of the loan request in good faith (FAQ #46);
  • For loans of $2 million or more, the deadline to return PPP loans to avoid an audit concerning the good faith certification has been extended from May 14, 2020, to May 18, 2020. If a borrower returns the funds by May 18, the Treasury will not pursue administrative enforcement or make referrals to other agencies (FAQ #47);
  • The Treasury also won’t pursue administrative enforcement or make referrals to other agencies against a borrower with a loan of $2 million or more who didn’t repay the loan by May 18, if the borrower returns the loan after notification by the SBA that it found on audit that the borrower lacked an adequate basis for required certification concerning the necessity of the loan request (FAQ #47);
  • All borrowers who return PPP funds by May 18, 2020, are eligible to claim an Employee Retention Credit (FAQ #45);
  • Partnerships and seasonal employers may be eligible for increased loan amounts resulting from changes in the rules as to how their loans were originally calculated. Lenders may automatically request the SBA increase the loan amount for:
    • Partnerships that received a loan based on payroll costs that did not include compensation paid to partners in their payroll costs. An interim final rule issued on April 14, 2020, now allows self-employment income of general active partners as allowed under the interim final rule posted on April 14, 2020; and
    • Seasonal employers who received a loan based on payroll costs for one of the lookback periods specified in the CARES Act (the 12-week period beginning February 15, 2019, or March 1, 2019, to June 30, 2019) rather than the alternative lookback period adopted by the Treasury Department. Under the alternative rule, seasonal employers may use any consecutive 12-week period between May 1, 2019, and September 15, 2019.

No increased loan amount is available if the lender has already listed the loan on Form SBA 1502 filed with the SBA.

Partnerships and seasonal employers who might be eligible for these increased loan amounts should contact their lenders immediately to ensure they are applying for these increased loan amounts.

The Treasury Department FAQs are available at:

https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

The interim final rule allowing for increased loans for partnerships and seasonal employers is available at:

https://home.treasury.gov/system/files/136/Interim-Final-Rule-on-Loan-Increases.pdf

Feel free to reach out to discuss this article further or if you have other questions for you or your business. (949) 877-3143 (local) or (800)425-0570 (toll-free) email info@mrarrachecpa.com

SBA Provides Self-Employed and Partners Guidance on PPP Loans

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PPP loan calculations for self-employeds and partnerships (04-27-20)

The SBA has finally issued guidelines on calculating monthly payroll costs for Paycheck Protection Program loans for all entities, including self-employed taxpayers and partnerships.

Self-employed individuals

Self-employed individuals with no employees determine their monthly payroll costs by dividing their Schedule C, line 31 net profit amount, up to a $100,000 maximum, by 12. If the line 31 net profit amount is zero, the individual is ineligible for a loan.

If the self-employed individual has employees, add the monthly employee payroll costs to the amount above. These payroll costs are based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee.

To this amount, add the following 2019 costs:

  • Employer contributions for employee health insurance (portion of Schedule C, line 14 attributable to health insurance);
  • Employer contributions to employee retirement plans (Schedule C, line 19); and
  • Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

Partnerships

The application for partnerships should be completed at the partnership level. Individual partners may not apply for separate PPP loans.

The maximum loan amount is based on 2.5 times the 2019 monthly self-employment earnings reported to U.S.-based general partners on the 2019 Schedule K-1, Box 14a, net earnings from self-employment tax, with a maximum of $100,000 per partner. If the 2019 K-1s have not yet been completed, they must be completed for purposes of the loan application.

This amount must be reduced by any claimed IRC §179 expense, unreimbursed partnership expenses, and depletion on oil and gas properties. The result is then multiplied by 0.9235 (to remove the “employer” share of self-employment tax).

To this amount, add any 2019:

  • Monthly employee payroll costs based on the 2019 IRS Form 941 taxable Medicare wages and tips (line 5c, column 1), plus any excluded pre-tax employee contributions for health insurance or other fringe benefits, up to a $100,000 maximum per employee; 
  • Employer contributions for employee health insurance (portion of Form 1065, line 19, attributable to health insurance);
  • Employer contributions to retirement plans (Form 1065, line 18); and
  • Employer state and local taxes assessed on employee compensation (UI, ETT, and SDI).

LLCs

LLCs compute their payroll costs based on whether they are taxed as a sole proprietorship (SMLLC), partnership, or corporation.

Additional guidance

The guidance also specifies how nonprofit organizations and C and S corporations should calculate their maximum loan amounts, as well as the documentation each entity type must provide with its application.

The guidance is available at:

https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf

More Recovery Disaster Funds Could be here soon for Businesses

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Additional round of funding could be available this week for Businesses impacted by Covid-19.

Among the items being voted on, there appears to be emergency funding for businesses and front line healthcare responding to the pandemic:

  • $300B – Payment Protection Program
  • $50B – EIDL Economic Injury Disaster Loan
  • $25B – Testing
  • $75B – Hospitals

Congress and the President are expected to finalize the deal this week and funds should be available shortly thereafter.

Speak with your SBA banking advisor soon to start the application process and make sure to take advantage of planning opportunities for the Payment Protection Program (loan forgiveness) and Economic Injury Disaster Loan ($10k grant). Visit the following links for additional information.

-Michael Arrache, CPA, EA

Partners and Self-Employed – New guidance for PPP Loans

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PPP guidance for self-employed borrowers (04-15-20)

The SBA has issued a second set of Interim Final Rules for the Paycheck Protection Program (PPP), this time focusing on how these loans work for self-employed individuals. The guidance clarifies the following issues:

  • Individuals who are partners in a partnership (or LLC taxed as a partnership) should include their self-employment income from the partnership in the payroll costs of the partnership (up to $100,000) when applying for loans and calculating loan forgiveness. The partners will not qualify for loans individually based on the self-employment earnings from the partnership. The guidance does not provide any further definition of what should be included in self-employment income for the partners. For example, there is no discussion of guaranteed payments, etc. However, under IRC §707(c) guaranteed payments are subject to self-employment tax unless they are payments to limited partners.
  • For Schedule C filers, the guidance is clear that the maximum loan amount (and loan forgiveness) will be based on the taxpayer’s 2019 Schedule C, even if they haven’t filed their 2019 return yet. They will be required to complete a 2019 return to apply for the loan.
  • For determining the loan amount, the Schedule C filers will take the net profit from line 31 of the Schedule C (limited to $100,000), divide it by 12, and multiply it by 2.5 for the loan application. If they have employees, they will add the employees’ wages (limited to $100,000 each) and other payroll costs.
  • Schedule C filers will also be required to provide a 2020 invoice, bank statement, or book of record to prove they were in business on February 15, 2020.
  • Loan forgiveness for Schedule C filers will also be based on their net earnings from 2019 (8/52 of that amount, to reflect eight weeks of earnings), plus amounts paid for employee payroll costs, interest on mortgages (for real and personal property), rent, and utilities. There are no additions for health insurance premiums or retirement contributions of the self-employed individual.
  • Self-employed individuals who take credits for sick time or family leave under the Families First Coronavirus Response Act will reduce their loan forgiveness by those amounts.
  • Self-employed individuals who receive these loans may not qualify for unemployment. 

To view the full text of the interim rules, go to:

http://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf

CARES Act and SBA Disaster Loans

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Corona Virus Aid, Relief and Economic Security ACT (H.R. 748)

Payroll Protection loans

In addition to the tax provisions we previously reported, the CARES Act provides for Payroll Protection loans of up to $10 million to COVID-19 impacted businesses:

  • The loans are guaranteed 100% by the Small Business Administration (no personal guarantees or collateral required);
  • Businesses with 500 or fewer employees can borrow 2.5 times their average monthly payroll, up to a maximum of $10 million;
  • The loans may be forgiven for amounts used to cover basic operating expenses such as payroll costs, rent and mortgage, and utilities for up to eight weeks from the loan origination date;
  • Loan forgiveness will be reduced by reductions in employee compensation or layoffs of employees over the last year;
  • The canceled debt will not generate taxable income;
  • Businesses that take these loans will not qualify for the Employer Retention Credit; 
  • Any loan amount that isn’t forgiven has a maximum term of 10 years and a maximum interest rate of 4%; and
  • At press time, the SBA had not provided information to banks on the loan process, but we expect that to happen soon.

Read full CARES Act (H.R. 748) https://www.congress.gov/bill/116th-congress/house-bill/748/text

PLANNING OPPORTUNITY: Section 1106 of CARES Act allows for loan forgiveness in an amount equal to approximately 8-weeks of payroll, rent, utilities and certain interest. Contact your SBA advisor for more information.

Employer Retention Credit

The CARES Act also contains a refundable employer retention credit against quarterly employment taxes for employers impacted by COVID-19:

  • Impacted employers are those who fully or partially suspended operations due to COVID-19 or whose gross receipts declined in a quarter by more than 50% compared to the prior year;
  • The credit is equal to 50% of qualified wages paid after March 12, 2020, and before January 1, 2021, up to a $5,000 maximum per credit;
  • The credit is claimed against the 6.2% employer’s portion of Social Security taxes;
  • The IRS will be providing refund advances; and
  • The credit cannot be claimed by businesses receiving a CARES Act Payroll Protection loan from the Small Business Administration.

Rather than wait weeks after the employer has filed its quarterly Form 941, the IRS has set up two alternative ways employers can cash in these credits quickly:

  • They can retain the following employment taxes rather than depositing them:
    • Federal income taxes withheld for all employees;
    • The employee’s share of Social Security and Medicare taxes (but only for the employee who received the paid benefits or qualified wages); and
    • The employer’s share of Social Security and Medicare taxes for all employees; or
  • Alternatively, employers may file Form 7200, Advance Payment of Employer Credits Due to COVID-19, to expedite a refund of the credit due in excess of the amount of previously retained employment taxes. The IRS has stated that they will try to issue refunds within two weeks.

Form 7200 may be filed for an advance payment of the credits anticipated for a quarter at any time before the end of the month following the quarter in which the employer paid the qualified wages. If necessary, it can be filed several times during each quarter.

Submit Form 7200 by faxing it to (855) 248-0552.

Form 7200 is available at:

www.irs.gov/forms-pubs/about-form-7200

Stimulus payments (Employees)

  • The payment is an advance payment of a 2020 tax credit;
  • The maximum credit is $1,200 per individual ($2,400 MFJ) plus $500 per qualifying child under 17 years old;
  • The credit is phased out by 5% ($5 for every $100 over the limit) for AGIs exceeding:
    • $150,000 for MFJ — phased out at $198,000 if there are no children;
    • $112,500 for HOH filers — phased out at $146,500 if the HOH has one child;
    • $75,000 for all other taxpayers — phased out at $99,000; and
    • For every child claimed, add an additional $10,000.
  • For people who have already filed their 2019 tax returns, the IRS will use this information to calculate the payment amount. For those who have not yet filed their return for 2019, the IRS will use information from their 2018 tax filing to calculate the payment. The stimulus payment will be deposited directly into the same banking account reflected on the return filed;
  • For taxpayers who did not provide direct deposit information, in the coming weeks the Treasury plans to develop a web-based portal for individuals to provide their banking information to the IRS online so that individuals can receive payments immediately as opposed to checks in the mail; and
  • For individuals who did not file a 2018 or 2019 return, the IRS is developing a simplified process for them to file.

Here is a link to the IRS’s FAQs on these payments:

www.irs.gov/newsroom/economic-impact-payments-what-you-need-to-know

Greece vs. America – The Average American Could Be Worse Off

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Greece is in serious trouble – but what about the average American? credit cardThe average US household carries approximately $16,000 of credit card debt; average mortgage debt $157,000; average student loan $33,000 (source http://tiny.cc/ee3q0x) … that is approximately $10,000 of interest per year :/

However, unlike Greece, if an American claims bankruptcy there is no reprieve from certain types of debt i.e. student loans or taxes which essentially creates a “debt prison”.

 

http://tiny.cc/u32q0x