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Consolidated Appropriations Act (CAA 2021)

December 28, 2020
By: Candus Tibbitts

On Sunday, December 27th, the signature of President Donald Trump brought months of negotiations into law with the Consolidated Appropriations Act, 2021 (CAA 2021).  This law contains over 5,000 pages and encompasses many changes, stimulus, and tax consequences.  Today we bring you a few of the stimulus items that are important to small businesses.

Paycheck Protection Programs.  The Paycheck Protection Program (PPP1) began in April 2020 and closed the application in August of 2020.  Many businesses have been or are currently seeking PPP1 forgiveness.  Many were also learning of the tax consequences of the PPP forgiveness.  CAA 2021 brought tax relief and allows for the deductibility of expenses paid for using the Paycheck Protection Program funds.  This supersedes the IRS Guidance (Rev. Rul. 2020-27) that such expenses could not be deducted and brings the policy in line with Congress’s intent when the original PPP was enacted with the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Paycheck Protection Program Round 2 (PPP2).  This PPP2 funding has some additional qualifications, but is available to any business that meets eligibility requirements. Those requirements are as follows:

  • 300 or fewer employees
  • Have used or will use the full amount of their first PPP loan (if a business didn’t get funds under PPP round 1 they can still apply for PPP2)
  • Show 25% gross revenue decline from any 2020 quarter as compared to the same quarter in 2019 (not in business for all of 2019 there are still options for those businesses open prior to February 15, 2020)

There were businesses left out of the PPP1 that are now eligible such as Sec. 501(c)(6) not-for-profit organizations (see limiting factors).  PPP2 is set to be the same loan amount of 2.5 times the monthly payroll cost.  However, the hospitality and restaurant industry can qualify for up to 3.5 times the monthly cost. It expands PPP allowable and forgivable expenses to include supplier costs on existing contracts and purchase orders, including the cost for perishable goods at any time, costs relating to worker protective equipment, and adaptive costs, as well as technology operations expenditures.

The final item related to PPP is nearly automatic forgiveness for those loans of $150,000 or less.  We expect this automatic forgiveness to be only one page, certifying the correct use of funds. Additional guidance will be issued by the Treasury as this application becomes available. This nearly automatic forgiveness will be for borrowers of both PPP1 and PPP2.

Some small business items to bring to your attention are payroll tax credit opportunities and extension of sun-setting provisions as listed below:

  • Does not extend requirements for employers to provide emergency paid sick leave or emergency paid family and medical leave (i.e. no longer mandated) However, Congress extended employers’ ability to utilize the Families First Coronavirus Response Act (FFCRA) tax credit until March 31, 2021, if employers voluntarily continue to provide FFCRA paid leave benefits to their employees.
  • It also extends and broadens the employee retention tax credit and allows the employee retention credit to be simultaneous to PPP rather than mutually exclusive.
  • Employee Deferral of Social Security Administration (SSA) tax. Wages paid from September 1 through December 31, 2020. Under the memorandum, employers are required to increase withholding and pay the deferred amounts ratably from wages and compensation paid between January 1, 2021, and April 30, 2021. The bill extends the repayment period through December 31, 2021.

This Act is extensive.  HintonBurdick professionals are learning all we can to provide you with the greatest benefits and opportunities during these unprecedented times.

Also, though not related to the new Act, we remind all S-corporations about the need to properly report shareholder health insurance on Form W-2.  Any amounts paid for shareholder health insurance – either directly paid to the provider or reimbursed to the shareholder (who directly paid the provider) – qualify and allow the shareholder an amazing deduction on their Form 1040.  This applies to all shareholders who own more than 2% of the corporation’s stock.

If you have any questions regarding how your business can benefit from any of the information explained above, please reach out to a HintonBurdick professional.

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Candus Tibbitts

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