Deja vu? I swear we have lived this before. Established government program with constantly changing rules. Guidance issued related to the program never seems to fully answer the outstanding questions. Sounds familiar doesn’t it?
Before I get into the happenings of the week, let me tell you what I would like you to take away from this blog post – Be Patient! I have preached Patience for the better part of a year now. I’ve been consistent in this message because we haven’t been able to fully rely on rules and guidance issued. I spend a great deal of time (sometimes I think far too much) gathering as much information as possible to ensure our small business customers and those that read these blogs or attend our webinars have all information possible to make the best decisions they can. I can say without a doubt, the information I have gathered continues to support the message – Be Patient!
There are well documented examples of situations where patience was the correct strategy. Take a look at my latest blog post on the Employee Retention Program (ERC) to see why being slow to act will prove to be best. The IRS has very clearly stated that if you applied for forgiveness prior to reading this guidance, you may be receiving a much smaller (or no) ERC refund. Forgetting the ERC program, we know that waiting to apply for forgiveness was the right answer for most because the process has been simplified significantly over the last 6-9 months.
Please remember, there are no imminent deadlines that will reduce or eliminate your Payment Protection Program (PPP) loan forgiveness or ERC credits. You have time. Use that time to ensure you fully understand the rules and guidance issued for both of these programs. Make sure you fully understand (and plan for) any tax consequences that may result from utilizing these programs.
Ok, let’s jump into what happened this week.
Payment Protection Program
On March 3, the SBA released four new applications related to the PPP. In fairness, there are really only two new applications. The other two are simply updated due to the existence of the new applications. The new applications apply to Schedule C tax filers (1st Draw, 2nd Draw). Ultimately, the applications allow the Schedule C borrower to utilize a new formula to calculate their PPP loan. The formula begins with gross income, instead of net income, which could result in a larger loan. Unfortunately, this is not a retroactive change. The new applications are only for those that have yet to be approved for a PPP loan as of March 3 (if you have applied but haven’t been approved, I suggest you speak to your lender about retracting that application).
To support the application changes discussed above, the SBA issued an interim final rule to formally implement the changes.
In addition, the SBA also released updated FAQ’s. FAQs 57-65 are new as of March 3. I wouldn’t deem any of the updated or new FAQ’s as significant. That said, I suggest reading through them to ensure you are fully up to speed on the rules and guidance that exists today for all PPP borrowers.
Paycheck Protection Program – Funding Update as of 2/28/21
There is plenty of funding available related to the PPP program. $156 billion of the new $284 billion program has been disbursed. That leaves $128 billion or 45% available in a program that is set to expire at the end of the month.
We have seen very little movement on the forgiveness front in the last several weeks. Lenders continue to focus on pushing loan applications through (or dealing with the significant number of rejections coming from the SBA lending portal).
Employee Retention Credit (ERC)
Please read through my last blog post for a full update on where things stand on the ERC program. There are still a number of open questions related to the ERC program (2020 and 2021). The most significant are:
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We are waiting on formal rules related to the 2021 program.
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S-Corps – Are wages paid to an owner’s spouse deemed to be eligible or ineligible? We have discussed the related party rules related to ERC eligible wages before – make sure you understand these rules.
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Does PPP loan forgiveness get included in gross receipts (this matters for revenue reduction calculations)?
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What year do you reduce wage expenses due to the credit you received? This is extremely important for tax purposes – mainly when should you file your tax return? For example, if you file your tax return for 2020 on March 1, 2021 and the IRS concludes wage expenses should be reduced in the year the credit was “earned”, then you will be forced to reduce wage expenses in 2020 and would then need to amend your 2020 tax return.
Stimulus Update
The House passed their version of the latest stimulus package last week. The Senate has taken it up and will make changes before sending it back to the House. Based on everything I can tell, Congress fully expects to get a stimulus deal to President Biden prior to unemployment benefits running out for individuals on March 14.
The stimulus package is expected to contain about $50 billion for small businesses. It is also expected to extend the Employee Retention Credit program through the end of the year.
I expect the next two weeks will be extremely chaotic as Congress works through the stimulus package and further guidance is released from the SBA, Treasury department and the IRS. We will stay on this and ensure you get the information you need to make the best decision for your business. Stay tuned and remain patient!
