Over this past weekend, President Trump moved forward and signed the COVID-19 relief bill. This legislation had expeditiously passed both the House and Senate the past Monday and was waiting for the president’s signature to make it official. This bill is the second major stimulus package passed in 2020. The final version of this bill provides needed financial help for both business and individuals. Highlights of the $900 billion Coronavirus relief package as it impacts individuals are noted below:
- Additional Stimulus payments to taxpayers to begin being paid out – similar to the Economic Impact Payments (EIP) paid out earlier this year.
- $1,200 for married filing joint tax filers plus $600 for qualifying dependent children
- Phase-out begins at $150,000
- $600 for all other tax filers plus $600 for qualifying dependent children
- Single and MFS phase-out begins at $75,000
- Head of household Phase-out begins at $112,500
- Expansion in the special charitable deduction allowed for Non-Itemizers.
- The new stimulus package allows taxpayers who do not itemize their tax returns to take a charity deduction in the amount of $600 for married filing joint filers and $300 for all other filers. This special rule applies to both 2020 and 2021 tax years. Only cash contributions paid directly to a charitable organization qualify for this deduction.
- Revocation on the Limitation on Charitable Contributions.
- There is no AGI limitation on the allowed amount of a taxpayer’s charitable contribution for 2020 and 2021 tax years.
- Expansion of expenses qualifying for the educator expense deduction.
- Qualified educator expenses will now include amounts paid for personal protective equipment (PPE) and other supplies used in the prevention of COVID-19 in the classroom.
- Changes to employer flexible spending accounts (FSAs).
- The grace period for unused benefits and contributions to employer FSAs (such as for medical expenses and dependent care expenses) has been extended to 12 months after the year end for 2020 and 2021.
- Special carryforward rule where a dependent “aged out” during the Pandemic. DCB funds can be used for such child under age 14.
- Employer FSA plans can allow employees to make prospective changes to their contribution amounts mid-year in 2021 without a valid change in status event.
- Additional unemployment benefits provided
- Supplementary Federal Pandemic Unemployment Compensation (FPUC) in the amount of $300 per week to be provided for 11 weeks to qualifying individuals – extended to March 14, 2021.
- $100 per week additional benefit for certain “mixed-earners” (individuals who earned income as both an employee and as a freelancer who earned at least $5,000 in self-employment income).
During the spring, the SBA offered practice owners an Economic Injury and Disaster Loan of up to $150k in addition to the PPP Loan of 2.5 times eligible monthly payroll costs and the EIDL Advance of $1k per employee, up to $10k. While almost all our clients accepted the PPP Loan and EIDL Advance, a small percentage took the EIDL Loan too.
As we wrote previously at: https://schwartzaccountants.com/2020/05/more-info-about-eidls/, there are certain pitfalls with the EIDL loan, so please consider paying it off as quickly as you can. We gave instructions to paying off the EIDL Loan at: https://schwartzaccountants.com/2020/10/how-to-pay-off-the-eidl-loan-2/.
Now, it appears there are even more headaches associated with maintaining this loan as the SBA is requesting additional filing requirements for businesses with an outstanding EIDL Loan as follows:
DUTY TO MAINTAIN HAZARD INSURANCE
The document that we need is the Declarations Page of your Hazard Insurance policy. This document must:
- 80% of the business contents needs to be covered
- Be current as of day of the day that I review it
- The address on the policy must match the address that we have on file for you
- The name of the insured must match the name of the Business
- The Coverage period must be 12 months
The Duty to Maintain Hazard Insurance requirement may be found on page 4 of the Loan Authorization and Agreement which you signed “…the Borrower will provide proof of an active and in effect hazard insurance policy including fire, lightning, and extended coverage on all items used to secure this loan to at least 80% of the insurable value. Borrower will not cancel such coverage and will maintain such coverage throughout the entire term of this Loan.”
RESOLUTION OF BOARD OF DIRECTORS
The Resolution must:
- Be called the Resolution of Board (Corp), Certificate of Limited Liability Entity (LLC), or Certificate of Limited Liability Partnership (LLP) or some other such document
- Be provided by you (we cannot provide a template)
- List the Business Name
- State that a business meeting was held and specify on which date
- State that the Business has agreed to assume this SBA loan
- Specify the loan amount
- Authorize the signatory to sign on behalf of the business
- State the name of the signatory
- Be signed by corporate
The Resolution of the Board requirement may be found on page 7 of the Loan Authorization and Agreement which you signed. It states that the borrower shall “…submit the appropriate SBA Certificate and/or Resolution to the U.S. Small Business Administration…”
Please reach out to your practice attorney to property draft the required Resolution of the Board of Directors. Or, Attorney Neil Cohen can help you prepare this Resolution for $300. You can email Neil at: firstname.lastname@example.org.
Then forward the Declarations Page of your hazard insurance policy and the Resolution of the Board of Directors to the SBA per their instructions. Or, just repay the EIDL Loan if your feel your practice can afford to pay back that loan now and you aren’t overly concerned that you’ll need those funds to financially survive in the event of another forced shut down in 2021.
According to the ADANews at: https://www.ada.org/en/publications/ada-news/2020-archive/december/hhs-provider-relief-fund-phase-3-payments-underway:
The U.S. Department of Health and Human Services said Dec. 16 that the next round of Provider Relief Fund distributions is now underway.
The Provider Relief Fund was established by the Coronavirus Aid, Relief and Economic Security Act — known as the CARES Act — to help dentists and other health care providers recover lost revenue and net changes in expenses due to the COVID-19 pandemic. During the Phase 3 round of funding, the program is expected to distribute more than $24 billion to more than 70,000 providers, according to an HHS news release. That number was about $4 billion higher than originally expected.
HHS added that they “enhanced the Phase 3 distribution to consider the actual revenue losses and expenses experienced by providers that were attributable to COVID-19. With this opportunity, previously eligible PRF applicants were invited to apply for additional funding, along with first time applicants…this funding will distribute to providers up to 88% of their reported losses [over and above any PRF Phase-2 funds received].”
Starting on December 16th, many of our clients started to see their HHS PRF Phase-3 Subsidy pop up in their practice bank accounts. If you applied for this Phase-3 Subsidy but did not receive any funds yet, please contact HHS soon.
According to HHS: If you have already submitted your application, you should have received confirmation regarding your application status. If you have additional questions, please contact the provider support line at (866) 569-3522; for TTY dial 711. Hours of operation are 7 a.m. to 10 p.m. Central Time, Monday through Friday.
And don’t forget that all recipients of Provider Relief Fund (PRF) payments are required to comply with the reporting requirements between 1/15/21 and 2/15/21 as described in the Terms and Conditions and specified in future directions issued by the Secretary.
- January 15, 2021: reporting system opens for providers
- February 15, 2021: first reporting deadline for all providers on use of funds
- July 31, 2021: final reporting deadline for providers who did not fully expend PRF funds prior to December 31, 2020
For more info about the HHS Provider Relief Fund subsidies, please view the summary of reporting guidelines for payments exceeding $10,000 – PDF or the Final Reporting Data Elements – PDF.
Last week the Massachusetts Growth Capital Corporation (MGCC) started paying out the first round of the Covid-19 Grants totaling $50.8 Million to just over 1,100 of the 10,000 business that applied. A few of our clients with practices received this $75k grant. The state also recently announced at: https://www.mass.gov/news/baker-polito-administration-announces-668-million-small-business-relief-package that they earmarked an additional $668 Million for Covid-19 Grants as follows:
The Baker-Polito Administration launched a $668 million program to provide financial assistance to Massachusetts small businesses impacted by the COVID-19 pandemic. The program in part relies on the pending federal COVID-19 relief bill recently passed by Congress. Regardless of the developments at the federal level, the Baker-Polito Administration will start releasing millions in new funding to restaurants, retailers, and other small businesses throughout the Commonwealth as soon as next week.
Additional grants will be made available to eligible small businesses through MGCC. The Small Business Grant Program was established in the fall, and currently has a pool of eligible applicants awaiting funding. This additional funding will allow the Administration to award more of those pending applicants. Eligible businesses that already applied to the program, but were not funded due to limited funds available, will be prioritized for funding first and do not need to reapply.
The funds will also be used to stand up an additional grant program at MGCC. This program will target the industries most hard-hit during the pandemic. Eligible industries for the new program include:
- Restaurants, bars, caterers
- Indoor recreation and entertainment establishments
- Gyms and fitness centers
- Event-support professionals (photographers, videographers, etc.)
- Personal services
The new business relief program would offer grants up to $75,000, but not more than three months’ operating expenses, to be used for employee wage and benefits costs, space-related costs, and debt service obligations.
The online application portal for the new program will open on Thursday, December 31, and will close on Friday, January 15. Awards are expected to be announced in early February.
More details on how to apply and eligibility requirements are available at www.empoweringsmallbusiness.org.
One provision apparently included in the Stimulus Package that hasn’t gotten much press is that practices would be able to claim the Employee Retention Tax Credit (ERTC) of up to $5k per employee even if the practice received a PPP Loan. The payroll tax credit is equal to 50% of the first $10k of wages paid to each employee. Wages paid with PPP funds or other subsidies wouldn’t count toward this valuable credit. Currently businesses that received the PPP Loan aren’t eligible for the ERTC.
According to the IRS at: https://www.irs.gov/coronavirus/employee-retention-credit, to be eligible for the ERTC:
Employers, including tax-exempt organizations, are eligible for the credit if they operate a trade or business during calendar year 2020 and experience either:
- the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
- a significant decline in gross receipts. A significant decline in gross receipts begins:
- on the first day of the first calendar quarter of 2020
- for which an employer’s gross receipts are less than 50% of its gross receipts
- for the same calendar quarter in 2019.
The significant decline in gross receipts ends:
- on the first day of the first calendar quarter following the calendar quarter
- in which gross receipts are more than of 80% of its gross receipts
- for the same calendar quarter in 2019.
The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations were suspended.
Now that this business-friendly revision to the ERTC has been enacted into law, please work with your payroll service to apply for this payroll tax credit.
One final thought. Since this ERTC appears to now be available to recipients of the PPP Loan, please claim as much as you can in allowable facility and other non-payroll costs when applying for your PPP loan forgiveness to maximize the wages available for this valuable $5k per employee payroll tax credit.
We’ll keep you posted on this tax break once the rules are written.
Congress did it. As part of the recently passed Stimulus Bill, expenses paid with your PPP loan and EIDL Advance (that would also now be forgivable thanks to this bill) are fully deductible. This bill supersedes prior announcements made by the IRS to the contrary.
And President Trump signed this bill into law on Sunday night. For that reason, practice owners should move forward based on their being able to deduct staff expenses and facility costs paid with the PPP Loan and EIDL Advance that will be forgiven.
Strategy for S-Corps:
If you operate your practice as an S-Corp, you need to be careful of a potential tax pitfall caused by the timing of when your PPP Loan will be forgiven. If your PPP Loan isn’t forgiven until 2021, you might not have sufficient “basis” until 2021 to claim 2020 losses or take S-Corp distributions of up to the combined total of the PPP Loan and EIDL Advance, especially if your practice has other debts outstanding.
Yes, confusing stuff. If you end up with 2020 losses that will be disallowed this year, that shouldn’t be a huge deal. You will just claim those losses next year when your PPP Loan and EIDL Advance are forgiven. And if tax rates increase next year under Biden, you might even end up a little ahead.
The major tax trap applies to S-Corporations that pay out S-Corp Distributions to their owners over and above their salaries. If the distributions paid exceed a certain threshold that vary by each specific office, practice owners might find themselves subject to capital gains taxes on those excess distributions this year that they may not recoup until such time that they sell their shares many years down the road.
For S-Corps that pay out distributions to the owners, here are the steps we are suggesting you take as the year winds down, unless your PPP Loan will have been forgiven by 12/31/20:
- Hold off taking any year-end distributions until after 1/1/21
- Consider repaying distributions taken during 2020, and then pay them out to you after 1/1/21
- Target the combined ending balances in your practice bank accounts at 12/31/20 to be higher than the 12/31/19 combined balances by the amount of the PPP Loan and EIDL Advance
We’ll continue to keep you posted to new PPP developments as they arise.