PPP + ERTC = Opportunity For Practices That Were Temporarily Closed Last Spring

On December 27th, President Trump signed the $900 Billion Stimulus Package into law that included a provision allowing practices to claim the Employee Retention Tax Credit (ERTC) even if that practice had received a PPP Loan.  What does that mean for you and your practice?

To be eligible for the ERTC, you either needed to be required to temporarily close your practice due to a government order or have your collections for Q2 of 2020 be at least 50% lower than your collections for the same quarter of 2019. Once the Stimulus Package was signed into law, we started looking to see if our clients would qualify for the ERTC, and we confirmed that most practices saw their revenue fall by between 70% and 80% during Q2 of 2020 as compared to Q2 of 2019.

We then looked to see how long our clients would be eligible for this valuable payroll tax credit of 50% of the first $10k paid to each employee.  Unless a client saw their 2020 Q3 revenue dip by more than 20% as compared to 2019 Q3 revenue, only those wages paid between 4/1/20 and 9/30/20 would qualify for the credit – and only if those wages were not counted towards the PPP Loan forgiveness calculation or were not reimbursed through FFCRA.

Here is where things get tricky:

  • Practices that received the PPP Loan had a 24-week Covered Period to spend those funds to qualify for full forgiveness.
  • Most practices got their PPP Loan in April or May, meaning the 24-week Covered Period went through to October or November.
  • Up to 40% of the PPP loan could be spent on rent and utilities to qualify for forgiveness.
  • The remainder needed to be spent on Payroll Costs that includes not only wages but also retirement contributions, health insurance, and certain payroll taxes.

That means that the PPP Covered Period overlaps with the ERTC period. To maximize the combined subsidy you might receive, start by not rushing to submit the PPP Loan forgiveness paperwork.  The PPP and ERTC rules are still fluid, and the new rules haven’t even been written yet. Plus, you have 10 months from the end of the Covered Period to file with your lender for forgiveness.

Next, figure out all the non-wage expenses to include when applying for your PPP Loan forgiveness to help maximize the 4/1/20-9/30/20 wages eligible for this valuable payroll tax credit. The goal is to have at least $10k of wages per eligible employee during the 6-month ERTC period available for the credit.

Lastly, remember that if your practice revenue dipped by more than 25% for any calendar quarter in 2020 as compared to the same quarter from 2019, you should be eligible to apply for PPP Round 2. Based on what we’ve seen from our clients, most practices forced to temporarily close last spring should be eligible. Please contact your PPP lender for more info about PPP2.

More info about the ERTC is available at: https://schwartzaccountants.com/2021/01/employee-retention-tax-credit-ertc-updates/

FFCRA Deadline Extended From 12/31/20 TO 3/31/21

U.S. Department of Labor Publishes Guidance on Expiration of Paid Sick Leave and Expanded Family and Medical Leave for Coronavirus

WASHINGTON, DC – The U.S. Department of Labor’s Wage and Hour Division (WHD) today announced additional guidance to provide information to workers and employers about protections and relief offered by the Families First Coronavirus Response Act (FFCRA). The FFCRA’s paid sick leave and expanded family and medical leave requirements will expire on Dec. 31, 2020. 

The new guidance, in the form of Frequently Asked Questions on the WHD website, addresses whether workers who did not use their leave entitlement under the FFCRA in 2020 may use such leave after Dec. 31, 2020. It also explains how WHD will maintain its enforcement authority over employers’ leave responsibilities while the FFCRA’s paid leave requirements were in effect, even after these leave entitlements have expired.

Additionally, the Consolidated Appropriations Act (CAA), 2021, extended employer tax credits for paid sick leave and expanded family and medical leave voluntarily provided to employees until March 31, 2021.  However, the CAA did not extend employees’ entitlement to FFCRA leave beyond Dec. 31, 2020, meaning employers will no longer be legally required to provide such leave.

“The Wage and Hour Division is attuned to the critical need for American workers and employers to understand this relief program as they deal with the effects of this crisis on the workplace,” said Wage and Hour Division Administrator Cheryl Stanton. “The guidance we issued today provides clarity around some of the novel issues that the FFCRA’s expiration raises. We remain committed to providing as many tools and as much information as possible to all parties.”

The FFCRA helps the U.S. combat and defeat the workplace effects of the coronavirus by giving tax credits to American businesses with fewer than 500 employees to provide employees with paid leave, either for certain of the employee’s own health needs or to care for family members, for certain reasons related to COVID-19. Please visit WHD’s “Quick Benefits Tips” for information about how much leave workers are qualified to use, and the wages employers were required to pay. By extending these tax credits to employers who voluntarily provide FFCRA leave, the CCA enables employers to provide paid leave, while at the same time ensuring that workers are not forced to choose between their paychecks and the public health measures needed to combat the virus.

WHD provides updated information on its website to ensure that workers and employers have the information they need about the benefits and protections of this law. The agency also provides information on common issues employers and employees face when responding to the coronavirus and its effects on wages and hours worked under the Fair Labor Standards Act and on job-protected leave under the Family and Medical Leave Act at https://www.dol.gov/agencies/whd/pandemic

All You Need To Know About Gifting

In this post, we cover a variety of issues that may impact you when giving a gift or receiving a gift:

Gifting Rules.  Individuals are allowed to gift money, investments, and other items of value to family, friends and others as they wish.  However, the aggregate value of the gifts given in a year from one individual to another is reportable to the IRS by the giver by filing a Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.  This is not an income tax return, but informational only notifying the IRS of your gifts given in a year.  This annual reporting is required in order to document significant gifts over your lifetime as they impact an individual’s estate and their estate tax at time of their death.  However, the IRS provides an annual exclusion amount of $15,000 per year – total gifts per year by one individual to another individual less than this threshold amount are not reportable and do not require the filing of a Form 709.  In fact, you and your spouse are allowed a combined $30,000 exclusion amount annually with regard to gifting to an individual.   A few final items to note with regard to common gift questions we get from clients each tax season.  First, the receiver of the gift does not report the amount received as taxable income on their tax return – a gift received is not taxable income to the receiver.  And second, the giver of the gift is not allowed a tax deduction as they would had they made a charitable gift.

Funding a 529 plan.  Contributing to your child’s 529 plan is a form of gifting.  Therefore, you and your spouse can contribute $30,000 annually into their child’s plan and not report the gift on a Form 709.  Additionally, taxpayers can frontload up to 5 years of 529 plan funding into one year, known as Superfunding a 529 plan.  This strategy allows a married couple to frontload the 529 plan by funding the plan with up to a $150,000 gift in year one.  In this scenario, the taxpayers are allowed to average the gift over a five-year period of time, meeting the $30,000 exclusion threshold for each of the 5 years.  A form 709 is required to be filed by the taxpayers, but primarily to report the averaging of the gift over the five-year period of time without having an impact on their estate.  However, when Superfunding a 529 plan for a child, additional gifts by the parents to their child over the next 4 years would be considered a reportable gift.

Paying tuition directly to the School.  For gift tax purposes, payments made directly to an educational institution for another person’s tuition are not reportable gifts even if the amounts exceed the annual gift exclusion amount.  If grandparents offer to help pay for your child’s education, this strategy is a great way to avoid the gifting trap if the tuition payments are in excess of the annual gift exclusion.  The payment must be made directly to the school and not to you or your kids and the payment can only be for tuition.  The grandparents may consider this payment a gift, but luckily the IRS does not.  Financial gifts used for educational purposes are excluded by the IRS from gifting under the rule, Gift Tax Education Exclusion for Tuition.

Funding an ABLE plan.  Another gifting option with tax benefits is an ABLE account: a tax advantageous plan set up for the benefit of an individual with disabilities.  To be eligible, the individual must have had an age of onset of disability before turning 26 years of age.  The beneficiary of the plan is the account owner.  The maximum allowed funding per year is $15,000 (total allowed to be received by the plan annually) with lifetime caps based upon state laws (ranging from $235,000 – $529,000).  ABLE plans are also allowed to receive rollovers from 529 Plans, within the annual funding limit.  The contributions to the plan are after tax dollars and will grow tax free as long as the distributions are used by the beneficiary for “Qualified Disability Expenses”.  Qualifying expenses include amounts paid for health and wellness, housing, food, maintaining independence, personal care, and medical care among other expenses related to the beneficiary’s disability and for the beneficiary’s benefit.

 Receiving a gift from a nonresident alien.  If an individual receives a gift (or multiple gifts in a calendar year) or a bequest from a nonresident alien or foreign estate and the total value of the gifts or bequest received from that foreign individual or entity exceeds $100,000 in a calendar year, the individual/receiver is required to file Form 3520 Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.  This tax return is informational only and no tax or fee is due with the filing of this tax return.

 

MA Growth Capital Corportation (MGCC) Grant Update

Recently, the Massachusetts Growth Capital Corporation issued more information about the $668 million grant program.  When reading through the guidelines of the Sector-Specific Relief Grant Program for Massachusetts Businesses, you might get a sense that this program might not be available to most healthcare practices.

For starters, MGCC clearly states as part of the Program Overview available at: https://www.empoweringsmallbusiness.org/covid-19-response/sector-specific-relief-grant-program-massachusetts-businesses:

This business relief fund targets the hardest hit small businesses that have an exceptional need of cash relief. Though many businesses have been negatively affected by the pandemic, not all needs are equal. To ensure that these limited funds get to the most severely impacted businesses, you SHOULD NOT APPLY if you:

  • are not showing an operating loss due to the coronavirus pandemic
  • have access to other sources of relief
  • have been able to continue to operate without significant financial distress
  • have adequate available reserves

The Program Overview goes on to detail eligible businesses, and does include Personal Services, but then only lists Nail Salons, Barber Shops, and Independent Pharmacies in that subsection.

If you read through the guidelines and still feel that your practice is entitled to one of these grants, the deadline to apply is 1/15/21.  With $668 Million earmarked for this grant program, and each grant limited to $75k, there should be at least 8,900 small businesses in Massachusetts who will benefit from this program.

Click on this link to begin the application process: https://massgcc4.submittable.com/submit if you didn’t apply last month when this grant was first announced. Any business owner who has previously applied will automatically be included in the pool of applicants to be considered for this round of grants.

More details on how to apply and eligibility requirements are available at www.empoweringsmallbusiness.org.

 

 

Employee Retention Tax Credit (ERTC) Updates

On December 27th, President Trump signed the $900 Billion Stimulus Package into law that included a provision allowing practices to claim the Employee Retention Tax Credit (ERTC) even if that practice had received a PPP Loan. The Stimulus Package also increased the amount of this tax credit and made qualifying easier.

Most healthcare practices should be eligible for this payroll tax credit for at least the period 4/1/20 – 9/30/20.  Please remember that wages paid with PPP funds or reimbursed through FFCRA aren’t included as part of the ERTC calculations.

You determine if your practice qualifies for this valuable credit on a quarter by quarter basis.

For 2020 – Maximum annual credit of $5k per eligible employee:

  • To first qualify for the ERTC during 2020, your practice either needed to close due to a government orders or see its revenue fall by 50% for a calendar quarter as compared with the same quarter of the prior year.
  • You continue to qualify until the first day of the quarter following the quarter that collections exceed 80% of the collections for the same period of 2019.
  • For each quarter you are eligible, you can take a payroll tax credit equal to 50% of the first $10k of eligible wages paid per employee for the calendar year.

For 2021 – Maximum annual credit of $14k per eligible employee:

  • This tax credit has been extended through 6/30/21.
  • You are eligible for either of the first two quarters in 2021 that your collections fall more than 20% as compared to the same quarter of 2019 (or you can base eligibility on the preceding quarter as compared with that same period from 2019).
  • For each quarter in 2021 that you are eligible, you can take a payroll tax credit equal to 70% of the first $10k paid per eligible employee per quarter.

You will apply for this payroll tax credit in connection with your quarterly payroll tax filings.  Hopefully guidance will be issued soon. Later this year as the rules are released, we plan to help our clients figure out how to best coordinate the PPP loan forgiveness with the ERTC to maximize the subsidies your practice will receive.

Additional Resources from Forbes:

Breaking Down Changes To The Employee Retention Tax Credit In The New Covid Relief Bill, Part 1 (forbes.com)

Breaking Down The Changes To The Employee Retention Tax Credit In The New COVID Relief Bill, Part 2 (forbes.com)

 

PPP Update

On December 27th, President Trump signed the $900 Billion Stimulus Package into law that introduced a second round of PPP loans (PPP2).  Most healthcare practices that were required to close their offices last spring should qualify for PPP2.  Same goes for self-employed practitioners, practice owners who didn’t apply for PPP Round 1, and those practitioners who returned the PPP Loan they received.

To qualify for PPP2, practice owners must:

  • Be able to demonstrate a 25% decline in revenue for any calendar quarter during 2020 as compared with the same quarter of 2019
    • Special rules apply to practices not yet open in 2019
  • Have fully spent or plan to fully spend the funds received from PPP Round 1
  • Have been open prior to 2/15/20 and are still currently open for business

To see if you meet the 25% decline in revenue, log onto your QuickBooks Online, click on Reports, then Profit and Loss Comparison.  Change the dates to 4/1/20-6/30/20 and pull down on the Compare to another period box.

 

 

 

 

 

In that dialog box, click on the Previous Year, $ Change, and % Change, then click on Run Report to see if the revenue is down by more than 25% for the quarter.

 

 

 

 

 

 

Just as with PPP1, eligible practices should receive 2.5 times the average monthly qualifying payroll costs. The amount received then needs to be spent on certain allowable payroll and facility costs over the 24-week Covered Period starting when the funds are received.

Expect the SBA to issue guidance about PPP2 by 1/13/21, which is 17 days from the date that Trump singed the Stimulus package into law. You might also reach out to your lender who helped you with PPP Round 1 to get the PPP2 ball rolling. The deadline to apply for your PPP2 loan appears to be 3/31/21.

Additional Resources:

For more information about PPP Round 2, please read these articles:

COVID-19 relief bill addresses key PPP issues – Journal of Accountancy

The Small Business Owner’s Guide to the Paycheck Protection Program: Round 2 | Gusto