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.
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.
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 one of my clients: “I called HHS. I would never have received the funds as they informed me that I had to set up account with my Optum ID. I told them I already received funds but they said I had to set up in order for HHS to release funds. Very odd.”
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 described in the Terms and Conditions and specified in future directions issued by the Secretary between 1/15/21 and 2/15/21. More info is available at: https://www.hhs.gov/coronavirus/cares-act-provider-relief-fund/reporting-auditing/index.html?language=en
With COVID-19 sadly on the increase, employers are asking us more questions than ever about their responsibilities to pay their staff who cannot come to work for COVID related reasons.
Basically, if you have an employee who cannot come in to work for COVID related reasons, the Federal Government has enacted the Families First Coronavirus Response Act (FFCRA) which is currently law through December 31, 2020. Please Note: FFCRA applies to businesses that are open and have staff not able to work for various COVID reasons. More info is available at: https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave.
If your practice pays FFCRA wages, you are eligible to receive an immediate dollar-for-dollar reimbursement of the FFCRA wages paid through payroll tax credits. Your payroll service should be able to help you with this.
If you have an employee who can’t work due to COVID reasons:
If the leave is for one of the following three reasons, then you are required to pay a full-time employee for up to 80 hours of leave and a part-time employee for the number of hours of leave that the employee works on average over a two-week period. Employees taking leave shall be paid at either their regular rate or the applicable minimum wage, whichever is higher, up to $511 per day and $5,110 in the aggregate (over a 2-week period). This provision applies if your employee:
- is subject to a Federal, State, or local quarantine or isolation order related to COVID-19;
- has been advised by a health care provider to self-quarantine related to COVID-19;
- is experiencing COVID-19 symptoms and is seeking a medical diagnosis.
If the leave is for one of the following two reasons, then a full-time employee is eligible for up to 80 hours of leave, and a part-time employee is eligible for the number of hours of leave that the employee works on average over a two-week period. Employees taking leave shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $2,000 in the aggregate (over a 2-week period). This provision applies if your employee:
- is caring for an individual subject to order #1 or #2 above;
- is experiencing any other substantially-similar condition specified by the Secretary of Health and Human Services, in consultation with the Secretaries of Labor and Treasury.
If the leave is for the following reason, then a full-time employee is eligible for up to 10 weeks of additional leave at 40 hours a week, and a part-time employee is eligible for leave for the number of hours that the employee is normally scheduled to work over that period. Employees taking leave shall be paid at 2/3 their regular rate or 2/3 the applicable minimum wage, whichever is higher, up to $200 per day and $10,000 in the aggregate. This provision applies if your employee:
- is caring for a child whose school or place of care is closed (or childcare provider is unavailable) for reasons related to COVID-19.
Practices with fewer than 50 employees might be exempt from this provision of the FFCRA. More info is available at: https://schwartzaccountants.com/2020/10/are-you-required-to-pay-staff-who-cant-work.-due-to-childcare-issues/.
Please note that if a business is shut down, then employees will file for unemployment instead of having the business owners pay their wages under FFCRA.
On November 17th, the IRS issued guidance on how the PPP Loan forgiveness impacts how businesses will deduct expenses paid with the PPP funds. According to the IRS Bulletin at: https://content.govdelivery.com/accounts/USIRS/bulletins/2acfa3f:
Revenue Ruling 2020-27 provides guidance on whether a Paycheck Protection Program (PPP) loan participant that paid or incurred certain otherwise deductible expenses can deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan. The revenue ruling also provides guidance if, as of the end of the 2020 taxable year, the PPP loan participant has not applied for forgiveness, but intends to apply in the next taxable year.
Revenue Ruling 2020-27 available at: https://www.irs.gov/pub/irs-drop/rr-20-27.pdf provides a variety of examples, and comes to this conclusion:
HOLDING A taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the CARES Act may not deduct those expenses in the taxable year in which the expenses were paid or incurred if, at the end of such taxable year, the taxpayer reasonably expects to receive forgiveness of the covered loan on the basis of the expenses it paid or accrued during the covered period, even if the taxpayer has not submitted an application for forgiveness of the covered loan by the end of such taxable year.
There is still a chance that Congress will clarify their intent that the PPP should NOT be taxable to small businesses who received these loans. Even so, with the prospect that nothing will happen on this matter until after Biden takes office on January 20th, we’re assuming that expenses paid with the PPP loan that will be forgiven will essentially be non-deductible to practice owners in 2020.
Code Section 139 starts with this general rule: Gross income shall not include any amount received by an individual as a qualified disaster relief payment. In other words, your practice deducts any money paid out to you and selected staff under Section 139 while you and those staff members owe no taxes on amounts received.
For purposes of this section, the term ‘‘qualified disaster relief payment’’ means any amount paid to or for the benefit of an individual—
- to reimburse or pay reasonable and necessary personal, family, living, or funeral expenses incurred as a result of a qualified disaster,
- to reimburse or pay reasonable and necessary expenses incurred for the repair or rehabilitation of a personal residence or repair or replacement of its contents to the extent that the need for such repair, rehabilitation, or replacement is attributable to a qualified disaster,
- by a person engaged in the furnishing or sale of transportation as a common carrier by reason of the death or personal physical injuries incurred as a result of a qualified disaster, or
- if such amount is paid by a Federal, State, or local government, or agency or instrumentality thereof, in connection with a qualified disaster in order to promote the general welfare,
but only to the extent any expense compensated by such payment is not otherwise compensated for by insurance or otherwise.
Bloomberg Tax posted a very informative article about Section 139, including expenses that your practice can pay to you and your employees as a tax-free benefit, at: https://news.bloombergtax.com/daily-tax-report/insight-disaster-relief-payments-tax-efficient-assistance-to-employees-impacted-by-covid-19.
Dental Economics also posted a very informative article, including a template of a form to use to document the reimbursements you make to yourself and your staff at: https://www.dentaleconomics.com/money/tax-strategies/article/14186221/utilize-taxfree-covid19-reimbursements-for-you-and-your-dental-office-staff
Please read through these two articles and consider having your practice issue checks prior to December 31st reimbursing you and selected staff for unreimbursed medical expenses, home office expenses, increased childcare expenses, and other expenses that are considered “Ordinary and Necessary” during these unprecedented times. Please note that you are not required to prepare a written plan for this valuable employee benefit and can choose which employees to include in this tax-free benefit.