The SBA has issued PPP loan forgiveness guidelines for owner employees, home office expenses, subleased space and related party rent expenses
President Trump signed legislation (S.4116) on July 4, 2020 extending the application deadline for Paycheck Protection Program (PPP) loans from June 30, 2020 to August 8, 2020.
Paycheck Protection Program loans were enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act.)
Certain businesses can apply for up to $10 million. If certain requirements are met, the loan principal will be forgiven, tax free. At this time, expenses paid using the loan proceeds are not tax deductible.
At this time $130 billion of $660 billion allocated hasn’t been committed for loans, yet.
If you haven’t been approved for a PPP loan and would like to apply, see your banker.
The SBA has issued new forms and updated its Paycheck Protection Program loan “final rules” for the Paycheck Protection Program Flexibility Act of 2020, enacted on June 5, 2020.
One of the forms is a new one, simplified Form 3805EZ.
Here are URLs for the final rules and forms.
Under the Act, the “covered period” was extended from the eight-week period beginning on the date of the origination of a covered loan to 24 weeks. Borrowers that received PPP loans before June 5, 2020 may elect to use the original eight-week period.
The forgiveness requirement to use at least 75% of loan proceeds for payroll costs was reduced to 60%.
The forms reflect that a pro-rated forgiveness can apply if there is a reduction of the employee count by the end of the covered period.
The maximum payroll costs, including salary, wages and tips, eligible for the forgiveness for an employee is $46,154 with the 24-week covered period and $15,385 with the eight-week covered period.
The owner compensation replacement is calculated based on 2019 net profit. The amounts are 2.5/12 of 2019 net profit, up to $20,833, for a 24-week covered period and 8/52 of 2019 net profit, up to $15,385, for an eight-week covered period. Amounts for which a credit is claimed for qualified sick leave equivalent amount and qualified family leave equivalent amount aren’t eligible for forgiveness.
Remember up to 25% of loan proceeds used to pay otherwise tax deductible interest on mortgage obligations or personal property incurred before February 15, 2020, otherwise tax deductible rent payments on lease agreements in force before February 15, 2020 and otherwise tax deductible utility payments under service agreements dated before February 15, 2020 is eligible for forgiveness under the eight-week covered period scenario. Up to 40% of loan proceeds used to pay the same expenses is eligible for forgiveness under the 24-week covered period scenario.
Many more borrowers should be able to qualify for exclusion of their PPP loans under the new rules.
The Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which was previously passed by the House of Representatives on June 3, 2020. President Trump is expected to sign the legislation.
Here is a URL for the text of H.R. 7010. https://www.congress.gov/bill/116th-congress/house-bill/7010/text
The legislation relaxes the requirements to qualify for forgiveness of Paycheck Protection Program (PPP) loans.
Here is a summary of key points:
- The time in which businesses that receive a PPP loan may count their expenses that qualify for loan forgiveness is extended from 8 to 24 weeks, and the period ends no later than December 31, 2020.
- Businesses that received a PPP loan before the date of enactment may elect to keep an eight-week period to count expenses that qualify for loan forgiveness. (A borrower might want to make this election because it paid the required expenses and can apply for forgiveness sooner.)
- The portion of the loan proceeds used to pay payroll costs is decreased from 75% to 60%. Under the language in the Act, if the business doesn’t use at least 60% of the loan funds for payroll costs, the loan doesn’t qualify for forgiveness. Congress is expected to pass a technical correction later to permit a sliding scale forgiveness if the 60% threshold isn’t met. This means up to 40% of loan proceeds may be used to pay rent expenses, qualified mortgage interest and utilities and still qualify for full loan forgiveness.
- Borrowers may use the earlier of the date 24-weeks after receiving the loan or December 31, 2020 to meet the requirement to restore their workforce and wages to pre-pandemic levels required for full forgiveness.
- Two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce were included in the legislation. (1) The borrower was unable to find qualified employees. (2) The borrower was unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.
- New borrowers have five years to repay the unforgiven portion of the loan instead of two. Those who received loans before the date of enactment may extend the repayment term of the unforgiven portion of their loans from two to five years, if the lender and borrower agree. The interest rate remains 1%.
- Under the CARES Act, businesses that received a PPP loan didn’t qualify for delayed payment of employer taxes. That prohibition is repealed under the Paycheck Protection Program Flexibility Act.
This legislation should enable many more PPP loan borrowers to qualify for loan forgiveness. The Small Business Administration will have to update the forms that it just issued to apply for loan forgiveness.
If your business is one of the fortunate ones that received a PPP (Paycheck Protection Program) loan, now you need to deal with the next challenge: qualifying for forgiveness of the loan.
The SBA (Small Business Administration) has issued Form 3508, Paycheck Protection Program Loan Forgiveness Application, and Schedule A, Worksheet.
Here is a URL to download the application. https://www.sba.gov/document/sba-form–paycheck-protection-program-loan-forgiveness-application
The purpose of the form is to report the expenses actually incurred that qualify for loan forgiveness.
The form is submitted to the lender where you got the loan, NOT the SBA.
There is no due date listed to submit the form. Since the rules relating to PPP loans may be amended based on developments for “opening up” the U.S. economy relating to the COVID-19 pandemic, I suggest not hurrying to submit the form.
For example, a Salary/Hourly Wage Reduction is computed on Schedule A for a reduction in full-time equivalent employees that isn’t restored by June 30, 2020. I think there is a good chance the June 30, 2020 date will be extended if the reopening is slower than Congress initially expected.
An item that isn’t explained very well is self-employment income. Self-employment income isn’t a normal “payroll” type item. That information might not be available until the 2020 income tax return is prepared for the business or the business owner.
The “Covered Period” for covered expenses is the eight-week (56-day) period beginning on the PPP Loan Disbursement Date. For example, if the borrower received its PPP loan proceeds on Monday, April 20, the Covered Period begins on April 20 and ends on June 14.
Generally, covered expenses are incurred and paid during the Covered Period.
Payroll costs must be paid during the covered period (or Alternative Payroll Covered Period) or paid on or before the next regular payroll date. The Alternative Payroll Covered Period for borrowers with a biweekly (or more frequent) payroll schedule is the eight-week (56-day) period that begins on the first day for their first pay period following their loan disbursement date.
Remember payroll costs include wages, bonuses, tips, employer-paid health insurance, and employer-paid qualified retirement plan expenses. (https://www.govinfo.gov/content/pkg/FR-2020-04-15/pdf/2020-07672.pdf)
An eligible nonpayroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the the billing date is after the Covered Period. Eligible nonpayroll costs include (1) covered mortgage obligations (interest payments on business mortgage obligations on real or personal property incurred before February 15, 2020); (2) business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020; and (3) business payments for distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
The forgiveness for nonpayroll costs is limited to 25% of the total forgiven amount.
Consider having your CPA help you complete this form.
The IRS has issued guidance relating to the tax deductibility of expenses paid with a Paycheck Protection Loan that is forgiven. (Notice 2020-32. https://www.irs.gov/pub/irs-drop/n-20-32.pdf)
According to the CARES Act, the forgiveness of indebtedness is not taxable income. (CARES Act Section 1106(i).)
The CARES Act doesn’t specify whether the expenses are tax deductible.
A Paycheck Protection Loan is eligible for forgiveness when the proceeds are used for the following expenses during the 8-week “covered period” beginning on the the loan’s origination date (CARES Act Section 1106(b)):
- Payroll costs
- A payment of interest on a covered mortgage obligation
- A payment on a covered rent obligation
- A covered utility payment
The IRS reminds taxpayers that, according to Internal Revenue Code Section 265(a)(1), no deduction is allowed for any item that is allocable to tax-exempt income.
To receive tax-exempt income from the federal government and to be allowed a tax deduction paid using the income would be a double benefit.
Taxpayers and their tax return preparers should note that these items won’t be tax-deductible on their 2020 income tax returns.
On Thursday, April 23, 2020, the U.S. House of Representatives passed the Paycheck Protection Program an Health Care Enhancement Act.
Now that both houses of Congress have passed the legislation, President Trump says he will sign it.
The legislation adds $310 billion to funding for Paycheck Protection Loans, $50 billion for Economic Injury Disaster Loans and $10 billion for Emergency Economic Disaster Grants.
Banks are saying it’s likely these funds will be used for loan applications that are already in the pipeline.
Congress will likely soon revisit whether additional funding should be provided.
On April 21, 2020, the U.S. Senate passed the Paycheck Protection Program and Health Care Enhancement Act. The legislation would increase the authorization level for the Paycheck Protection Program from $349 billion to $659 billion, and increase the appropriation level for the PPP from $349 billion to $670.355 billion.
$30 billion of the increase is earmarked for distribution by community-based lenders.
It also increased the authorization level for Emergency Economic Injury Disaster Grants from $10 billion to $20 billion (maximum $10,000 grant for a business) and adds $50 billion for Economic Injury Disaster Loans.
Certain agricultural enterprises with not more than 500 employees are made eligible for PPP loans.
The House of Representatives is scheduled to pass the legislation on Thursday, April 23, and President Trump says he will sign it.
These funds are expected to be committed as fast as the initial amounts.
Congress will likely be revisiting funding for these loans again.
Here is a URL to the Bill that passed in the Senate. https://www.trsa.org/wp-content/uploads/2020/04/Bill-Text.pdf
Here is an update just in case you are unaware of the status of SBA PPP loans and EIDL loans.
On April 16, 2020, the Small Business Administration announced that the entire amount designated by Congress for Paycheck Protection Program loans, $349 billion, has been exhausted. Republicans are seeking another $250 billion.
The Small Business Administration also announced that all of the funds allocated by Congress for Economic Injury Disaster Loans have been exhausted. Congress is also negotiating providing more funds for that program.
Companies who received a loan number from their banks for their loans should eventually get funding. Check with your bank.
More than 25% of the funding went to under 2% of the firms that got relief. These companies include at least 60 publicly traded companies with thousands of employees and hundreds of millions of dollars in annual sales.
Shake Shack, Inc., Ruth Hospitality Group Inc. (Ruth’s Chris Steak House), Potbelly Corp. and Fiesta Restaurant Group’s Texas Taco Cabana all borrowed $10 million. (Shake Shack, Inc. has announced it will return its $10 million PPC loan.)
The three biggest state economies – California, Texas and New York – accounted for 23% of the loans. Businesses in small, rural states received a bigger share.
The business sector receiving the most money was construction, with 13% of the total.
The SBA issued new guidelines last Friday (after the limit was already reached) requiring self-employed persons, partnerships and limited liability companies to file their income tax returns before applying for PPP loans. The reason filing the income tax returns is required is to document self-employment income treated as wages. The requirement will penalize companies that haven’t filed their income tax returns yet because of the extended July 15, 2020 due date for 2019 federal income tax returns.
Congress passed and President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act (P.L. 116-136) on March 27, 2020.
Here is a URL to see the text of the Act. https://www.congress.gov/116/bills/hr748/BILLS-116hr748enr.pdf
Here is a URL to the Franchise Tax Board’s FAQs relating to COVID-19 issues. https://www.ftb.ca.gov/about-ftb/newsroom/covid-19/help-with-covid-19.html
Here are some highlights of tax provisions of the Act.
Advance tax rebates
The provision that has received the most publicity is advance tax rebates of $1,200 for single persons and $2,400 for married couples who file joint income tax returns. In addition to these amounts, $500 will be included in the advance tax rebate for each dependent child claimed by the taxpayer(s) who qualifies for the child tax credit under Internal Revenue Code Section 24.
The rebates will be mailed or electronically deposited as soon as possible by the IRS to provide relief to Americans who are suffering from the shutdown of our society to fight the coronavirus pandemic.
Not everyone will qualify. The rebates are reduced to not below zero by 5% of the taxpayer’s adjusted gross income above $150,000 for married couples filing joint returns, $112,500 for heads of households, and $75,000 for other taxpayers.
Nonresident aliens, anyone who is claimed as a dependent, estates and trusts don’t qualify for the rebate.
The IRS will make a preliminary determination based on the last income tax return filed for 2018 or 2019, or for seniors who do not file an income tax return, their social security record.
Since the IRS doesn’t have spouse and dependent information for social security recipients who don’t file a tax return, they might want to file income tax returns for 2018 or 2019 if it increase their rebate.
When the taxpayer prepares his or her 2020 federal individual income tax return, the rebate will be recomputed based on the current year facts. Any additional rebate will be allowed as a credit on the income tax return. The taxpayer gets to keep any excess of the amount received over the computed amount.
The rebate reduces the federal income tax and any amount already received by the taxpayer and is treated as an refund received in amount. The rebate isn’t taxable income. The rebate can be more than the tax before the rebate and is refundable.
Waived early withdrawal penalty for certain retirement plan distributions
Taxpayers who receive a distribution from a qualified retirement plan or an IRA before they reach age 59 1/2 are normally subject to a 10% federal early distribution penalty.
The penalty will be waived for up to $100,000 of distributions during 2020 to an individual (1) who is diagnosed with coronavirus, (2) whose spouse or dependent is diagnosed with coronavirus, or (3) who experiences financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to the coronavirus crisis, being unable to work due to lack of child care due to the virus, closing or reducing hours of a business owned or operated by the individual due to the virus, or other factors as determined by the IRS.
Unless the taxpayer elects out, the income from a coronavirus-related distribution will be spread ratably over a 3-taxable year period, beginning with with the distribution year (2020.)
Although these distributions won’t be eligible under the usual rules for rollovers or trustee-to-trustee transfers, corona virus-related distributions from a qualified plan or an IRA may be repaid to the qualified plan or an IRA within 3 years beginning the day after the date the distribution was received. The amount repaid will be treated as a direct trustee-to-trustee transfer within 60 days of the distribution.
Since these distributions aren’t considered to be rollovers, you can have as many distributions as you want during 2020 treated as trustee-to-trustee transfers or have them taxed over three years, provided they qualify as coronavirus-related.
Roth conversions can also be taxed over three years under the rule, provided the distribution was coronavirus related, such as if the account owner was diagnosed with a mild case of the virus.
It appears claiming the recharacterization of the distribution for any repayments will be reported on the 2020 income tax return, and the return will be amended if the distribution isn’t restored in time.
Distributions from inherited IRAs with a nonspouse beneficiary don’t qualify for rollover treatment. (IRC § 402(c)(4), (9), § 408(d)(3)(C).) (Once a distribution is received by a nonspouse beneficiary from an inherited IRA, it can’t be redeposited.)
The waiver of penalty and extended rollover provisions apply to distributions on or after January 1 and before December 31, 2020. (Evidently, distributions ON December 31, 2020 won’t qualify.)
Required minimum distributions aren’t required for 2020
The required minimum distributions that apply to defined contribution qualified retirement plans (401(k)s and profit sharing plans) and IRAs after a participant reaches age 72 (age 70 1/2 before the SECURE Act was enacted) is waived for 2020.
If an employee reached age 70 1/2 during 2019, so the employee has a required beginning date on April 1, 2020, the penalty is also waived for that payment.
For years after 2020, the required minimum distributions will be computed by the regular procedure (beginning balance divided by life expectancy) without regard to the 2020 required minimum distribution and the required beginning date will be unchanged for other income tax determination purposes.
Charitable contributions limits for individuals increased
Individuals who don’t itemize deductions on their federal income tax returns will be able to deduct on their 2020 federal income tax returns up to $300 of charitable contributions that would otherwise qualify, except for donations to a donor advised fund or a private foundation.
The limitation for itemized deductions of cash charitable contributions to public charities by individuals, normally 60% of adjusted gross income, is eliminated for 2020.
Charitable contributions limit for corporations increased
The limit for charitable contributions for C corporations is increased for charitable contributions paid in cash during calendar year 2020 to public charities from 10% of modified taxable income to 25% of modified taxable income.
Charitable contributions limit for food inventory
For noncorporate taxpayers, the limit for charitable contributions of food inventory is increased from 15% to 25% of the taxpayer’s aggregate net income for 2020 from all trades or businesses from which such contributions were made.
For C corporations, the limit for charitable contributions of food inventory is increased from 15% to 25% of modified taxable income.
Exclusion for employer payments on student loans
Effective for payments made after March 28, 2020 and before January 1, 2021, payments by an employer, whether paid to the employee or to a lender, of principal or interest on any qualified education loan incurred by the employee for education of the employee are excluded from the employee’s taxable income. The employee won’t be eligible to claim an interest deduction for the excluded amount.
Payroll tax credit for certain employers
Employers who have their business operations fully or partially suspended during a calendar quarter due to orders from a government authority due to the coronavirus during the period beginning with the first calendar quarter beginning after December 31, 2019 for which gross receipts are less than 50% of gross receipts for the same calendar quarter in the prior year and ending with the calendar quarter for which gross receipts are greater than 80% of the gross receipts for the prior year and all tax-exempt organization during 2020 are eligible for an employee retention tax credit of 50% of qualified wages of up to $10,000 for each employee for all calendar quarters.
Note that employers who receive a small business interruption loan aren’t eligible for this credit. (The loan may be eligible for forgiveness, and that would be double-dipping.) If the employer claims the credit and receives a loan in a subsequent quarter, the credit will be recaptured.
The credit is effective for wages paid after March 12, 2020 and before January 1, 2021.
The credit is limited to the 6.2% employer share of social security taxes for all employees during the calendar quarter, but any credit in excess of that amount is treated as an overpayment and is refundable to the employer. (Note that medicare taxes and federal unemployment taxes aren’t eligible to be offset by the credit.)
The credit is reduced for credits allowed for employment of qualified veterans, research expenditures of qualified small businesses, and payroll tax credits for paid sick and paid family and medical leave provided in the Families First Coronavirus Response Act.
For employers having an average of more than 100 full-time employees during 2019, qualified wages means wages paid with respect to which an employee is not providing services due to a government-ordered suspension or a period of significant decline in gross receipts, but not in excess of the amount the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period.
For employers with an average of 100 or fewer full-time employees in 2019, qualified wages means wages paid with respect to an employee during any period of a government-ordered suspension or during a quarter that is within a period of significant decline in gross receipts.
Qualified wages don’t include any amounts taken in account for payroll tax credits provided in the Families First Coronavirus Response Act.
Qualified wages includes the employer’s qualified health plan expenses properly allocable to the wages that are excluded from the gross income of employees.
Wages of employees for which a work opportunity credit is claimed aren’t eligible for the credit.
Governmental employers aren’t eligible for the credit.
Here is a URL for IRS FAQs on the Employee Retention Credit. https://www.irs.gov/newsroom/faqs-employee-retention-credit-under-the-cares-act
Deferred payment of employer payroll taxes
Deposits of the employer portion of payroll taxes due from March 28, 2020 through December 31, 2020 are deferred and payable 50% on December 31, 2021 and the balance on December 31, 2022.
Payments for one half of self-employment tax (the “employer” portion) for 2020 are also deferred and payable 50% on December 31, 2021 and the balance on December 31, 2022.
Employers that have a loan forgiven under Section 1106 of the CARES Act for a loan under Section 7(a)(36) of the Small Business Act aren’t eligible for deferring payment of employer payroll taxes.
Net operating loss deduction and carrybacks
The 80% of taxable income limitation for deducting net operating losses has retroactively been suspended for taxable years beginning after December 31, 2017 and before January 1, 2021. For taxable years beginning after December 31, 2020, the 80% of taxable income limitation for deducting net operating losses will be restored.
For losses arising in a taxable year beginning after December 31, 2017 and before January 1, 2021, net operating losses may be carried back 5 taxable years. Previously, net operating loss carrybacks weren’t allowed for these years.
Taxpayers may elect to waive the carryback. There is also a special election available to exclude carrybacks to one or more years that have income exclusion of offshore income under Internal Revenue Code Section 965.
Taxpayers may revoke a previous election to waive a net operating loss carryback by July 25, 2020.
Note many taxpayers should consider filing amended returns to claim net operating loss carrybacks from 2017, 2018. and 2019.
Excess business loss limitations suspended
The limitations on deductions for business losses in excess of business income have been suspended for taxable years beginning after December 31, 2017 and before January 1, 2021.
Since these losses will now be allowed, taxpayers who are entitled to them should file amended income tax returns to claim them.
Tax credit for prior year minimum tax liability of C corporations
The alternative minimum tax was repealed for C corporations by the Tax Cuts and Jobs Act of 2017. Unused minimum tax credits were scheduled to be refundable with an annual 50% limitation for taxable years beginning in 2018, 2019, and 2020 until a 100% limitation would be applied for taxable years beginning in 2021.
Under the CARES Act, taxpayers may elect to claim a refundable credit for 100% of the balance for taxable years beginning in 2018 or 2019.
The election to claim the 100% limit for 2018 can be made using an application of tentative refund form (Form 1139.) The form should be filed by December 31, 2020. The IRS should issue the refund within 90 days after receiving the form.
Increased limit on deduction for business interest
Certain taxpayers that have more than $25 million of business income or are “tax shelters” are subject to a limitation for deducting business interest expenses.
Under the Tax Cuts and Jobs Act of 2017, the limit is the sum of (1) business interest income of the taxpayer for the tax year; (2) 30% of the taxpayer’s adjusted taxable income for the year; and (3) floor plan financing interest of the taxpayer for tax year.
Under the CARES Act, the limitation of item (2) is increased to 50% for taxable years beginning in 2019 and 2020.
Technical correction for Qualified Improvement Property
Qualified improvement property is an improvement to an interior portion of a building that is nonresidential real property provided the improvement is placed in service after the date the building was first placed in service. Improvements relating to the enlargement of a building, an elevator or escalator, or the internal structural framework of the building aren’t qualified improvement property.
This is the expanded definition of qualified improvement property adopted in the Tax Cuts and Jobs Act of 2017.
A drafting error in the Tax Cuts and Jobs Act of 2017 made the property subject to a 39 year depreciable life and not eligible for 100% bonus depreciation.
The CARES Act includes a technical correction defining qualified improvement property as 15 year property, qualifying for bonus depreciation. This correction is retroactive to the date of enactment of the Tax Cuts and Jobs Act of 2017, which was December 20, 2017.
Even with this technical correction, some taxpayers won’t qualify for bonus depreciation for this property. Taxpayers that are otherwise subject to the limitation for business interest deductions under Internal Revenue Code Section 163(j) (generally they have average annual gross receipts for the three prior years of $26 million for tax years beginning in 2020) and make elections to be excluded from the limitations, notably electing real property trade or businesses, electing farming businesses, and certain infrastructure trades or businesses, must used the alternative depreciation system instead of the modified accelerated depreciation system. For these businesses, depreciable real estate has a useful life of 39 years, so they don’t qualify for bonus depreciation on qualified improvement property.
Taxpayers with commercial buildings that had qualified improvement property placed in service after 2017 should amend their 2017, 2018 and 2019 income tax returns to claim bonus depreciation for the year the property was placed in service.
Government loan guarantees for small businesses
In addition to the tax provisions discussed above and many other matters, the legislation includes a “Paycheck Protection Program.” The Federal government will 100% guarantee SBA administered loans to businesses with not more than 500 employees. Sole proprietors, independent contractors and other self-employed individuals are eligible for loans. The covered loan period begins February 15, 2020 and ends on June 30, 2020.
There is an issue about whether self-employment compensation for partners in partnerships and members of LLC taxed as partnerships can be included in wages for Paycheck Protection Program loans. They aren’t specifically listed.
Act Section 1102(a)(1)(viii)(I)(bb) includes income of a sole proprietor or independent contractor that is a wage, commission,income, net earnings from self-employment, or similar compensation and that is an amount that is not more than $100,000 in 1 year, as prorated for the covered person…”
The SBA “Interim Final Rules” II. 3. f. says payroll costs include “… for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.”
Based on these definitions, it seems that it was intended that compensation of self-employed persons, including LLC members, should be covered by the Paycheck Protection Program. In a recent CalCPA webinar, CPAs from Armanino suggested that guaranteed payments in lieu of wages should be included in payroll for the loan application. Since the definition in the Act is “self-employment income”, it seems to me that all self employment income should be included. Guaranteed payments in lieu of wages should be increased or decreased for the partner’s or member’s share of self-employment income or losses from the partnership or LLC.
When you include this item in wages, you should probably explain what you are doing and why.
This legislation was drafted in a hurry, and whoever wrote it wasn’t thinking about partnerships and LLCs.
The maximum loan amount is $10 million through December 31, 2020. The loan amount is based on payroll costs incurred by the business.
Uses of the loan include payroll support, such as employee salaries (subject to a $100,000 limitation for an employee’s wages), paid sick or medical leave, insurance premiums and mortgage interest, rent, and utility payments.
Only compensation of persons whose principal place of residence is in the United States are covered.
Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA and Railroad Retirement Act taxes and income taxes required to be withheld from employees, are excluded.
Qualified sick and family leave wages for which a credit allowed under the Families First Coronavirus Response Act (Public Law 116-126) are also excluded. (No double dipping!)
Eligibility is based on whether a business was operational on February 15, 2020 and had employees for whom it paid salaries and payroll taxes, or a paid independent contractor.
The Act waives borrower and lender fees for particpating in the Paycheck Protection Program, and waives collateral and personal guarantee requirements under the program.
The maximum interest rate for these loans is four percent.
No loan payments will be required for at least six months and not more than a year, and requires the SBA to issue guidance about the deferment process by April 27, 2020.
Although the stated maturity of the loans is 10 years, the principal amount of the loan is forgiven up to the amount of (1) payroll costs; (2) payments of interest on a covered mortgage obligation; (3) payments on any covered rent obligation; and (4) covered utility payments. No more than 25% of the forgiven amount can be for non-payroll costs.
The debt cancellation is tax free. (Act § 1106(i).)
Caution! I have heard that some businesses, such as registered investment advisors, may be subject to restrictions on having debt. Check with your compliance officer or attorney before going ahead with an application for an SBA loan.
Here is a URL for the application form for a Paycheck Protection Program loan. https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Application-3-30-2020-v3.pdf?j=268557&sfmc_sub=124882304&l=3151_HTML&u=8813281&mid=7306387&jb=592&utm_medium=email&SubscriberID=124882304&utm_source=NewsUp_A20Mar225&Site=aicpa&LinkID=8813281&utm_campaign=Newsupdate&cid=email:NewsUp_A20Mar225:Newsupdate:Share+the+application:aicpa&SendID=268557&utm_content=Special
Here is a URL for a borrower’s guide for Paycheck Protection Program loan. https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf?j=268557&sfmc_sub=124882304&l=3151_HTML&u=8813282&mid=7306387&jb=592&utm_medium=email&SubscriberID=124882304&utm_source=NewsUp_A20Mar225&Site=aicpa&LinkID=8813282&utm_campaign=Newsupdate&cid=email:NewsUp_A20Mar225:Newsupdate:accompanying+borrower+guide:aicpa&SendID=268557&utm_content=Special
Here is a URL for the Small Business Administration’s interim final rule for Paycheck Protection Program loans. https://www.sba.gov/sites/default/files/2020-04/PPP–IFRN%20FINAL_0.pdf
Disaster loss election available
Since President Trump invoked the Robert T. Stafford Disaster Relief and Emergency Assistance Act when he declared the coronavirus outbreak to be a national emergency, disaster losses are eligible to be carried back one year under Internal Revenue Code Section 165(i) . Taxpayers should consider which tax year the losses they incur relating to the COVID-19 crisis will have the best tax benefit.
The Act includes a temporary Pandemic Unemployment Assistance program through December 31, 2020 to provide payments to people who traditionally aren’t eligible for unemployment benefits, including self-employed persons, independent contractors and those with a limited work history, who are unable to work as a direct result of the coronavirus public health emergency.
Unemployment compensation benefits are increased an additional $600 per week to each recipient of unemployment insurance or Pandemic Unemployment Assistance for up to four months.
Unemployment benefits are extended an additional 13 weeks through December 31, 2020 when state unemployment benefits are no longer available.
Railroad unemployment benefits are also increased like other unemployment benefits explained above, and the 7-day waiting period for railroad unemployment insurance benefits is temporarily eliminated through December 31, 2020.
For details about how these changes affect your situation, consult with your tax advisor or write to me at email@example.com.