Latest News on Tax Deadlines and COVID-related Legislation

Legislation and developments continue to move at a breathtaking pace with regard to tax filing deadlines and COVID-related legislation. Here at Canon Capital, our workload continues to be full as we prioritize getting our clients the help they need – despite being in the middle of tax season. We’ve gathered the latest updates in this blog post.

Federal Tax Deadline Extended to May 17, 2021 for Some Returns

As you may have heard, the deadline for filing individual tax returns and payments for 2020 has been extended to May 17, 2021. Pennsylvania has adopted the May 17 date as well.  However, the April 15 deadline remains for some returns, including C-corporations and trust tax returns. We are still waiting on guidance on gift tax returns. Lastly, and perhaps most oddly, the due date for first quarter estimates for individual returns is still April 15, 2021.

In addition to certain tax return deadlines being extended, the 2020 contribution deadlines for IRAs, Roths, HASs, Archer MSAs, and Coverdell ESAs have also been extended to May 17, 2021.

The AICPA continues to advocate for moving everything normally due on April 15, 2021 to May 17, 2021.  Needless to say, we are hoping for some decisions soon.

Employee Retention Credit

Many businesses don’t realize they are eligible for these substantial, recently expanded credits.  If your business was fully or partially shut down on government order, or you had a “substantial” (either 20% or 50%) decline in gross receipts per quarter compared to 2019, you may be eligible for a credit of up to $7,000 per employee. We have been helping many clients with this credit and its interaction with the PPP loans.  Unfortunately, we are hearing too many stories from business owners that their accountant has de-prioritized work related to the ERC. If you are not getting answers and would like to discuss your potential eligibility, please feel free to give us a call.

PPP2 Applications and Draws

As you may have heard, the deadline for applying for a PPP loan has been extended to May 31, 2021.  However, in a somewhat unexpected announcement, the SBA announced last week that they are projecting the funds to run out mid-April. Thus, we suggest getting any remaining applications in immediately.  There may be a replenishment of funds, but nothing has been announced yet.

Also, at the beginning of March, the SBA changed the formula on how sole proprietors calculate their loans. This change was a huge benefit to schedule C borrowers. There is pressure for Congress to adopt a retroactive law allowing schedule C borrowers funded with applications prior to the change to use the new formula.  Again, there is only discussion at this point and nothing imminent. This would also require additional funds to be allocated to the PPP program.

In addition, the SBA has stated that of the approximate 25M schedule C/sole proprietor businesses in the U.S., only 2.6M have applied and been approved for PPP loans. If you have questions about your eligibility, please contact us immediately.

Forgiveness applications should now be available through most or all lenders and should be considered for filing as soon as possible.

Lastly, if you had a “Draw 1” application in January or February (that is your first borrowing under the PPP program), you may now be eligible to submit a “Draw 2” application.  Again, if you have questions about eligibility, please contact us immediately.

Economic Injury Disaster Loan Update

The SBA has raised the COVID-19 EIDL loan limit to $500,000.  There have also been additional funds made available for the program.

IRS to Recalculate Taxes on Unemployment Benefits

With the American Rescue Plan Act passage in March, there was a retroactive provision that made the first $10,200 of unemployment benefits non-taxable for filers under certain thresholds. The IRS came out with guidance and stated that taxpayers who have already filed their returns should not file an amended return. The IRS will recalculate those returns and issue refunds. The refunds will come in two phases starting in May 2021. The first phase will be for single taxpayers who are eligible for the exclusion. The second phase will include married taxpayers and others with more complex returns. However, the IRS may not calculate returns with additional credits properly, making an amended return necessary after all. Taxpayers need to pay attention to the accuracy of the return.

Other Programs

Other brand-new programs have become available, such as the Shuttered Venue Operators Grant and the Restaurant Revitalization Fund. The funds in these programs will run out fairly quickly, so please make sure you, or your banker or advisor, are ready to apply for these programs when they open.

Affordable Care Premium Tax Credits

The passage of the American Rescue Plan Act also includes a retroactive provision stating a taxpayer does not have to repay any of the advance premium credit for 2020 if they received too much. In this case, taxpayers who already filed their 2020 tax returns will need to file an amended return.

Biden’s Potential Tax Reform

There are currently two bills in Congress that could be part of a Biden tax overhaul. The Sensible Taxation and Equity Promotion (STEP) Act would eliminate stepped-up-basis at death. The bill would allow individuals to exclude up to $1M in unrealized capital gains from tax, as well as provide the opportunity to pay the tax in installments over a 15-year period for capital gains that apply to any illiquid assets like a farm or business. Changes would be retroactive to January 2021. The second, Senator Bernie Sanders’ 99.5 Percent Act, proposes to lower the gift tax exemption to $1M and to limit annual gift tax exemptions.

Needless to say, any Biden tax bill needs to be evaluated seriously. Without Republican support, most likely the earliest any tax plan could pass is late fall or early winter when the reconciliation process becomes available again to Congress.  More to come on this over the next few months.

Biden’s $2.3 Trillion Infrastructure, Tax Plus Plan

This topic has just started to be discussed. There may be a possibility for a bill by the end of the summer, so for now, we’ll have to keep our eye on this as well.

Should you have any questions on any of these topics, or any other items that relate to your situation, do not hesitate to contact us at 215-723-4881 or via email.  We’ll be happy to discuss your situation with you.

Additional Resources

Recording of February 11, 2021 Seminar: The Expanded Employee Retention Credit

Recording of January 12, 2021 Seminar: Unpacking the Latest COVID-19 Relief Package

Recording of December 18, 2020 Seminar: Year-end Planning for a Biden Administration and the SECURE Act

New W-4 Form for 2021

The IRS has issued the new W-4 form for 2021. The W-4 form has changed significantly since 2020, so now is the perfect time to do a Paycheck Check-up. We have a step-by-step guide available to you here.

If you have any questions about your specific situation, please consult with your tax advisor. If you do not currently have a tax advisor, we welcome the opportunity to serve you. Please call 215-723-4881 or contact us online.

Tax Update: Filing Deadline Changes, PPP Loan Submission Extension, and More

We want to make sure you are up to date on some of the most recent changes that have happened during this week.

Change in Tax Filing Due Date to May 15 for Individual Taxpayers

In our last update, we informed you that we anticipated the IRS would push back the due date of tax returns originally due on April 15, 2021.  As you might have heard in the news, on Wednesday, March 17, the IRS has in fact changed the due date for individual tax returns and the payments due with those returns to May 15, 2021.

On the surface, this seems like a good thing, and we believe it is a partial step forward. However, as with much that the IRS does, they seemed to confuse the situation further. They did not extend the due date for all taxpayers with a due date of April 15, as Trusts, Not for Profits, and Corporations with a due date of April 15 are still due on that date. In addition, any individual taxpayers that are required to make quarterly estimated tax payments (roughly 9.5 million taxpayers) are still required to make their 1st quarter estimated tax payment by April 15, one month prior to their tax return being due. This seems to have made the system more complex, rather than providing relief to those taxpayers who need it most.

We, along with our National Organization the AICPA, are continuing to push for a June 15, 2021, due date and are asking Congress to step in and push for some real relief needed for all individuals and entities subject to the April 15 due date.  So, for now, May 15 is the new due date for some individual taxpayers. Stay tuned as we will keep you updated should the situation change.

Unemployment Exclusion of $10,200

For those taxpayers that will benefit from the recently passed unemployment compensation exclusion of $10,200, the IRS has posted on their website the instructions for claiming this exclusion for those who have not yet filed their tax returns. For those who have already filed tax returns prior to the exclusion coming into law, the IRS has stated that taxpayers should not file Amended tax returns, they will issue refunds to those taxpayers who qualify. We will also monitor this situation, and should the refunds fail to start coming to those due refunds, we will let you know of any revised procedures.

PPP Loan Submission Date Looks to be Extended through May 31

For those businesses and organizations that are eligible for the new round of PPP loans, it looks like the date for applying for the next round of loans will be extended from March 31, 2021, to May 31, 2021.  With the changes recently made for Sole Proprietorships & Single member LLC’s, this will provide some extra time for those needing assistance to keep businesses running.

The House has unanimously passed this Bill and it has moved on to the Senate, so hopefully this will pass shortly. We will update you as we hear news on the final passage.

Should you have any questions on any of these or any other items that relate to your situation, do not hesitate to contact us and we will be happy to discuss with you directly.

Unpacking the American Rescue Plan Act (ARPA): What It Means for You and Your Business

On Thursday March 11, 2021, President Biden signed the American Rescue Plan Act (ARPA) into law. This law contains another round of $1,400 stimulus checks for qualifying individuals.  However, as with most of the other recent major legislation changes, there are many provisions in the law that affect both businesses and individuals. Some provisions are retroactive to 2020 and will delay the filing of 2020 income tax returns.  Others may not take effect until 2021 and 2022.

At this point, we Are NOT anticipating having a Zoom meeting discussing this Act in particular. If you have any questions, please feel free to contact us directly.

Will Tax Season Be Extended?

Before we provide the highlights of this new law, we would like to give our thoughts regarding the question on everyone’s mind: “Will the IRS extend tax season again this year?”  As of today, they have not. The IRS Commissioner has been on record on several occasions stating they have no plans to do so. However, he did acknowledge prior to the passage of ARPA, that printing and distributing another round of stimulus payments, may necessitate extending the deadline.

The AICPA, along with members of Congress and other organizations have been pushing for an extended due date. The most popular dates are June 15 and July 15, which is consistent with the prior year due date. As you can imagine, the IRS is under tremendous pressure to either extend the deadline or waive any penalties on taxes that would have been due April 15. The IRS still has to process millions of 2019 returns; write guidance and regulations immediately on the law passed December 27, 2020, that is currently in effect; process another round of stimulus payments; and write guidance and regulations on this new ARPA immediately for the parts that are retroactive or currently in effect.

However, the biggest difficulty may be for the IRS to code their computer systems and issue guidance to tax software vendors on how to report the 2020 tax law changes that have just passed.  This alone will take weeks, not days.

All of this is in addition to their normal workload during filing season.

Lastly, they are still working remotely to some extent. We have already seen some states starting to extend their deadlines, ahead of any change by the IRS.  Taking all of this into account, it seems certain that something will have to be extended or addressed, so stay tuned.

Highlights of the ARPA

Since we do not anticipate presenting a Zoom meeting, following are the highlights of the ARPA that could affect several areas common to businesses and individuals. We have organized each element as best we could so you can identify the topics that may interest you.

Recovery Rebates (Stimulus Payments) to Individuals

The ARPA includes provisions for individuals to receive a $1,400 payment ($2,800 for eligible individuals fining a joint tax return), and a $1,400 payment for each dependent:

  • College students, disabled adult children, and adult parents will qualify for the $1,400 payment
  • Payments will be made to the taxpayer, not the dependent
  • Phase out for the payments begins at $150,000 of adjusted gross income for a joint return ($75,000 for single) and is completely phased out at $160,000 of adjusted gross income for a joint return ($80,000 for single).

Enhanced Child Tax Credits

The ARPA includes provisions for enhanced child tax credits for 2021, making the Child Tax Credit (CTC) fully refundable for 2021 and increasing the amount to $3,000 per child ($3,600 for children under age 6). These amounts are subject to income limits and phaseouts. The ARPA also directed the IRS to make advanced payments equal to 50% of the anticipated credit based on the taxpayer’s 2019 and 2020 return.

  • Advanced monthly payments to taxpayers will begin after July 1, 2021
  • The IRS is also responsible for creating an online portal to allow the taxpayers the option of opting out and reporting changes in dependents, income, and other relevant information.

Premium Tax Credit for Marketplace Insurance

The new legislation will:

  • Change the affordability percentages used for 2021 and 2022.
  • For 2020, the excess advance premium credit will not have to be repaid
  • For 2021, the credits available are increased for those earning over 133% of the federal poverty line.

Employee Retention Credit

The new legislation:

  • Extends the ERC from June 30, 2021 until December 31, 2021. The legislation would continue the ERC rate of credit at 70% for this extended period. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter.
  • Limits the ERC to $50,000 per calendar quarter of an eligible employer that is a “recovery startup business.” A “recovery startup business” is one that: (1) began operations after February 15, 2020 whose average annual gross receipts for a 3-taxable-year period ending with the taxable year which precedes such quarter does not exceed $1,000,000, and (2) experiences a full or partial suspension of operations due to a governmental order or experiences a significant gross receipts decline.
  • Allows the credit to be claimed against Medicare (1.45%, Hospital Insurance – HI) taxes only. Since the employer/employee tax rate for Medicare is 1.45%, it could take longer to immediately claim the credit under the ARPA for the third and fourth quarters of 2021. Instead of just withholding the taxes immediately, it could be more likely that more employers would need to file Form 7200 (Advance Payment of Employer Credits Due to COVID-19).
  • Continues the year-over-year gross receipts decline requirement at 20%.
  • Qualified wages paid by an employer taken account as payroll costs under (1) Second Draw PPP loans; (2) shuttered venues assistance and (3) restaurant revitalization grants are not eligible for the ERC.

Unemployment Provisions – Individuals

The new legislation:

  • Extends the Federal pandemic unemployment compensation payment of $300 per week through September 6, 2021.
  • Does not extend the 50% credit for reimbursing employers
  • Makes the first $10,200 ($20,400 for a married couple) of 2020 unemployment tax exempt for households earning under $150,000
  • There is no phaseout, so at $150,001 – All the unemployment benefits become taxable.

Paycheck Protection Program Modifications

There have been several changes to the PPP program in the past few weeks prior to the passage of ARPA.  Recent changes include:

  • Allowing schedule C filers to use gross income in their calculation of loan proceeds vs. net income
  • Businesses with a North American Industry Classification System (NAICS) code beginning with “72” to use a 3.5 multiple of average monthly payroll instead of a 2.5 multiple to figure their loan proceeds. NAICS codes of 72 are companies in the accommodation and food service sectors, including lodging.

Due to the number of changes, there has been a lot of pressure to extend the application deadline.  The current deadline is March 31.  However, the Fed has already committed to supporting PPP loans through June, and it is practically certain the SBA will extend the application deadline to May 31.

The new ARPA legislation:

  • Allocates an additional $7.25 billion towards PPP funding.
  • Adds “additional covered nonprofit entity” as an eligible nonprofit eligible for First Draw and Second Draw PPP loans.

Paid Sick and Family Leave Credits under Families First

Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. ARPA, 2021:

  • Extends the FFCRA paid sick time and paid family leave credits from March 31, 2021 through September 30, 2021.
  • Provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.
  • Allows for the credits for paid sick and family leave to be structured as a refundable payroll tax credit against Medicare tax only (1.45%), beginning after March 31, 2021.
  • Increases the amount of wages for which an employer may claim the paid family leave credit in a year from $10,000 to $12,000 per employee.
  • Expands the paid family leave credit to allow employers to claim the credit for leave provided for the reasons included under the previous employer mandate for paid sick time. For the self-employed, the number of days for which self-employed individuals can claim the paid family leave credit is increased from 50 to 60 days.
  • Permits the paid sick and family leave credit to be claimed by employers who provide paid time off for employees to obtain the COVID-19 vaccination or recover from an illness related to the immunization.

Other Relief-Related Provisions

Restaurant revitalization grants. The ARPA appropriates $28,600,000,000 for fiscal year 2021 to struggling restaurants to be administered by the SBA. The money will be available until expended. Eligible entities include restaurants, or other specified food businesses, and includes businesses operating in an airport terminal. It does not include a state or local government operated business, or a company that as of March 13, 2020 operates in more than 20 locations, whether the locations do businesses under the same name. It also does not include any business that has a pending application for, or has received, a grant under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act. The amount given to any business who fulfills the eligibility and certification requirements is $10,000,000 and limited to $5,000,000 per physical location of the business. Grants may be used for: (1) payroll costs; (2) mortgage payments; (3) rent; (4) utilities; (5) maintenance expenses; (6) supplies; (7) food and beverage expenses; (8) covered supplier costs; (9) operational expenses; (10) paid sick leave; and (11) any other expense determined to be essential to maintaining the business.

Shuttered venue operators. CAA, 2021 authorized grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues. The ARPA appropriates $1,250,000,000, for fiscal year 2021, to help carry out these grants. The money will be available until expended. Governmental entities do not qualify.

Other Benefits and Related Provisions

Dependent Care Assistance. The amount of taxable wage exclusion for dependent care benefits is increased from $5,000 to $10,500 for married couples filing jointly. The amount of excludable wages for married couples filing separately is $5,250. This increase applies to any taxable year beginning after December 31, 2020, and before January 1, 2022, effective December 31, 2020.

COBRA. Under the ARPA, Assistance Eligible Individuals (AEIs) may receive an 85% subsidy for COBRA premiums paid during any period of COBRA coverage during the period beginning on April 1, 2021 (the first day of the first month beginning after enactment) and ending on September 30, 2021.

  • Refundable tax credit. Employers will be allowed a quarterly tax credit against the Medicare payroll tax equal to the premium amounts not paid by AEIs. If the credit amount exceeds the quarterly Medicare payroll tax, the excess will be treated as an overpayment refundable under Code Sec. 6402(a) and Code 6413(b). The quarterly credit may be paid in advance according to forms and instructions to be provided by the Department of Labor.

Many other provisions include excluded income from Student Loan Discharges, expansion of the EITC for taxpayers with no qualifying children, COBRA premium subsidy, targeted EIDL loans, and others which we are not able to cover in this update.

As we become aware of changes, we will pass them on to keep you informed. If you have any questions about this new information and how it pertains to your situation, please contact us.

Economic Impact Payments (AKA “Stimulus Payments”): What You Need to Know for Your 2020 Individual Income Tax Returns

To say that there have been many tax changes throughout this unprecedented time would be an understatement. One of the most misunderstood of these changes is the Economic Impact Payments program, which you might have heard referred to in the media as “stimulus payments.”  Economic Impact Payments and stimulus payments are one and the same.

As a result of pandemic relief legislation signed into law in 2020, there were two rounds of Economic Impact Payments during the year. These payments could have been in the form of a direct deposit, a check, or a debit card, all sent out by the US Treasury. The first round of payments began in April of 2020 and continued through July of 2020.  The second round of payments began at the end of December of 2020 and continued into January of 2021.

If you are one of our individual 1040 tax clients, you will note that our tax checklist for this year includes the following question: “Did you receive an Economic Impact Payment?” to which you might have answered, “No.”. Given the confusion regarding the language referring to these payments, if the question had been worded like this: “Did you receive a stimulus payment?” you might have answered, “Yes.”.

Please consider this question carefully as it is important that tax preparers have correct information with which to prepare your return. If you in fact received these payments in 2020 you will need to provide the amount of both payments you received. The Economic Impact Payments are advance credits against your 2020 taxes.  It is imperative that your tax preparers have this information to prepare a correct tax return for you for the 2020 tax year.

The Internal Revenue Service sent out a Notice 1444 letter for the first round of payments telling you what your payment amount was.  If you received a second payment you will eventually receive a Notice 1444-B letter but in the meantime, you will need to find this information in your personal records.

To determine if you were eligible for the payments please consult the following guidelines:

  • If you filed Married Filing Joint in 2019 and your Adjusted Gross Income (AGI) was between $0 through $150,000 you should have received $2,400 for yourself and spouse. In addition, any dependent under the age of 17 would have qualified for an additional $500 apiece.  If your AGI was above $150,000 through $198,000 you would have qualified for a partial payment.  For the second payment the same income guidelines apply but the amount was $600 per person whether taxpayers or dependents.
  • If you filed as Single in 2019 and your Adjusted Gross Income (AGI) was between $0 through $75,000 you should have received $1,200 for yourself. In addition, any dependent under the age of 17 would have qualified for an additional $500 apiece.  If your AGI was above $75,000 through $99,000 you would have qualified for a partial payment.  For the second payment the same income guidelines apply but the amount was $600 per person whether taxpayer’s or dependents.
  • If you filed as Head of Household in 2019 and your Adjusted Gross Income (AGI) was between $0 through $112,500 you should have received $1,200 for yourself. In addition, any dependent under the age of 17 would have qualified for an additional $500 apiece.  If your AGI was above $112,500 through $136,500 you would have qualified for a partial payment.  For the second payment the same income guidelines apply but the amount was $600 per person whether taxpayer’s or dependents.
  • Keep in mind for the first round of payments, if your 2019 return wasn’t filed yet, the IRS would have looked to your 2018 tax return for adjusted gross income numbers.

If you have any questions, please do not hesitate to contact us.

Seminar Recording: The Expanded Employee Retention Credit

On February 11, 2021,  Steve Moyer, CPA PFS CGMA CSEP, and Brent Thompson, CPA CMA CGMA presented a seminar via Zoom to review the newly-enhanced Employee Retention Credit (ERC)  and what it could mean for your business.

The ERC could lead to a credit ranging from $5,000 to $19,000 per employee, depending on the circumstances of your business. You will want to know if you have eligible wages for the ERC, since those wages will generally be utilized for the ERC first and not be available for the forgiveness of an existing or new PPP loan.

Watch the recording of the seminar and access a PDF file of the presentation. If you have any questions, please contact us via phone at 215-723-4881 or via email.

2021 IRS Mileage Rates

When we said, “Goodbye!” to 2020 we said “Hello” to new IRS mileage rates. These are the optional standard mileage rates used to “calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.”

The 2021 mileage rates are:

  • 56 cents per mile driven for business use (a 1.5 cent decrease from the 2020 rate)
  • 16 cents per mile driven for medical or moving purposes (a one-cent reduction from the 2020 rate)
  • 14 cents per mile driven in service of charitable organizations (no change)

As with the 2020 mileage rates, “under the Tax Cuts and Jobs Act, taxpayers cannot claim a miscellaneous itemized deduction for unreimbursed employee travel expenses. Taxpayers also cannot claim a deduction for moving expenses, except members of the Armed Forces on active duty moving under orders to a permanent change of station.”

If we can be of service for your payroll, accounting, technologies, or wealth management needs, please contact us online or call 215-723-4881.

Join us February 11 for a Zoom Seminar about the Employee Retention Credit (ERC)

Since March of 2020, has your business been fully or partially suspended or limited due to a government order?

Have you suffered a decline in receipts greater than 50% for any quarter in 2020 as compared to the same quarter in 2019?

Do you anticipate suffering a decline in receipts greater than 20% for the fourth quarter of 2020, or the first or second quarters of 2021 compared to the same quarter in 2019?

If you answered “Yes.” to any of these questions, you are most likely eligible for the newly enhanced and expanded Employee Retention Credit (ERC). This credit can be extremely significant for businesses with payroll. Credits can very easily range anywhere from $5,000 to $19,000 per employee, depending on facts and circumstances. While this credit will most likely yield very large dollars, most of the attention in the newly passed Consolidated Appropriations Act 2021 (signed into law on December 27) was given to the second round of the Paycheck Protection Program (PPP). In addition, if you have eligible wages for the ERC, those wages will generally be utilized for the ERC first and not be available for the forgiveness of an existing or new PPP loan.

If you feel this applies to your business, we very strongly encourage you to join us for our next Zoom meeting where we will focus solely on explaining the details and benefits of the Employee Retention Credit. It can literally be worth thousands of dollars for you.

Please join Steve Moyer, CPA PFS CGMA CSEP and Brent Thompson, CPA CMA CGMA on Thursday, February 11, 2021, for this Zoom session from 10:30 a.m. – 11:30 a.m. They will unpack the basic rules and expansion of the credit and how it interacts with the PPP loans. You will also have the opportunity to ask questions via the Zoom chat feature.

Register today.

Registration is limited to 100 attendees and is available on a first-come, first-served basis. After registering, you will receive a confirmation email containing information about joining the meeting.

Please feel free to share this with other business owners or managers you may feel would benefit.  You do not need to be a Canon Capital client to attend. 

Important News about the Employee Retention Credit (ERC) and the PPP Loan Program

While much of the attention of the Consolidated Appropriations Act, 2021 (CAA 2021) was focused on the second draw PPP loan program, there was a small provision change that could have massive benefits for businesses that qualify. It may be easier to qualify for portions of the provision and should not be overlooked by businesses.

The Employee Retention Credit (ERC) was passed as part of the original CARES Act in March of 2020. The flagship business provision in the CARES Act was the Payroll Protection Program (PPP) loan program. The ERC was also introduced as well but was not very popular with businesses. Most businesses literally rushed out and obtained a PPP loan – and rightfully so. In almost all cases, the PPP loan was a larger dollar amount and was basically promised to be free money, if spent on approved expenses.

Here’s the important part – under the original CARES Act, if you obtained a PPP loan, the ERC was off the table altogether. You could not do both. Originally, both the PPP loan and the ERC were set to expire in 2020.

The ERC is a 50% credit on the first $10K of eligible wages per employee in 2020. To be eligible, your business had to have either a 50% reduction in gross receipts in any calendar quarter of 2020 compared to the same quarter in 2019 – OR – be shut down, or partially shut down, by a government order (federal, state, or local). But again, this was all off the table in its entirety if you took a PPP loan.

However, the CAA 2021, which was signed into law on December 27, 2020 changed everything. If businesses are eligible, they can now take BOTH the ERC and the PPP loan. Since both programs are based on payroll, the same payroll dollar cannot be used for both the credit and PPP forgiveness. We are now seeing guidance come out and define how these two programs, and the wages interact. Remember, these two programs could not interact prior to December 27, 2020.

For example, if you have 20 employees, and you qualified for the ERC in 2020 – you have the potential to receive another $100,000 ($10K qualified wages per employee X 50% credit X 20 employees) in addition to whatever PPP loans you may have or participate in going forward. But this all gets much, much, better.

The CAA 2021 also extended the ERC through June 30, 2021. In addition, the credit has been increased to 70% credit per $10K qualifying wages per employee, per quarter. Lastly, and possibly best of all, a business only has to have a reduction of gross receipts in excess of 20%, instead of the 50% needed in 2020, in either the first or second quarter of 2021 as compared to the same quarter in 2019. So yes, even if you don’t qualify in 2020 – if your business revenue remains 20% off from 2019 – you can potentially have $14,000 credits per each employee for 2021. So that business that received $100K in 2020 for 20 employees, could potentially receive another $280,000 of credits in 2021 for the same employees – again, regardless of their participation in the PPP loan.

Keep in mind, to qualify, you need the applicable reduction in gross receipts OR to be shut down, or partially shut down, by a government order (federal, state, or local). So, every restaurant, café, or eatery; every barber or hairdresser; every theater; every gym; anyone at least partially shut down as a “non-essential” business, anyone forced to operate at a percentage of capacity, would at least partially qualify.

The evaluation of the ERC MUST be calculated BEFORE you prepare your 2020 income tax return, and you CANNOT file for your PPP loan forgiveness or have it granted while you are evaluating the ERC. If you already had your PPP loan forgiven, you may not be eligible to claim any of the ERC for 2020. However, the AICPA is currently advocating to allow businesses that have already applied for PPP forgiveness to be able to claim the ERC credit as well. Please talk to your advisor first.

Lastly, there are a number of special rules for employers over 100 employees, 500 employees, seasonal businesses and businesses that started in 2019. Please talk to your advisor if you think you may be eligible for the ERC for 2020 or 2021.

While we are awaiting further guidance to be issued on this topic, we are tentatively planning a Zoom meeting for those businesses that think they qualify for the ERC. Please contact us if you would like to receive updates about future Zoom meetings or if you have questions.