President Biden Signs American Rescue Plan Act

Last Thursday, President Joe Biden signed the American Rescue Plan Act into law. The $1.9 trillion coronavirus relief bill includes several different provisions such as $1,400 stimulus checks for individuals, extended unemployment benefits, and aid for small businesses and not-for-profits. Click here to read the full text of the law.

We encourage you to reach out our professionals for questions about these provisions. We are here to help!

A summary of key provisions from the final bill is as follows:

Individual Provisions

  • Recovery Rebate Credits/Stimulus Checks
    • Taxpayers with adjusted gross income (AGI) under $75,000 will receive $1,400 direct payments. Married taxpayers filing jointly with AGI up to $150,000 will receive $2,800
      • Eligible taxpayers will also receive $1,400 for each dependent
      • Advance payments of the credits will be sent as economic impact payment checks
  • Unemployment Benefits
    • The first $10,200 in unemployment benefits for taxpayers earning less than $150,000 per year is now tax-free effective for the 2020 tax year
    • If you have already filed for 2020, you will need to file an amended return.
    • Extends weekly federal benefit of $300 a week through September 6, 2021
    • Extends pandemic unemployment benefits for gig workers and self-employed individuals
  • Premium Tax Credit (Related to Health Insurance)
    • Expands the Premium Tax Credit for 2021 and 2022 by changing the applicable percentage amounts
    • Taxpayers who have received too much in advance premium tax credits in 2020 will not have to repay the excess amount
    • A special rule is added that treats a taxpayer who has received, or has been approved to receive unemployment compensation for any week beginning during 2021 as an applicable taxpayer
  • Earned Income Tax Credit
    • The credit would be allowed for certain separated spouses
    • Threshold for disqualifying investment income raised from $2,200 to $10,000
    • Taxpayers are allowed to use their 2019 income instead of 2021 income in figuring the credit amount
  • Child Tax Credit
    • Expands the Child Tax Credit by:
      • Making the credit fully refundable for 2021;
      • Making 17-year-olds eligible as qualifying children for 2021 only; and
      • Increases the amount of the credit to $3,000 per child ($3,600 for children under 6)
    • The Child Tax Credit would phase out for taxpayers with income over $150,000 for married taxpayers filing jointly, $112,000 for heads of households, and $75,000 for others
    • Payments of 50% of the credit can be received in advance and will run from July through December 2021. The IRS will create an online portal allowing taxpayers to opt out of advance payments or adding information that could modify the amount received
  • Child & Dependent Care Credit
    • The credit is fully refundable for 2021 only
    • The bill increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021 ($5,250 for married filing separate)
    • The max credit is now worth 50% of eligible expenses up to a limit based on income, making the credit worth up to $4,000 for one qualifying individual or up to $8,000 for two or more.
    • Credit reduction begins at AGI over $125,000. For households over $400,000, the credit can be reduced below 20%.
  • Family & Sick Leave Credits
    • Extends credits established by the Families First Coronavirus Response Act until September 30, 2021
    • The fully refundable credits against payroll taxes compensate employers and self-employed people for coronavirus-related paid sick leave and family and medical leave
    • Increases the limit on the credit for paid family leave to $12,000
    • The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60
    • Paid leave credits will be allowed for leave that is due to COVID-19 vaccination
    • The limitation of overall days taken into account for paid sick leave will reset after March 31, 2021
    • Credits are expanded, allowing 501(c)(1) governmental organizations to take them
  • Student Loans
    • The act specifies that gross income does not include any amount that would otherwise be included in income due to the discharge of any student loan after Dec. 31, 2020, and before Jan. 1, 2026

Business Provisions

  • Paycheck Protection Program (PPP)
    • Allocates an additional $7.25 billion for PPP forgivable loans; applications scheduled to close on March 31, 2021
  • Restaurant Revitalization Fund (RRF)
    • Allocates $28.6 billion for food and beverage establishments
    • RRF grants equal to the pandemic-related revenue loss of the entity, up to $10 million per entity, or $5 million per physical location (limited to 20 locations)
    • RRF grants are calculated by subtracting 2020 revenue from 2019 revenue and can be used for certain eligible expenses including: payroll costs, mortgage payments, rent, utilities, maintenance expenses; supplies, food and beverage expenses; covered supplier costs; operational expenses; paid sick leave; and any other expense determined to be essential to maintaining the business.
    • Sets aside $5 billion for eligible applicants with 2019 gross receipts of $500,000 or less
    • During the first 21 days of the grant period, the SBA will prioritize applications from restaurants owned and operated or controlled by women, veterans, or socially and economically disadvantaged individuals
    • Funds from RRF grants should not be included in the gross income of the person who receives the grant
  • Economic Injury Disaster Loan (EIDL)
    • Allocates $15 billion to Targeted EIDL grants to businesses located in low-income communities that have no more than 300 employees and have suffered an economic loss more than 30% of gross receipts
    • Funds from Targeted EIDL grants should not be included in the gross income of the person who receives the grant
  • Employee Retention Credits (ERC)
    • Allows eligible employers to claim a credit for paying qualified wages to employees
    • Extends the program through the end of 2021
  • Shuttered Venue Operators (SVO) Grant
    • Allocates $1.25 billion to the SVO grant program

SBA issues interim final rule revisions to PPP

The U.S. Small Business Administration recently laid out its interim final rule revisions to the Paycheck Protection Program. These changes, which are effective immediately, relate to maximum loan amount calculations and program eligibility and apply to PPP loans approved after the effective date of the rule.

The SBA will be accepting PPP loan applications through March 31, 2021.

The key interim final rule revisions to the Paycheck Protection Program are as follows:

  • Individuals who file an IRS Form 1040, Schedule C can calculate their maximum loan amount using gross income instead of net profits
    • At this time, Schedule C borrowers cannot increase the amount of a PPP loan they have already applied for, received, or had forgiven by the SBA
    • With this revised funding formula, First Draw Schedule C borrowers with over $150,000 in gross receipts are subject to review of the good faith loan necessity certification
  • Removes eligibility restriction that prevented business owners who have non-financial fraud felony convictions in the last year from obtaining PPP loans
  • Removes eligibility restriction that prevented businesses with owners who are delinquent or in default of their federal student loans from obtaining PPP loans

In addition to the eligibility and calculations updates, the SBA also provided revisions for six application forms, including:

  • Updated PPP borrower first-draw (Form 2483) and second-draw (Form 2483-SD) application forms
  • PPP first-draw (Form 2483-C) and second-draw (Form 2483-SD-C) borrower application forms for Schedule C filers using gross income
  • A revised lender application form for PPP loan guaranty (Form 2484)
  • A revised PPP second-draw lender application form (2484-SD)

If you have any questions about these changes, the program, or if you have any additional concerns, please contact one of our trusted professionals at Scheffel Boyle. We are here to help!

House passes $1.9 trillion COVID-19 relief package

The U.S. House of Representatives passed the latest COVID-19 relief package early Saturday morning. The bill, titled The American Rescue Plan Act of 2021, H.R. 1319), includes several different provisions such as $1,400 stimulus checks for individuals, extended unemployment benefits, and aid for small businesses and not-for-profits. Click here to view the full text of the bill.

The bill is anticipated to be signed before March 14, when current extended unemployment benefits are set to expire.

At the time this blog was posted, these provisions have not been signed into law. Additional revisions may also be made to the bill by the Senate before their deciding vote. We encourage you to reach out to one of our professionals for questions about these provisions. We are here to help!

A summary of key provisions from the proposed bill is as follows:

Individual Provisions

  • Recovery Rebate Credits/Stimulus Checks
    • Taxpayers with adjusted gross income (AGI) under $75,000 individually will receive $1,400 direct payments. Married taxpayers filing jointly earning up to $150,000 will receive $2,800.
      • Eligible taxpayers will also receive $1,400 for each dependent.
    • Eligibility is calculated using 2019 AGI unless a taxpayer has already filed a 2020 return.
    • Advance payment of the credits will be sent as economic impact payment checks.
  • Unemployment Benefits
    • Extends pandemic unemployment benefits for gig workers and long-term unemployment through August 2021
    • Increases state benefits by $400 per week, up from $300
    • Increases the total number of weeks eligible for the supplement to 73 weeks from 50 weeks
  • Premium Tax Credit (Related to Health Insurance)
    • A special rule is added that treats a taxpayer who has received, or has been approved to receive unemployment compensation for any week beginning during 2021 as an applicable taxpayer
  • Child Tax Credit
    • Expands the Child Tax Credit by:
      • Making the credit fully refundable for 2021;
      • Making 17-year-olds eligible as qualifying children; and
      • Increasing the amount of the credit to $3,000 per child ($3,600 for children under 6).
    • The Child Tax Credit would phase out for taxpayers with income over $150,000 for married taxpayers filing jointly, $112,500 for heads of households, and $75,000 for others
  • Child & Dependent Care Credit
    • Expands the Child & Dependent Care Credit by:
      • Making the credit fully refundable for 2021; and
      • Increases the exclusion for employer-provided dependent care assistance to $10,500 for 2021.
    • Family & Sick Leave Credits
      • Extends credits established by the Families First Coronavirus Response Act until September 30, 2021
      • Increases the limit on the credit for paid family leave to $12,000
      • The number of days a self-employed individual can take into account in calculating the qualified family leave equivalent amount for self-employed individuals increases from 50 to 60
      • Paid leave credits will be allowed for leave that is due to COVID-19 vaccination
      • The limitation on overall number of days taken into account for paid sick leave will reset after March 31, 2021
      • Credits are expanded, allowing 501(c)(1) governmental organizations to take them

Business Provisions

  • Paycheck Protection Program (PPP)
    • Allocates additional $7.25 billion for PPP forgivable loans; applications scheduled to close on March 31, 2021
    • Makes more not-for-profit organizations eligible
    • Some larger not-for-profit organizations are also now eligible to apply for PPP loans
    • Internet-only news and periodic publishers with more than one physical location are now eligible
  • Restaurant Revitalization Fund (RRF)
    • Allocates $25 billion for food and beverage establishments
    • RRF grants equal to the pandemic-related revenue loss of the entity, up to $10 million per entity, or $5 million per physical location (limited to 20 locations)
    • RRF grants are calculated by subtracting 2020 revenue from 2019 revenue and can be used for certain eligible expenses:
    • Sets aside $5 billion for eligible applicants with 2019 gross receipts of $500,000 or less
    • During the first 21 days of the grant period, the SBA will prioritize applications from restaurants owned and operated or controlled by women, veterans, or socially and economically disadvantaged individuals
    • Funds from RRF grants shall not be included in the gross income of the person who receives the grant
  • Economic Injury Disaster Loan (EIDL)
    • Allocates $15 billion to Targeted EIDL grants to businesses located in low-income communities that have no more than 300 employees and have suffered an economic loss more than 30% of gross receipts
    • Funds from Targeted EIDL grants shall not be included in the gross income of the person who receives the grant
  • Employee Retention Credits (ERC)
    • Extends the ERC through the end of 2021
  • Shuttered Venue Operators (SVO) Grant
    • Allocates $1.25 billion to the SVO grant program

Webinar Replay Now Available: Paycheck Protection Program & Employee Retention Credits

On January 27, the professionals of Scheffel Boyle CPAs explained the latest updates of the Paycheck Protection Program (including changes related to farmers) and Employee Retention Credits. There was a Q&A session at the end of the presentation.

A replay of our webinar is now available to watch on demand on Zoom. Please fast forward to 5:28 on the recording to begin the presentation. A document containing the slideshow is also available for download and can be accessed by clicking here (PDF).

  Paycheck Protection Program & Employee Retention Credits Webinar Presentation (PDF)

 

Free Webinar: Paycheck Protection Program & Employee Retention Credits

Join the professionals of Scheffel Boyle CPAs as they explain the latest updates of the Paycheck Protection Program (including changes related to farmers) and Employee Retention Credits. There will be a Q&A session at the end of the presentation.

Click here to register. There is no fee to attend the webinar, but registration is required. This event is open to the first 500 who register, so sign up today!

Download the Webinar Flyer

President Trump Signs Coronavirus Relief and Government Funding Bill

President Trump Signs Coronavirus Relief and Government Funding Bill

On Sunday, December 27, President Trump signed the COVID-19 relief and government funding bill into law. The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 has the following key provisions:

  • Clarification on the deductibility of expenses paid with forgiven PPP loans
  • Additional PPP funding for certain businesses
  • Extends certain tax credits for payroll and sick leave
  • Direct stimulus payments to individuals
  • Extended unemployment benefits

For more details on these key provisions and others, please see our earlier blog regarding the bill by clicking here: Congress Passes COVID-19 Bill, Waiting on the President’s Signature

We will continue to monitor the updates related to this bill and send out additional information as it becomes available. Please reach out to your trusted Scheffel Boyle team member with questions. We are here to help!

Congress Passes the Coronavirus Response and Relief Supplemental Appropriations Act of 2021

Congress Passes COVID-19 Relief Bill, Waiting on the President’s Signature

The U.S. Senate and House of Representatives passed a $900 billion COVID-19 relief bill Monday night. The Coronavirus Response and Relief Supplemental Appropriations Act of 2021, as it has been named, still needs to be signed by the President and is not law at this time.

A summary of the key terms of the proposed bill is as follows:

Business Provisions

  • Paycheck Protection Program (PPP)
    • It clarifies that businesses can deduct expenses paid with forgiven PPP loans. This applies to the original round of PPP loans and now this new round of PPP loans.
    • The bill provides an additional $284 billion in funding for round two of PPP loans.
    • Who is eligible for round two?
      • First-time qualified borrowers with 500 or fewer employees
      • Businesses that previously received a PPP loan in round one who specifically have 300 or fewer employees; have used or will use the full amount of their first PPP loan; and can show a 25% gross revenue decline in certain 2020 quarters compared with the same quarter in 2019
    • The bill expands eligibility for certain nonprofits (for example, Chamber of Commerce and Churches) and includes set-asides for very small businesses and community-based lenders.
    • Maximum loan size for round two PPP loans is $2 million.
    • The bill makes additional expenses eligible for loan forgiveness besides payroll, rent, mortgage interest and utilities. The bill changed the requirement to spend no less than 60% of the funds on payroll over the covered period. It also includes:
      • Covered worker protection and facility modification expenditures, including PPE to comply with COVID-19 federal health and safety guidelines
      • Expenditures to suppliers that are essential at the time of purchase
      • Covered operating costs such as software and cloud computing services and accounting needs
    • The bill creates a simplified forgiveness application process for loans of $150,000 or less. The U.S. Small Business Administration (SBA) must create the application within 24 days of the bill’s enactment.
    • Repeals the requirement that PPP borrowers deduct the amount of any Economic Injury Disaster Loan Program (EIDL) advance from their PPP forgiveness amount.
  • Provides new Economic Injury Disaster Loan Program (EIDL) grants for business in low-income communities.
  • Extends and expands the Employee Retention Tax Credit through July 1, 2021.
  • Expands the deduction for business meals to 100% for 2021 and 2022.
  • Extends the Families First Coronavirus Response Act (FFCRA) paid leave 100% tax credits through March 31, 2021. This does not extend the requirement, but it allows an employer to keep offering such leave.

Individual Provisions:

  • Economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making $150,000 per year, as well as a $600 payment for each dependent child.
  • Extended unemployment benefits $300 per week supplement from December 26 until March 14, 2021, an extra 11 weeks. It also extends the Pandemic Unemployment Assistance (PUA) program with expanded coverage to the self-employed, gig workers, and others in nontraditional employment.
  • Adjustments to how the Child Tax Credit and Earned Income Tax Credit are calculated for 2020. The calculation may be able to use 2019 income to determine an individual’s credit eligibility for the 2020 tax year.
  • The new above-the-line charitable contribution is extended through 2021 at $600 married filing jointly and $300 for all other filers.
  • Flexible Savings Accounts (FSA) balances can be rolled from the 2020 tax year into 2021. This could be helpful for any unused childcare expenses unable to be used in 2020.
  • Payroll tax deferral repayment by employees as been extended from April 2021 to December 31, 2021.

Our team is closely monitoring this situation as updates are released. Please reach out to your trusted Scheffel Boyle team member with questions. We are here to help!

 

 

Digital graphic that illustrates financial fraud

Fraudulent Unemployment Claims on the Rise in Illinois

Government officials throughout Illinois are urging residents to be on the lookout for identity theft activity related to unemployment insurance.

In an alert published by Illinois Attorney General’s office, people who have not filed for unemployment insurance are receiving letters and debit cards, loaded with funds, in the mail despite not having applied for benefits. Unfortunately, Illinoisans receiving these unsolicited letters and debit cards had their personal and financial information compromised.

The Attorney General urges those who believe their personal or financial information has been compromised to take the following steps:

  • If you received a debit card in the mail that you did not request, do not activate it.
  • Notify state and local authorities.
  • Obtain and monitor your credit report.
    • You can check your credit report free once per week through April 2021 by visiting annualcreditreport.com.
    • You may request a request a fraud alert by contacting one of the three major credit bureaus. Also, consider placing a freeze on your credit report to prevent further fraudulent activity.
  • Review all your financial accounts closely for accuracy and dispute any unauthorized charges or debits immediately with your financial institution.

Victims of this fraud are not responsible for repaying stolen unemployment benefits and will be eligible to file for unemployment benefits if they do become unemployed.

IRS Clarifies Timing on No Deductibility of Expenses Paid with PPP Funds

The IRS yesterday released Revenue Ruling 2020-27 to clarify the timing on the deductibility of expenses paid with PPP loan funds.

The ruling asks the question, “may a taxpayer that received a loan guaranteed under the Paycheck Protection Program (PPP), and paid or incurred certain otherwise deductible expenses listed in section 1106(b) of the Coronavirus Aid, Relief, and Economic Security Act 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 based on the otherwise deductible expenses?”

 

BACKGROUND:

Back in May 2020, the IRS issued Notice 2020-32 that informed taxpayers that “no deduction is allowed for an eligible expense that is otherwise deductible if the payment of the eligible expense results in forgiveness of the covered loan.”  That meant that even though the forgiveness of the covered loan was exempt from income, the nondeductibility of the expenses has indirectly caused the loan to be taxable.  Over the last few months, Congress has proposed legislation that would make the expenses deductible, but nothing has been passed through congress to date.  In addition, as we are approaching the end of the year, taxpayers who haven’t applied for forgiveness have been left wondering the timing of the deduction of the expenses depending on if forgiveness is obtained in a subsequent year.  This brings us to Revenue Ruling 2020-27.

 

THE NEW REVENUE RULING OFFERS TWO SITUATIONS:

  • Situation 1: During the period beginning on February 15, 2020, and ending on December 31, 2020 (covered period), Taxpayer paid expenses that are described in section 161 of the Internal Revenue Code and section 1106(a) of the CARES Act (eligible expenses).  These expenses include payroll costs that qualify under section 1106(a)(8) of the CARES Act, interest on a mortgage that qualifies as interest on a covered mortgage obligation under section 1106(a)(2) of the CARES Act, utility payments that qualify as covered utility payment under section 1106(a)(5) of the Cares Act, and rent that qualifies as payment on a covered rent obligation under section 1106(a)(4) of the CARES Act.  In November 2020, taxpayer applied to the lender for forgiveness of the covered loan on the basis of the eligible expenses it paid during the covered period.  At that time, and based on taxpayer’s payment of the eligible expenses, taxpayer satisfied all requirements under section 1106 of the CARES Act for forgiveness of the covered loan.  The lender does no inform taxpayer whether the loan will be forgiven before the end of 2020.
  • Situation 2: During the covered period, Taxpayer paid the same types of eligible expenses that were paid in Situation 1.  Taxpayer did not apply for forgiveness of the covered loan before the end of 2020, although, taking into account the Taxpayer’s payment of the eligible expenses during the covered period, satisfied all other requirements under section 1106 of the CARES Act for forgiveness of the covered loan.  Taxpayer expects to apply to the lender for forgiveness of the covered loan in 2021.

 

ANALYSIS PROVIDED BY THE REVENUE RULING:

In both situations, the Taxpayer had a reasonable expectation of the reimbursement.  At the end of 2020, the reimbursement of the Taxpayers eligible expenses, in the form of covered loan forgiveness, is reasonably expected to occur rather than being unforeseeable, such that the deduction is inappropriate.  Taxpayer’s eligible expenses are not deducible because there is a reasonable expectation of reimbursement.

A Taxpayer that received a covered loan guaranteed under the PPP and paid or incurred certain otherwise deductible expenses may not deduct those eligible 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.

In summary, no matter when the application is filed or when it is approved for forgiveness, if reasonably expected to obtain forgiveness, the expenses will be nondeductible in 2020.

What was not provided in the Revenue Ruling was how to handle business owners with no employee payroll (for example, Schedule C filers with no employees).  These business owners don’t have the qualified expenses that qualifies them for forgiveness.

 

HOW CAN WE HELP

Our team is available to assist you during the process of applying for PPP loan forgiveness. We anticipate there may still be some modifications to the Paycheck Protection Program in the coming weeks and our team is closely monitoring the situation.  We will update you as any such changes or new laws are released.  Please contact your trusted Scheffel Boyle team member with questions. We are always here to help.

SBA Simplifies PPP Forgiveness for Loans Under $50,000

On October 8th, the Treasury and U.S. Small Business Administration (SBA) released a new, scaled-down forgiveness application for borrowers with a PPP loan of $50,000 or less, other than any borrower that together with its affiliates received loans totaling $2 million or greater. The new interim final rule (linked here) pertaining to this streamlined process also provides new guidance for both forgiveness and loan review processes for PPP loans.

This new, simplified application (Form 3508S) has been much anticipated by both borrowers and lenders. Although the PPP loans which will qualify for this application account for only 9% of PPP dollars loaned, those loans total about two-thirds of all PPP loans issued.

With the new rules in place, PPP borrowers of $50,000 or less are now exempt from any decrease in forgiveness of the loan based on a reduction in full-time equivalent (FTE) employees and/or reductions in employee salary or wages. This eliminates the need for borrowers of $50,000 or less to calculate potentially complex FTE or salary reduction totals. While borrowers will still be required to make certifications and provide some documentation for their lender for payroll and nonpayroll costs, the process for both borrowers and lenders is now much simpler.

If you have questions regarding your PPP loan forgiveness application, please contact our team. We are always here to help.

Click here to download Form 3508S instructions.