Tax Season Update Jan. 22nd, 2021

PPP Loan Forgiveness

The US Small Business Administration (SBA) and Treasury finally published the updated Paycheck Protection Program (PPP) loan forgiveness guidance and forms, including a one-page application for borrowers that received a PPP loan of $150,000 or less. The interesting part of this one-page form is that the instructions are four pages long.

That form, called the PPP Loan Forgiveness Application Form 3508S, can be used by borrowers that received a PPP loan of $150,000 or less. The form seeks information about the borrower’s loan amount, disbursement date, employee totals, covered period dates, amount of the loan spent on payroll, and the amount of the loan for which forgiveness is being sought. Borrowers are not required to submit any supporting documentation with the application but are mandated to maintain payroll, nonpayroll, and other documents that could be requested during an SBA loan review or audit.

The SBA also revised the previous forms 3508 and 3508EZ to eliminate the EIDLE Loan Advance reduction adjustment.

Employee Retention Credit (ERC)

The latest bill includes changes to the employee retention credit. The employee retention credit was previously unavailable to businesses that received PPP loans. The rules have been changed to allow businesses to take advantage of this credit in addition to the PPP loan.

The credit is based on wages plus health benefits paid in a calendar quarter which business operations were fully or partially suspended due to government order or a decline in gross receipts in a calendar quarter in 2020 compared to the same quarter in 2019. This reduction must be at least 50% in 2020 or 20% in 2021.The credit expires after the second quarter in 2021.

The credit can be as high as 50% of qualified wages (capped at 10,000 per employee in 2020) and 70% of qualified wages (capped at 20,000 per employee in 2021).

PPP Loan and ERC Interplay

Employers qualifying for this credit in 2020 or 2021 need to consider that you can’t use the same wages for both the ERC and PPP Loan forgiveness. Most employers will have qualifying wages that exceed their PPP loan. For those that qualify for the ERC, we recommend utilizing other expenses for the PPP loan forgiveness to the extent that you can (ex. Rent, interest, utilities, etc) or wages from another quarter so that the remaining wages can be used for the ERC.

Self-Employed Sick Leave Credit

Self-employed individuals will qualify for this credit if they were unable to work for any of the following reasons:

  • You were subject to a federal, state or local quarantine or isolation order related to COVID-19.
  • A health care provider advised you to self-quarantine due to concerns related to COVD -19.
  • You were experiencing symptoms of COVID-19 and sought out medical diagnosis.

For items 1-3 your refundable credit is equal to the number of days you were unable to work, multiplied by the lessor of $511 or 100% of your average daily self-employment income.

  • You were caring for an individual who was subject to an order described above.
  • You were caring for your child due to closure of school or place of care, or childcare provider of such child is unavailable due to COVID-19 precautions.
  • You experienced any other substantially similar condition specified by the Department of Health and Human Services in consultation with the Department of Treasury and the Department of Labor.

For items 4-6 your refundable credit is equal to the number of days you were unable to work, multiplied by the lessor of $200 or 67% of your average daily self-employment income.

The average daily self-employment income is equal to your net earnings from self-employment divided by 260.

The maximum number of COVID-19 creditable sick days is 10 days per calendar year. Once the 10 days have been used you can continue to receive credits under the Self-Employed Family leave credit for 50 more days at the lower $200 per day or 67% of your average daily self-employment income.

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