The Consolidated Appropriations Act, 2021 brings new opportunities for organizations to address cash flow.
Key insights
- If you believe you may be eligible for the next round of PPP, begin preparing now.
- Take a fresh look at the employee retention credit: it’s been expanded.
- Consider whether a retroactive capture of WOTC applies to your organization.
Need help navigating COVID relief options?
The newly passed COVID-19 relief bill is packed full of changes to 2020 economic relief legislation, new benefit options, and more. Most of our clients are asking, “Where should I begin?”
The five highlights below can help you get started:
1. The Paycheck Protection Program (PPP) will open again soon
Nearly $285 billion of new PPP funding has been authorized for hard-hit small businesses and nonprofits. Existing PPP borrowers that have fewer than 300 employees, have used all of their first PPP loan proceeds, and have experienced at least a 25% decrease in gross receipts may obtain additional PPP loans of up to $2 million. Participation in the original PPP is expanded to include housing cooperatives, news organizations, 501(c)(6)s, and direct marketing organizations, in addition to other eligible companies that had not previously applied for a PPP loan.
Existing PPP borrowers can benefit from new provisions, including a simplified forgiveness process for loans under $150,000, an expansion of eligible costs, the ability to select the duration of your covered period, the opportunity to request an increase in your first PPP loan if regulations changed after you initially applied, and an expanded definition of “health care benefit.” The relief bill also clarifies that any EIDL advances received will not reduce PPP loan forgiveness.
Read More: Congress Reauthorizes PPP and Provides Some Needed Tax Relief
2. The PPP and the employee retention credit (ERC) can now co-exist
The COVID relief bill eliminates the restriction that previously prohibited PPP borrowers from utilizing the ERC. PPP borrowers that meet other eligibility requirements now have an opportunity to retroactively claim the ERC for 2020. Note that qualified wages used for the ERC are not eligible to also be used as “payroll costs” for PPP loan forgiveness under the CARES Act.
If your organization is eligible to utilize the ERC:
- Carefully analyze how to best maximize qualified wages falling within the PPP loan covered period and avoid double dipping for ERC and loan forgiveness purposes.
- You may claim the ERC on qualified wages paid in 2020 on your fourth quarter Form 941 (due February 1, 2021) or, for agricultural and annual filers, applicable Forms 943 and 944.
- You may also file an amended payroll tax return to claim the ERC.
3. Expanded ERC in 2021
The ERC under the CARES Act now applies more broadly. Key changes were made to size limitations for organizations with eligible activities for the credit, the types of organizations that may claim the credit, the timing to take the credit, the interplay with PPP, and the amount of the credit itself.
Read More: New Law Clarifies and Expands CARES Act Employee Retention Credit
4. Debt relief
For most borrowers, debt cancelation is generally included in gross income. This unexpected income (for both individuals and businesses) often comes at a time when the taxpayer is struggling, or at least challenged, with meeting financial obligations. Fortunately, the new legistation provides relief to taxpayers without the “tax bite” later.
5. Work Opportunity Tax Credit (WOTC)
Two categories of WOTC eligibility — designated community residents in an empowerment zone and qualified summer youth employees — have been affected by recent legislative changes. There is a brief window for employers to retroactively capture credit for certain eligible employees hired on or after January 1, 2018. Employers must submit Form 8850 to the designated local agency by January 28, 2021. Going forward, the credit has been extended to capture all eligible groups through 2025, not limited to geographic eligibility.
Read More: Urgent Update on Work Opportunity Tax Credit Transition Relief
Act now
While there is still much to learn relating to the recent legislation, there will likely be some urgency around:
- Accessing the next round of PPP. If you believe you may be eligible, contact your banker right away to express your interest. Calculations for the loan amount appear to be similar to the last round. If you previously applied, refresh yourself on those numbers. If you missed out last time or are a newly eligible organization, begin pulling together 2019 Form 941s and payroll information to calculate your loan amount. Applications will likely be available in mid-January.
- Claiming the ERC for 2020. Act soon if you would like to include a claim in your Q4 2020 filings rather than file an amended return later.
- Retroactively capture WOTC. Assess and identify qualified applicants, and submit Form 8850 by January 28, 2021.
How we can help
CLA can help you uncover opportunities within the new COVID relief bill. Join our Thursday livestream series to receive the latest updates, and watch for further articles and webinars on relevant and timely topics. Please contact your advisor or CLA to learn how these five highlights may apply to your organization.