Note: Updated Sep 16, 2020
Paycheck Protection Program(PPP) Loan
The government is offering a total of $659 billion for the loan program.
Businesses with employees, independent contractors all qualify. (500 or fewer employees and has been negatively impacted by the Covid)
A household employer can not apply.
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (over 75% of the forgiven amount must have been used for payroll)-detail rules apply
This Loan has a maturity of 2 years and an interest rate of 1%.
You need to be in operation on February 15, 2020, and had employees for whom you paid salaries and payroll taxes or paid independent contractors, as reported on a Form 1099-MISC.
The maximum amount of Loan Calculation: ( up to 10 million)
-Aggregate payroll costs from last 12 months ( payment over $100,000 per person max)/12 x2.5
-“Payroll costs” means Payroll costs consist of compensation to employees. Payment to independent contractors does not count.
Independent contractors can apply it's own PPP loan. “Payroll costs” for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.
Submit such documentation as is necessary to establish eligibility such as payroll processor records, payroll tax filings, or Form 1099- MISC, or income and expenses from a sole proprietorship·
The PPP loan application closed on August 8, 2020.
Economic Injury Disaster Loans(EIDL)
The max EIDL is $2 million. Normal loan amount to consider is up to 6 months of working capital.
Business, sole proprietorship, independent contractor all qualify. (500 or less employees). Business with gambling, multi-level sales, investment, lending activities are not table to apply.
Businesses need to be in operation before January 30, 2020.
Rate is 3.75% for businesses up to 30-year term. It can be deferred one year due to Coronavirus. Interest will continue to accrue.
You need to use the proceeds for the working capital and normal business operating: such as health care benefits, rent, utilities, fixed debt payments. You should keep the receipt for those expenses for at least 3 years.
Eligible applicants for an EIDL can receive a$10,000 emergency grant within three days of application. There is no obligation to repay the grant.
You will need collateral if the loan is over $25,000
Satisfactory credit history is important. They will need to review your 2019 business tax return is filed, or your 2019 year-end profit and loss statement, along with your balance sheet and the most recently filed business tax return 2020 year-to-date profit and loss statement.
All 20% or more owners and at least total 81% ownership) are required to be included in the application.
Non-US citizen owners need to check SBA website if you qualify.
Apply at SBA.gov/disaster.
If you receive EIDL and you want to apply for PPP loan, EIDL amount will count towards the max PPP loan amount allowed.
Employee Retention Credit
Applies to wages paid after March 12, 2020, and before January 1, 2021.
Equal to 50 % of the qualified wages with respect to each employee of the employer for the calendar quarter
The credit is used against the employer portion of Social Security taxes. Any excess if refundable.
Wage Limit is $10,000/employee/quarter. So that the maximum credit for an eligible employer for qualified wages paid to any employee is $5,000
Qualification of employers: The Employer’s gross receipts need to below 50% of the comparable quarter in 2019 to qualify. (Significant decline of gross receipts) Once The employer’s gross receipts go above 80% of a comparable quarter in 2019, they no longer qualify after the end of that quarter; OR the business was fully or partially suspended of the operation due to Covid-19 in that quarter.
Employers can be immediately reimbursed for the credit by reducing their required deposits of payroll taxes that have been withheld from employees’ wages by the amount of the credit. The eligible employer must account for the reduction in deposits on Form 941, Employer’s Quarterly Federal Tax Return, for the quarter.
Not available for the employers who received the PPP loans
More detail see IRS website
Deferral of employer's portion of social security taxes
CARES Act provides that employers may defer the deposit and payment of the employer's portion of Social Security taxes for the payroll period beginning on March 27, 2020, and ending before January 1, 2021.
50% of the delayed amount needs to be paid before December 31, 2021, the remaining amounts due December 31, 2022.
For self-employed taxpayers, they will revise the tax forms so 50 percent of the self-employment taxes for the payroll tax deferral period will not be treated as taxes to which that penalty applies. I will update our clients who are affecting by this soon as IRS clarifies the procedures more.
PPP Flexibility Act in June 2020 provides those employers who received PPP loan eligible of deferring the Employer portion of the social security taxes, even the loan has forgiven.
Deferral of employee's portion of social security taxes
On Aug 8, 2020, the President issued a memo directing IRS to authorize deferral of employee's portion of the social security taxes. IRS recently issued guidance regarding this.
Under the guidance, deferral is for payroll period from September 1st, 2020 to December 31th 2020.
Only for taxpayers with wages for bi-weekly pay period is less than $4,000.
Those taxpayers must withhold and pay the total taxes between January 1, 2021 and April 30, 2021.
The bottom line is the taxpayers who participate the deferral will see a small boost in their paychecks but need will see a lot smaller checks after the new year.
The IRS guidance so far was not clear on the procedures.
More detail see IRS Notice 2020-65
Employer Paid Sick Leave Credit
For employee sick leave related to Coronavirus
Refundable sick leave credit for sick leave at the employee's regular rate of pay, Up to $511 per day and $5,110 in the aggregate, for a total of 10 days.
For an employee who is caring for someone related Coronavirus, caring for a child due related to Coronavirus(or facility closing due to Coronavirus)
Employer credits equal to two-thirds of the employee's regular rate of pay, up to $200 per day and $2,000 in the aggregate, for up to 10 days.
An additional tax credit for costs to maintain health insurance coverage for the eligible employee during the leave period.
Employers may claim the credit by filing their quarterly federal employment tax returns.
A similar credit is available for self-employed individuals and I believe you claim the credit on your income tax returns.
Employers can retain an amount of the payroll taxes equal to the amount of qualifying sick they paid, rather than deposit them with the IRS. The Payroll taxes that are available for retention include withheld federal income taxes, the employee share of social security and Medicare taxes, and the employer share of social security and Medicare taxes with respect to all employees.
Child Care Leave Employer Credit
For an employee who is unable to work because of a need to care for a child whose school or child-care facility is closed or whose child care provider is unavailable due to the Coronavirus(In addition to the sick leave above)
First 10 days are unpaid. After that, the employee will receive equal to two-thirds of the employee's regular pay, up to $200 per day or $10,000 total.
The employer will receive the above amount as credits and additional credit to cover the medicare taxes. An additional tax credit is also avaiable to maintain health insurance coverage for the eligible employee during the leave period.
Employers may claim the credit by filing their quarterly federal employment tax returns·
A similar credit is available for self-employed individuals.
Employers can retain an amount of the payroll taxes equal to the amount of Child care leave they paid, rather than deposit them with the IRS.
Circular 230:The articles are for general information only. In accordance with IRS Circular 230 they are not considered tax opinions for purposes of relying on such statements in any challenge of the reporting of the above transaction by the IRS. If a full tax opinion is required certain procedures must be met . Also there is a significant cost for a full tax opinion to meet the requirements of Circular 230.