SBA Releases New PPP Loan Forgiveness Guidance
On July 28, the U.S. Small Business Administration (SBA) released an update to the forgiveness process for the majority of Paycheck Protection Program (PPP) loans. The goal of the new guidance is to streamline the process for PPP participants with loans of $150,000 or less.
The interim final rule includes updates in three key areas:
- PPP loan recipients will be able to use a new COVID Revenue Reduction Score for necessary documentation regarding second-draw PPP loans.
- Early in August, the SBA will launch a portal that will allow loan recipients to interface directly with the SBA for forgiveness, rather than going through their lender.
- PPP borrowers who file a timely appeal of an SBA loan review decision will be eligible for an extension of the loan deferment period.
For full details, click here to read a helpful article from The Journal of Accountancy.
Employee Retention Credit Eligibility
Is your business eligible for the ERC? Use this chart for more information on what you can claim. Click here to view the information.
SBA Clarifies Due Date of PPP Forgiveness Applications
On October 13, the U.S. Small Business Administration (SBA) released clarifying guidance regarding the due date of forgiveness applications for loans issued via the Paycheck Protection Program (PPP). A recent article from the Journal of Accountancy offers an overview of the controversy surrounding the issue.
Many borrowers were surprised to find that the PPP loan forgiveness application forms listed “10/31/2020” as an expiration date. This elicited fears that any applications for PPP loan forgiveness were due by the end of October 2020.
The SBA updated its PPP forgiveness FAQ page to clarify that loan forgiveness applications for the PPP are not due by the expiration date listed on the forms. Rather, as previously announced, a loan recipient’s forgiveness application is due any time prior to the maturity date of their loan.
The expiration date listed on the loan forgiveness applications forms was included in order for the forms to comply with the requirements of the Paperwork Reduction Act. “The date represents the temporary expiration date for approved use of the forms, the SBA said, adding that once a new expiration date is approved, it will be posted on the forms,” clarifies the author.
For further details, click here to read the article in full at the Journal of Accountancy.
SBA and Treasury Release New PPP Waiver
On October 8, the U.S. Small Business Administration (SBA) and the Treasury announced the release of a simplified forgiveness process for Paycheck Protection Program (PPP) participants that received loans of $50,000 or less.
The agencies published a new interim final rule offering guidance for recipients of PPP loans equal to or less than $50,000 (“eligible borrowers”). Details of the rule include:
- Eligible borrowers are exempt from reductions in forgiveness based on reductions in full-time-equivalent (FTE) employees and reductions in employee salaries or wages.
- SBA Form 3508S is now available for eligible borrowers. Click here to view the instructions for the form.
- PPP borrowers should note that if a borrower and his or her affiliates received loans totaling $2 million or more, individual borrowers who received less than $50,000 lose their eligibility for the simplified forgiveness process.
The new interim final rule also includes additional guidance for PPP lenders. Details include the following:
- Upon submission of Form 3508S by a borrower, the lender must confirm receipt of the borrower certifications and any supplementary documentation (e.g., verification of payroll and nonpayroll costs).
- The borrower is responsible for accurately calculating their PPP loan forgiveness amount; lenders may rely upon the borrowers’ calculations.
- In the event that a lender receives documentation of eligible costs that exceed a borrower’s total PPP loan amount, the forgiveness amount may not exceed the total principal amount of the PPP loan.
IRS Issues Guidance Regarding Payroll Tax Deferral
On Friday, August 28, the Internal Revenue Service (IRS) released Notice 2020-65, which offers guidance regarding the implementation of the Presidential Memorandum on the deferment of some payroll taxes.
The memorandum, which was released by the President on August 8th, called for a deferral of the employee share of social security tax (or the railroad retirement tax equivalent) due between September 1, 2020 and the end of the year. The deferral applies to employees who earn less than $4,000 (pre-tax) on a bi-weekly basis, with each pay period to be considered separately.
The IRS notice seeks to guide employers in implementing the tax deferral. In Notice 2020-65, the tax agency explains that applicable taxes not withheld during the deferment period must be paid between January 1, 2021 and April 30, 2021. After May 1, 2021, interest and penalties will begin to accrue on any unpaid amounts.
For further details, click here to read the IRS release in full.
SBA and Treasury Release Additional PPP Guidance
On August 24, the Small Business Administration and Treasury made available a new set of guidance regarding Paycheck Protection Program (PPP) forgiveness issues. The new interim final rule covers two areas: owner-employee compensation and the eligibility of non-payroll costs. A recent article from the Journal of Accountancy offers a concise summation of the new regulations.
Owner-employee compensation – For the purposes of calculating loan forgiveness, C-corporation and S-corporation owners who hold less than a 5% stake qualify as exempt from the PPP rule regarding owner-employee compensation. This is because they are deemed to not have a meaningful ability to influence the allocation of PPP loan proceeds.
Eligibility of non-payroll costs – The new interim rule addresses situations where a business owner holds property in a separate entity and where a business owner holds property in the same entity as its business operations. The goal of the guidance is to establish equitable treatment for these situations.
For further details, including a number of hypothetical scenarios illustrating various non-payroll cost situations, click here to read the article in full at the Journal of Accountancy.
Employee Spotlight – Jeff Bleacher
Jeff Bleacher has been with Ross Buehler Falk (RBF) since day one—January 1, 1985, to be exact. He started in the accounting field in 1983, shortly after graduating from college. Jeff has a wide range of experience that includes counseling organizations in a broad range of industries and sizes, from small businesses to organizations with well over $100 million in sales volume. He specializes in providing accounting, auditing, agribusiness services, manufacturing services, and management counseling.
As an accounting professional, Jeff is very devoted to serving in the community. He is a member of the American Institute of Certified Public Accountants (AICPA), and the Pennsylvania Institute of Certified Public Accountants (PICPA). He is Vice-chair of the EDC Finance Corporation. And it doesn’t end there, Jeff also serves on the boards of both the Lancaster Health Center, the East Hempfield Water Authority, and is a member of the Lancaster Rotary Club.
A longtime Pennsylvania resident, Jeff attended Elizabethtown College from 1979 to 1983. He earned a Bachelor of Science in Accounting. Jeff went on to study for his Certified Public Accountant (CPA) license and also earn the designation of Chartered Global Management Accountant (CGMA).
Jeff celebrated his 30th wedding anniversary with his wife Cindy in August. When asked what the best compliment he ever received was, Jeff simply responded, “My wife marrying me.” Jeff and Cindy have three children, Jason, Dylan, and Abigail. Jeff loves spending time with his family and always wishes that they could have more time together.
Want to get to know Jeff even better? We asked a variety of silly questions, and here’s what we learned:
- If Jeff could visit any fictional place, he would take a trip to Jurassic Park.
- Jeff’s very first job was working in a garage.
- If he could pick one thing to know more about, Jeff would choose to gain better mechanical skills—to know how to build things.
- Hawaii is the farthest from home that Jeff has ever traveled.
- It has been far too long for Jeff to remember when the last time was that he climbed a tree.
IRS Provides Additional 2020 RMD Rollover Relief
The CARES Act waived required minimum distributions (RMDs) from IRAs and employer plans such as 401(k)s for 2020. However, the CARES Act was not passed until March 27, 2020, and after many individuals had already taken their RMD for 2020. Some of these retirees would not have taken the distributions if they would have known about the waiver.
That issue was originally alleviated when the federal government declared a coronavirus-related disaster that then enabled the IRS to extend numerous deadlines and due dates, including the rollover period for traditional IRAs and qualified employer plans such as 401(k)s. Accordingly, the IRS said that any 60-day rollover period that ended on or after April 1, 2020, and before July 15, 2020, was extended through July 15, 2020. This meant that distributions taken in January of 2020 weren’t covered by this extended rollover period.
Normally, RMDs are not allowed to be rolled over, but because the CARES Act waives the requirement to take a 2020 distribution, these distributions are not treated as RMDs for 2020 but are considered distributions that are eligible to be rolled over.
The IRS in Notice 2020-51 has now provided additional relief, including for those who took their RMD in January, by extending the normal 60-day rollover requirement and allowing individuals who took an RMD in 2020 to roll the RMD back into their IRA or retirement plan by no later than August 31, 2020. This means that if you took a distribution in 2020, you can roll it back (redeposit it) into the IRA or retirement plan and avoid being taxed on it in 2020, if you do so by August 31, 2020.
RMDs are required distributions from qualified retirement plans and are commonly associated with traditional IRAs, but they also apply to 401(k)s and SEP IRAs. The tax code does not allow taxpayers to indefinitely keep funds in their qualified retirement plans. Eventually, these assets must be distributed, and taxes must be paid on those distributions. If a retirement plan owner takes no distributions, or if the distributions are not large enough, then he or she may have to pay a 50% penalty on the amount that is not distributed.
The CARES Act RMD waiver applies to:
- The 2020 RMD for taxpayers who turned 70½ before 2020.
- The 2019 RMD for taxpayers who turned 70½ in 2019 and chose to defer their first distribution to 2020.
- The 2020 RMD for taxpayers who turned 72 in 2020.
- The RMDs for beneficiaries.
Be aware, however, that any part of the distribution from a traditional IRA or qualified retirement plan that you don’t roll over will be taxed. This means that if federal and/or state income tax was withheld from the distribution and you want to roll over the gross amount of the distribution so none of it is taxable in 2020, you will need to use funds other than those from the distribution in order to fully roll it over. Regrettably, the withholding can’t be refunded when you make the rollover. Instead, the withheld tax will be claimed as a credit on your 2020 return. In this case, your 2020 estimated tax installments and/or withholding on other income can be adjusted.
The recent Notice also says that the IRS won’t treat recontributing an RMD to an IRA as a rollover for purposes of the rule that only one IRA rollover per 12-month period is permitted.
Please call our office if you have any questions about RMDs and how rolling over an RMD you’ve already taken will impact your tax return.
Loan Application Period for the Paycheck Protection Program Extended
If you missed the opportunity to apply for a Paycheck Protection Program (PPP) loan before the program expired at the end of June, Congress extended the application period for a PPP loan through August 8, 2020. Although time is short, you still have time to apply.
If you are unfamiliar with this program, Congress created the PPP as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and authorized the use of the SBA’s small business lending program to provide forgivable loans of up to $10 million per qualifying business. The loans are to support small businesses in dealing with the economic hardships created by the coronavirus pandemic and primarily to assist them with continuing to pay employee salaries.
Small businesses are those with 500 or fewer employees, including those filing Schedule Cs (self-employed, sole proprietorships, or independent contractors), as well as non-profits and veterans’ organizations.
The loans are forgivable to the extent that the funds are used to pay for certain specified expenses, including payroll, rent, lease payments, mortgage interest, and utilities during the 24-week period following the loan being funded or by December 31, 2020, if earlier. To qualify for full forgiveness, a borrower must use the loan proceeds for eligible expenses and meet certain other criteria. The forgiveness may be reduced if an employer does not maintain their employee headcount or reduces the pay per employee.
There is approximately $130 billion left in the fund, and the loans are doled out on a first-come, first-serve basis. For more information or assistance, or to determine if your business qualifies for a PPP loan, please give our office a call.
Don’t Throw Away That Notice 1444
The IRS is mailing all recipients of Economic Impact Payments a Notice 1444 that provides information about the amount of their payment, how the payment was made, and how to report any payment that wasn’t received. If you’ve already received your economic impact payment, you’ve probably already received this document too. This notice was issued from The White House and looks more like a letter than a traditional IRS notice, but the notice number is in the upper right of the heading, just below the date.
For security reasons, the IRS mails this notice to each recipient’s last known address within 15 days after the payment goes out. Don’t discard this notice, as you may need it when your 2020 tax return is prepared. The economic impact payment is actually an advance payment of a refundable tax credit based upon your 2020 tax return. In order to get the money into people’s hands during the time of the greatest need, these payments generally were made based upon each individual’s 2019 return, or in some cases their 2018 return.
However, your filing status, income, and dependents may be different in 2020, and if the advance payment was less than what you are entitled to based upon the 2020 return, you will qualify for the difference as a refundable credit on your 2020 return.
Example: Don and Shirley, whose AGI is less than $150,000, are newlyweds with no children and filed a joint return in 2019. They receive an advance economic impact payment of $2,400. In 2020, they have a baby, and when their credit is determined on the 2020 return, it is $2,900 ($1,200 + $1,200 + $500). Since they only received $2,400 as an advance payment, they will be entitled to a $500 refundable credit on their 2020 return. The credit will first be used to reduce their tax, and then any excess credit will be refunded.
As you can see, it is important for you to keep Notice 1444 – Your Economic Impact Payment, with your tax records, since it documents the payment you actually received. You should keep this notice filed with all your other important tax records, including W-2s from employers, 1099s from banks and other payers, other income documents, and records to support tax deductions.
If you have any questions regarding your economic impact payment, please call.