Small business tax resources for coronavirus

The new relief bill, called the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, includes $325 billion in small business support, including an extended Payroll Protection Program (PPP), new Economic Disaster Loans (EIDL), and SBA debt-relief payments along with enhancements to SBA lending. You may also benefit from the extended and expanded payroll tax credits and the ability to deduct expenses paid with forgiven COVID-related loans and grants.

This information is complicated, but our Block Advisors Small Business Certified tax pros are here to help you make sense of it all.

To guarantee funding is available for truly small and underserved businesses, the bill sets aside $40 billion for small businesses with up to 10 employees and businesses located in low to moderate-income areas to receive loans of up to $250,000.

PPP loan applications can be submitted with banks and approved financial lenders. Other SBA loan applications can be submitted directly to the SBA. Check out SBA.gov for more information. Even if you applied before and were denied, this new bill includes new funding so try again. This new round of funding also has set-asides for community lenders to assist hard-to-reach communities and unbanked or underbanked small businesses.

Yes, even with part-time employees, the payroll tax postponement allows business owners to defer payment of the employer’s share of Social Security (but not Medicare) contributions for employees during 2020. Self-employed individuals can also defer one half of Social Security taxes for 2020 as well.

Note: Previously, employers that receive a Paycheck Protection Program (PPP) loan could not defer any payroll taxes due after the employer received a decision for the lender that the PPP loan is forgiven. The PPP Flexibility Act of June 5, 2020, removes that restriction, so that PPP recipients can now delay payroll taxes.

Yes, receiving aid may impact your 2020 tax filing. For example, money received from your forgivable PPP loan will not be included in your gross income at the federal level, but you’ll want to check with your state to determine if the forgiven loan is taxable on your state return. In addition, the latest legislation provides for the ability to deduct business expenses paid with forgiven PPP loans and other COVID-related loans and grants.

To fully understand your eligibility for tax credits and deductions, we recommend speaking with one of our Block Advisor Small Business Certified Tax Pros to help you make sense of it all.

The Paycheck Protection Program (PPP) was created in the CARES Act, which was enacted in March, 2020. In December, 2020, the program was enhanced with more lenient expense eligibility requirements, a streamlined loan forgiveness application for smaller loan amounts, and an opportunity for a second draw for businesses that already received a PPP loan in 2020.

Yes. The new legislation is being called the “PPP Second Draw,” meaning if you previously received a PPP loan, you have a second chance at funding with the renewed program. You may receive a new PPP loan if:

• You’ve used all prior PPP funds
• Have fewer than 300 employees
• Can show losses of at least 25% over the prior year’s quarter

Even if you applied before and were denied, this new bill includes new funding so try again. Loan applications can be submitted with banks and approved financial lenders.

This will depend on if you’re applying for your first loan or a “second draw” as indicated below.

In general, a company can have no more than 500 employees. Additionally,

• It must meet the definition of a small business concern under the Small Business Act; or
• As of March 27, 2020, the business’ tangible net worth is not more than $15 million and its average net income after federal income taxes for the previous two fiscal years is not more than $5 million.
• For “second draw” loans: Businesses with less than 300 employees who experienced a revenue decline of at least 25% vs. the same quarter a year ago may qualify for a second loan.

According to the new law, the loan can be used for several things including: payroll costs, mortgage interest payments, rent payments, utility payments, covered operating expenses, covered property damages, covered supplier costs, worker protection expenses and interest on any other debt incurred before February 15, 2020. Mortgage interest, rent, and utility should be for obligations and services in force or beginning before February 15, 2020.

Additionally, costs for employee vacation, parental, family, medical and sick leave are included. There are some exclusions when a credit is allowed under the Families First Coronavirus Response Act.

The calculation depends on your type of business – dining and lodging businesses may qualify for more than other types of businesses – but loans under the new program authorized in December 2020 can’t exceed $2 million. Generally, new applicants can qualify for a loan of up to 2.5 x (3.5 x for restaurants/hotels)  a small business owner’s average monthly payroll cost or $2 million whichever is less.

Note that loans under the original program authorized in March 2020 could be up to $10 million.

Learn more about the calculation formula

All loans have the following identical terms: 1) interest rate of 1.0%, 2) matures in five years (for loans made on or after June 5, 2020), 3) first payment deferred for six months after the loan forgiveness determination, 4) 100% guaranteed by Small Business Administration, 5) no collateral, 6) no personal guarantee, and 7) no borrower or lender fees payable to SBA.

Note: The PPP Flexibility Act of June 5, 2020, extended the loan maturity from two to five years and further deferred the first payment to six months after the loan forgiveness determination. Lenders and borrowers may mutually agree to modify terms to extend the maturity date from two years to five years.

You can apply for the Paycheck Protection Program (PPP) through a participating lender. Once you find a lender that is accepting applications, you will likely need to gather your monthly payroll expenses for 2019 and 2020. The PPP requires the lender to use your payroll expenses to determine the maximum loan amount as well as the amount that may be forgiven.

Second draw loan applicants will also need to provide quarterly profit / loss statements to demonstrate a decline in revenue.

The PPP allows small business owners, including sole proprietors, to borrow up to 2.5 times their average monthly payroll costs (3.5 times if they are in the hotel/restaurant industry). A portion of the loan may be forgiven if the proceeds are used for payroll costs, mortgage interest, rent and utilities. The interest rate on the amount that must be repaid is only 1% and the term is five years from the date of disbursement. The first payment is due six months after the loan forgiveness determination date, though interest will accrue during that deferral period.

Note: The PPP Flexibility Act extended the loan maturity from two to five years (for loans made on or after June 5, 2020).

Independent contractors and self-employed individuals who don’t have any employees and don’t issue paychecks to themselves during the year will use their net income from self-employment as a substitute for wages for purposes of the PPP. These owner-employees can still qualify for loan forgiveness as long as the loan proceeds are used for qualifying expenses.

Self-employed individuals substantiate net income from self-employment by providing a copy of their business tax return – typically a Schedule C (Form 1040) – for tax year 2019 with their loan application as well as any Form 1099-MISC detailing nonemployee compensation, invoice, bank statement, and book of record that establishes they are self-employed. They must also provide documentation from 2020 that show they were in operation on or around February 15, 2020.

Assuming your payroll expenses consist solely of the reasonable compensation you pay yourself and report on a W-2, you can find that expense on line 7 of your corporate tax return (1120-S). Alternatively, you may be able to find your payroll expenses in your accounting or bookkeeping software.

The CARES Act allows the USDA to provide direct assistance to agriculture producers as well as makes appropriations for the Commodity Credit Corporation. As the USDA works to implement the CARES Act, visit https://www.farmers.gov/coronavirus for more information about programs for farmers.