Following a $2 trillion plus stimulus bill passed in the Spring of 2020, the Congress has finally been able to come to terms on another economic stimulus and relief bill, and the president has finally signed it into law. The bill is over nearly 5,600 pages long and has a whole host of miscellaneous provisions included therein.
However, for small businesses several issues were of particular concern. First, there have been a host of issues, questions, and need for clarification on the previously created Paycheck Protection Program (“PPP”). Back in the Spring of 2020, that program was created to provide money to small businesses to help them pay their payroll while suffering from financial issues caused by the Covid-19 pandemic and widespread shut-downs and stay-at-home orders. The new stimulus bill clarifies that expenses paid with these funds may still be used in tax deductions and the amount of the PPP loan would not be considered in calculating the company’s gross income.
PPP funds were generally supposed to be used for (and would only be forgiven for) use in covering payroll, mortgage interest, rent, and utility payments. The new bill should be expanding forgivable expenses to operational expenditures for software or computing services for business operations, property damage due to public disturbances that were not covered by insurance or other compensation, payments to suppliers where the supplies were essential to the operations, made pursuant to a contract prior to the covered period, or for perishable goods, or worker-protection costs required to comply with requirements of state or local governments, the CDC, OSHA, or the Department of Health and Human Services.
Further, money received from the Small Business Administration (“SBA”) through the Economic Injury Disaster Loan program, like the PPP, will also be tax free and expenses paid using those funds may be tax deductible. It also appears that loans received for up to $150,000 will have a more simplified, 1-page forgiveness application providing simply a certification of the number of employees the company was able to maintain because of the loan, the amount spent on payroll, and a certification of compliance and provision of accurate information, and an agreement to maintain records for approximately 4 years. For loans over $150,000 additional information and documentation will likely still be required.
The bill also provides for a second PPP loan, but only specifically for employers with less than 300 employees who experienced a 25% decrease in any quarter’s revenue from 2019 to 2020. As with the original PPP loan, generally, the maximum loan amount will be 2.5 times the company’s average monthly payroll or $2 million. However, for those companies in the accommodation and food service industry, this may be increased to 3.5 times the monthly payroll.
Further, under the prior stimulus package, Congress included an Employee Retention Tax Credit provision. This is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that employers pay their employees after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages was set at $10,000, so a maximum credit would be $5,000.
To be eligible for this credit, the employer’s business had to have been wholly or partially suspended by government order due to Covid-19 or the business’s gross receipts for 2020 must be below 50% of the comparable quarter in 2019 without reaching more than 80% of a comparable 2019 quarter.
Under the prior terms, this credit could not be used if the company/employer was also benefitting from the PPP. However, the new bill allows the credit to be used in conjunction with PPP, as long as it is not applied to wages which were paid with PPP funds. The credit is
Further, the credit is being increased to 70% of qualified wages each quarter and the timeframe for the credit is being extended to July 1, 2021. Further, the $10,000 maximum is now per quarter, as opposed to “in total.”
This bill is still yet to be signed and therefore may still be further clarified, interpreted, amended, and possibly even extended as issues arise. The employment and business attorneys at McLaughlin & Nardi, LLC are experienced with these types of laws, and can advise both employers and employees about their rights and responsibilities under New Jersey employment law requirements and these new federal mandates. To learn more about what we may be able to do to help, please call (973) 890-0004 or fill out the contact form on this page. We can help.