PPP Loan & Stimulus Payment Updates 5.12.2020

There have been a few significant changes in some of the rules on the PPP loans and stimulus payments, that I thought it prudent to send out the overview below.  I wish I had more clear, definitive information to share.  Unfortunately, even the definitive statements published by the IRS are subject to change.

Siobhan

 

Stimulus Check Repayments

When the stimulus payments were first announced, we assumed they would act like other advanced tax credits and have a reconciliation on the 2020 tax return resulting in additional funds or repayments, based on the situation.

On April 22, the IRS published, “there is no provision in the law requiring repayment of an Economic Impact payment.”  Based on this information, it appeared that the reconciliation would not be required, but additional stimulus funds could still be claimed on the 2020 tax return if applicable.

However, on May 6, the IRS published a requirement to return a check/funds that had been received in three situations:

1) payment received by a taxpayer who died before receiving the payment,

2) a nonresident alien who received a payment, and

3) an incarcerated taxpayer who received a payment.

The IRS also published that a spouse who received a stimulus payment for $2,400 including any of the above situations, should return $1,200 for their spouse who does not qualify.

I will be very surprised if anyone returns a stimulus check to the IRS!  It is unclear whether or not there will be a reporting requirement on the 2020 tax returns to address these situations and trigger a repayment with the tax return.  Based on this significant change in guidance, it is also unclear whether or not any of this will change again.

 

PPP Loans – expense deductions

When the SBA loan programs were first released, the EIDL program specifically stated that any forgiven amounts would be taxable income, so we assumed that PPP forgiven amounts would be too.  Then the SBA and IRS published that the PPP forgiven amounts would not be taxable income.

Then on May 1, the IRS published that the expenses paid for with PPP forgiven funds would not be deductible (thus removing the tax benefit of the forgiven amount not being taxable).  The American Institute of CPAs and several members of congress (from both major parties) are fighting the IRS on this.

The AICPA is arguing that the purpose of the forgiven funds not being taxable was to create a tax benefit and therefore the expenses should be deductible.  The members of congress are preparing additional legislation to specifically write into the law that the expenses are still deductible (but this legislation is not yet passed).

As things stand right now, the PPP forgiven amounts are not taxable and the expenses covered with those funds are not deductible.  I think there is a reasonably good chance this will change before we are preparing and filing tax returns next year, but we will not know for sure until then.

In the meantime, if you have received a PPP loan, my recommendation remains the same – keep the funds separate and track everything meticulously (both for your loan forgiveness and for your accounting).  We will have to wait to see how the tax treatment shakes out.

 

If you did not get a PPP loan… Employee Retention Credit

If you did not receive a PPP loan, have a business that is closed or significantly reduced due to the Stay Home Order, and are paying employees, you may be a good candidate for the Employee Retention Credit.

You must meet the following criteria:

  • be closed fully or partially due to the Stay Home Order
  • have more than a 50% decrease in gross revenue compared to the same quarter last year
  • be paying employees (this does not apply to self-employed or PPP recipients)

If you meet these criteria, you are qualified for a tax credit of 50% of wages paid up to $10,000 in wages per employee (or $5,000 tax credit per employee).

This tax credit is claimed on the Form 941 (payroll tax return), starting in Quarter 2 (filed in July). The Form 941 is changing (getting longer & more complicated) to accommodate this credit (and others).  A draft is currently available, but the final form has not yet been released.

As we provide payroll services for many of our clients, we will be investing our team’s time into continuing education to learn the ins & outs of this new, more complex version of the Form 941. We will be screening our payroll clients for applying this credit so we are ready for quarterly filings in July.