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  • Consolidated Appropriations Act including Second Draw PPP & Employee Retention Credit Expansion

  • California's New CalSavers Program

  • Foreign Asset Reporting Requirements

  • Reporting Income and Deductions on Separate Returns

  • COVID-19 Tax Provision Update


  • Consolidated Appropriations Act including Second Draw PPP & Employee Retention Credit Expansion

    Former President Trump signed the Consolidated Appropriations Act on December 27, 2020.  The following is a brief summary of some of the key provisions:

    PPP Loan Program - extended until March 31, 2021 with changes as follows:

    • Clarifies the full deductibility of all expenses paid with the tax fee forgiven loans (California has yet to conform to this although a bill has been introduced that would do just that)
    • Provides for supplemental funding for certain original PPP loans where amounts allowed may have changed due to new rules
    • Provides for a new round of “second draw loans”:
      • Maximum $2 million loans for businesses with less than 300 employees and for which gross receipts dropped in any quarter of 2020 relative to the same quarter in 2019 (the SBA noted that gross receipts generally includes all revenues from sales, interest, dividends, rents royalties and fees in accordance with the entity’s accounting method)
      • Eligible Businesses - include self-employed individuals and independent contractors but excludes businesses not in operation as of 2/15/20 and certain other businesses
      • Loan Computation – the loans will be based on 2.5 times average monthly payroll costs for the one-year period prior to the loan or calendar year-2019; for self-employed individuals the loan will be based on 2.5 time the average Schedule C income for 2019 or the 12 months prior to the loan
      • Loan Forgiveness – the provisions for forgiveness are the same as for the round one loans including
        • the loan will be forgiven if the funds are spent on eligible expenses in a covered period consisting of 24 weeks from loan origination (Schedule C borrowers should once again utilize the same computation for forgiveness that they used for computing the loan resulting in automatic full forgiveness)
        • note that the list of eligible expenses has been expanded
        • the same limitations with respect to reductions in full time equivalent employees and wages for employees will apply

    Employee Retention Credit – this program has been extended to include eligible employer wages paid through July 1, 2021 and expanded to retroactively allow employers that received PPP loans to also apply for these credits as follows:

    • This program is still for employers that partially suspended their operations due to government orders or
    • Experienced a significant decline in gross receipts in 2020  or 2021 compared to the same quarter in 2019 – note that for wages paid from March 1, 2020 through December 31, 2020, such decline had to be at least 50% while for wages paid in 2021 through June 30, such decline need only be 20%
    • Credit Computation
      • For wages paid from March 1, 202  through December 31, 2020, the credit is 50% of qualified wages up to $10,000 annually – a maximum credit of $5,000 per employee
      • For wages paid from January 1, 2021  through June 30, 2021, the credit is 70% of qualified wages up to $10,000 per quarter – a maximum credit of $14,000 per employee
      • Wages paid with forgiven PPP loans may not taken into account in computing this credit
    • Credit Processing – these credit are reported on the employers quarterly payroll tax returns (note that your payroll provider should be able to assist you with obtaining these credits)
    • Retroactive Credits – a company previously ineligible for these credits on their second and third-quarter payroll returns in 2020 due to receipt of a PPP loan, are now eligible and may apply for the credits on their fourth-quarter payroll return for 2020 – generally due by January 31, 2021

    Second Round Economic Impact Payments

    • The bill provides for a new payment of $600 per taxpayer ($1,200 for those filing married joint) and $600 per dependents under 17 at the end of 2020
    • Payments begin to phase out for taxpayers with adjusted gross income in 2020 as follows
      • Single - $75,000
      • Head of Household - $112,500
      • Married Filing Joint - $150,000
    • Certain taxpayers will receive an advance payment either via an electronic funds deposit or a check and as with the first payment should receive another Notice 1444 from the Internal Revenue Service documenting their receipt and the method of payment
    • As with the first payment, eligible taxpayers that did not receive an advance may claim it as a credit on their 2020 individual income tax return

    Unemployment Benefits – extended through March 14, 2021

    • Covid related benefits were extended for an additional 11 weeks for a total of 50 weeks
    • The additional $600 per week benefit has been reduced to $300 beginning after December 26, 2020

    If you have any questions, please give us a call.


    Ron Thompson | 01/25/2021



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