COVID-19 Benefits for Employers – Act Now Before Funds Run Out
Recent law changes have significantly expanded and increased benefits for employers. We’ve highlighted the new benefits and requirements below.
Expanded Paycheck Protection Program (“PPP”) and Employee Retention Credit (“ERC”) Benefits
Assuming an employer meets all rules and qualifies for PPP forgiveness and the ERC, they can now receive the following benefits for retaining employees:
| Annual Salary of Employee | 100,000 | 70,000 | 50,000 | 30,000 | |
| Original PPP Loan Forgiveness | 20,833 | 14,583 | 10,417 | 6,250 | |
| New PPP Second Draw Loan (25% rule) | 20,833 | 14,583 | 10,417 | 6,250 | |
| 2020 Employee Retention Credit | 5,000 | 5,000 | 5,000 | 5,000 | |
| 2021 Employee Retention Credit-1st Qtr. | 7,000 | 7,000 | 5,032 | 3,020 | |
| 2021 Employee Retention Credit-2nd Qtr. | 7,000 | 7,000 | 5,032 | 3,020 | |
| Total Benefit to Employ Worker | 60,667 | 48,166 | 35,898 | 23,539 | |
| Percentage of Annual Salary Received | 30.33% | 34.40% | 35.90% | 39.23% | |
Economic Injury Disaster Loan (“EIDL”) Grants
At the start of the pandemic, the SBA was giving $1,000 per employee EIDL grants (up to $10,000) to many of the same employers that subsequently received PPP loans. The SBA was later reducing PPP forgiveness to employers by the EIDL grants that they had previously received. PPP forgiveness can no longer be reduced by EIDL grants and the SBA will now go back and pay employers (up to $10,000) for any past reduction in PPP forgiveness due to EIDL grants.
Changes to Original PPP Loan
The original PPP loan program ended, but now has been extended to March 31, 2021. Employers who did not apply for it in the past now have a second chance to apply. PPP borrowers who returned all or part of their loan to qualify for employee retention credits will now be allowed to reapply for the PPP loan. Some PPP borrowers who took PPP loans for less than the full amount they qualified for may now request a supplemental PPP loan, if they have not received forgiveness yet.
Changes to 2020 Employee Retention Credit
Originally, PPP loan recipients were ineligible to claim the Employee Retention Credit. PPP loan recipients are now eligible for the ERC and can go back and retroactively claim the Employee Retention Credit using wages that were not specifically used for PPP loan forgiveness.
New PPP Second Draw Loans
There is a new “PPP second draw” loan with a maximum amount of $2 million per eligible entity. To receive a second draw PPP loan, eligible entities must employ no more than 300 employees and have had a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. If you are interested, you should apply right away. The sooner you get in line the faster they will process your application. Also, funding is limited, and it is possible for the program to run out of money before the SBA approves your loan.
2021 Employee Retention Credit
The ERC was extended from December 31, 2020 to June 30, 2021 and now covers wages paid through the first two quarters of 2021. The credit also increased from 50% to 70% of “qualified wages” with a maximum of $7,000 per employee per quarter instead of being $5,000 per employee for the whole year as it was in 2020. Wages used for the ERC can’t be the same specific wages used for PPP forgiveness. Employers can now get advance payment of the ERC, up to $14,000 per employee. Lastly, the allowed company size increased from 100 employees to 500 employees and it became easier for companies to be considered impacted by COVID-19 and qualify for the ERC.
Other Beneficial Changes
- To help hotels and restaurants, their Second Draw PPP Loans can be for 3.5 months of 2019 average wages instead of 2.5 months like other businesses. This is 40% more.
- Annual wages of more than $100,000 are ignored when calculating PPP loans.
- Payroll costs that can cause up to 100% of loan forgiveness can now include salaries, wages, tips, state and local employer taxes, group healthcare benefits, retirement benefits, group life, group disability, group dental, and group vision insurance.
- Non-Payroll costs that can cause up to 40% of loan forgiveness can now include rent, utilities, mortgage interest, interest on other debt, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection.
- Costs used for PPP forgiveness can now be deducted for federal income tax purposes but still cannot be deducted on California returns.
- PPP Loan Forgiveness and EIDL grants are not taxable income.
- PPP Loan Forgiveness periods have more flexibility, they can be any 8- or 24-week period and extend past 12/31/2020.
- There is a special short loan forgiveness application for PPP loans of $150,000 or less.
- Only PPP borrowers of $2 million or more must fill out loan necessity questionnaires.
- Unforgiven PPP loan amounts can be repaid at 1% interest over 2 or 5 years.
- 2021 and 2022 business meals are 100% deductible if purchased from a restaurant.
Not all rules and requirements are mentioned in this article. We’d be happy to consult with you on what applies to your company, or contact your relationship partner at Fineman West info@fwllp.com or 213-688-9898.
