27 Jul

Converting Small PPP Loans To Grants – A Worthwhile Policy Proposal

Congress is eyeing further legislative modifications to the Paycheck Protection Program, one of the pillar programs of the $2.2 trillion CARES Act enacted in response to the Coronavirus pandemic. One of the policy proposals making its way through the chambers of Congress include automatically forgiving PPP loans that are less than $150,000.

The idea of automatic forgiveness for relatively small PPP loans can be attributed to the Consumer Bankers Association and the Bank Policy Institute, two prominent lobbying groups that represent large financial institutions.

Current Loan Forgiveness Requirements are Administrative Hassle

It is possible for a small business owner to have some, or all, of their PPP loan to be forgiven. Though, there is specific criterion that must be met which entails a fairly significant investment in administrative management (some would described it as a burden) for both small business owners and banks. To make matters worse, the rules governing PPP loan forgiveness have been modified several times since the PPP program was enacted  creating a tremendous amount of uncertainty and administrative confusion.

Here are current PPP loan forgiveness applications:

Why Automatic Forgiveness Makes Sense

Relatively small PPP loans are generally the least profitable for financial institutions, especially in the wake of statutory reforms enacted by Congress through the Paycheck Protection Program Flexibility Act (PPPFA) to make it easier for borrowers to ultimately qualify for loan forgiveness.

The Consumer Bankers Association and the Bank Policy Institute argued that the time and resources of small business owners “would be better focused” on more important objectives that attempting to comply with the administrative requirements set forth by Congress for PPP loan forgiveness. The lobbying groups argued that processing paperwork should not take priority over getting the economy safely back up and running, according to Forbes.com.

Banks would benefit from a universal forgiveness threshold since it relieves them from the administrative difficulties of processing and reviewing each and every PPP loan, no matter the size, to ensure full compliance with requirements of the program. For example, banks are ultimately responsible for assessing and recommending forgiveness, or non-forgiveness, of a PPP loan, according to American Banker. A recent study published by AQN, a consulting firm, determined that the cost of fully processing small PPP loans of less than $50,000 would be close to half a billion dollars. To put it another way, having a universal loan forgiveness threshold would actually wind up saving banks millions of dollars in overhead and administrative expenses.

Automatic Forgiveness for Certain PPP Loans Supported by Treasury Secretary

Treasury Secretary Steve Mnuchin backed the idea of universal loan forgiveness threshold when he testified before Congress. Specifically, Secretary Mnuchin stated that, “one of the things we will talk about is should we just have some forgiveness for the small loans? I think that is something we should consider.” Though, Secretary Mnuchin also cautioned that any forgiveness provision needs to include a fraud protection component.

Have Questions About the PPP Program? Contact InSight Law

If you have questions or need assistance with managing your PPP loan, we are here to help. Our team has been staying on top of the ever-changing regulatory requirements surrounding the PPP program and understand how confusing it can be to try and navigate the PPP loan application and forgiveness process. Contact InSight Law today.

10 Jul

Overview of Payroll Tax Relief Enacted to Help Businesses Struggling in the Midst of the Coronavirus Pandemic

Congress recently passed legislation aimed at encouraging business owners to continue paying the wages and benefits of employees by providing payroll-related tax credits, loans, and other forms of necessary relief. If you own a business, the InSight Law team wants to ensure you are fully aware of the various programs and tax incentives available to help you during this difficult and unprecedented time.

Payroll Tax Relief for Businesses with Less than 500 Employees

There are now tax credits available to help business owners cover the expense of paid sick leave and paid family leave. There is also tax-free forgiveness for Paycheck Protection Program loans and other government-backed loans aimed at helping business owners cover payroll and operating expenses during the Coronavirus pandemic;

There is also a new payroll tax credit for qualifying wages paid during a time when the employer’s business was suspended or experienced a significant decline in revenue as a result of COVID-19. Fianlly, business owners now have the option to defer their portion of 2020 Social Security taxes that are not covered under the payroll tax credit.

Tax Credits for Paid Sick Leave and Family Leave

Employers with less than 500 employees are now legally obligated to provide paid leave related to COVID-19 for the remainder of 2020. However, to help offset the expense associated with paid sick leave, Congress allocated money for businesses to access refundable tax credits.

Sick Leave Credit

Employers may be eligible for a refundable tax credit to help offset wages paid to employees who take emergency sick leave related to the COVID-19 between April 1, 2020 and December 31, 2020. The Sick Leave Credit is designed to entirely offset the cost of sick leave benefits mandated by Congress. The new tax credit provides for maximum payments of $2,000 or $5,110 per employee, depending on the type of sick leave.

Family Leave Credit

In addition to sick leave, employers with less than 500 employees are required to provide paid expanded family and medical leave. However, those employers are also able to take advantage of a refundable tax credit referred to as the “Family Leave Credit.” This credit is available when an employee uses expanded family leave related to COVID-19 between April 1, 2020 and December 31, 2020. The Family Leave Credit will help offset the cost of family leave benefits mandated by Congress. The credit can be up to $12,000 if an employee takes leave for 12 weeks.

Forgivable Loans Available Through the Paycheck Protection Program Flexibility Act

The Paycheck Protection Program Flexibility Act (PPPFA) was recently passed in order to address some of the glaring flaws and problems identified with the original Paycheck Protection Program (one of the pillars of the $2.2 trillion CARES Act). The PPPFA eased the burdens placed on business owners who obtained a PPP loan. Businesses now only have to spend 60 percent of loan funds on maintaining payroll (e.g., salary, health insurance, leave, etc.). Before passage of the PPPFA, business owners had to allocate 75 percent of loan funds to those costs. In addition, businesses now have 24 weeks to spend PPP loan funds instead of just two months.

Loan Forgiveness

If you comply with the terms of the PPP loan, you may be able to apply for loan forgiveness of all or a portion of the loan principal, for the costs incurred or paid during the initial eight weeks of the loan to the extent such costs relate to payroll, mortgage interest, rent, or utilities. It is important to note that PPP loan forgiveness is in flux and the guidelines were recently updated by the SBA. To learn more about your eligibility for loan forgiveness, check out this page. 

If you are ineligible for forgiveness, a PPP loan will have a five-year repayment term and a 1 percent interest rate.

Employee Retention Tax Credit

Eligible employers are now allowed to take a quarterly employment tax credit. This is known as the “Payroll Tax Credit.” This means a business owner can obtain a credit for 50 percent of “qualified wages” paid to employees. Though, there is a cap of $10,000 per employee that was paid for the period March 12, 2020 through December 31, 2020. As a result, the maximum available credit to an employer is $5,000 per employee. The credit first offsets an eligible employer’s payroll taxes for the quarter and any remainder is refunded to the taxpayer.

Eligibility for the Tax Credit

An employer is eligible for the Payroll Tax Credit only if they have been carrying on a trade or business in 2020 and was subject to one of the following “Coronavirus conditions” during the calendar quarter:

  • the business was fully or partially suspended because of a governmental order related to the coronavirus; or
  • the business experienced a year-over-year decline of more than 50% of gross receipts for a calendar quarter.

For employers who take the credit because of a significant decline in gross receipts, the credit will continue to be available for all calendar quarters through December 31, 2020, up to and including the first quarter in which the company’s revenue increases to at least 80 percent of the gross receipts in the same calendar quarter of the prior year, according to a great article published by Morrison Foester.

Payroll Tax Deferral

There is a temporary moratorium on the payment of an employer’s share of Social Security taxes that would typically be required to be deposited on, or after, March 27, 2020 and before January 1, 2021. This is known as the “Payroll Tax Deferral.” However, it is important to note that deferred payments will need to eventually be paid and payments can be issued in two installments – 50 percent by December 31, 2021 and 50 percent by December 31, 2022. During the period of deferral, employers are not required to make normally required periodic tax deposits of the employer’s Social Security taxes.

Have Questions? Contact InSight Law Today

As you can see, there are an array of different programs, tax credits, and loans available to business owners, but eligibility depends on the type of relief. the size of your business, and other factors. If you have questions and need assistance in determining whether your business may be eligible for payroll tax relief, contact InSight Law today. We are here to help.

5 Jul

PPP Loan Program Deadline Extended to August 8th

The President signed a bill into law extending the deadline to apply for a loan through the Paycheck Protection Program (PPP) to August 8th. The original deadline to apply for a PPP loan was June 30th. However, it was discovered that roughly $130 billion still remained in the loan program (Congress originally allocated $660 billion to the program). Both chambers of Congress approved the PPP loan program extension unanimously and the President signed it into law.

The sponsors of the PPP declared they want to re-purpose the program to better serve the challenges businesses are facing now, according to NPR.org.

“As the scope of the financial damage done to small businesses by the pandemic and resulting lockdowns has grown, it has become clear that longer-term support is necessary,” said Florida Sen. Marco Rubio.

Background of the PPP Program

The PPP was a key component of the $2.2 trillion CARES Act. Congress originally allocated $350 billion to the program with the objective of providing forgivable loans to help small business owners cover payroll and overhead costs in the midst of the Coronavirus pandemic. The PPP program was extremely popular and was inundated by a wave of initial applications. Additionally, the roll out of the program was messy and chaotic. That combination led to the PPP program running out of money in just a matter of weeks, as highlighted in a great Forbes article. The led to Congress enacting a piece of reform legislation that added another $310 billion to the program and providing greater flexibility for loan forgiveness.

Important Info Going Forward

  • When Congress returns from recess after the July Fourth holiday, they need to figure out how to most effectively allocate the remaining $130 billion in the program and determine the next steps on how to help support struggling small businesses, especially in the wake of states being forced to issue new shutdown orders from a dramatic spike in COVID-19 cases.
  • Treasury Secretary Steven Mnuchin stated the next round of small business support will need to be “more targeted” to specific industries that are struggling the most, including hotels and restaurants.
  • There is a legislative proposal being debated in Congress that would allow businesses with fewer than 100 employees to take out a second PPP loan from the remaining funds.

20 Jun

Advice to Help You on Your Path to PPP Loan Forgiveness

With the passage of the Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”), small business owners will enjoy greater flexibility and a relatively easier path to toward forgiveness of their PPP loan. For example, one of the key provisions within the PPPFA is that a small business owner remains eligible for loan forgiveness even if they do not rehire all of their employees that were furloughed or laid off in the midst of the Coronavirus pandemic.

The Treasury Department and Small Business Administration (the agency tasked with managing the Paycheck Protection Program), released new loan forgiveness forms that dramatically reduced the documentation needed to apply for PPP loan forgiveness and will give many small business owners more options and opportunities to achieve full loan forgiveness, according to a great article published by the New York Times.  For example, the new forms include a “safe harbor” option that enables small business owners to simply affirm they were not able to operate “at the same level of business activity” they had prior to the Coronavirus pandemic due to the requirements or safety guidelines of the state and/or federal government, including social distancing rules. With this new “safe harbor” provision in place, a small business owner remain eligible for full PPP loan forgiveness as long as they meet the other rules and regulations related to the PPP program, including the new requirement that at least 60 percent of their PPP loan money is used for payroll costs.

Positive Feedback from Business Community

The inclusion of a safe harbor provision to the PPP loan forgiveness application was widely hailed as a position step in helping the small business community. For example, the New York Times article question Albert J. Campo, an accountant in New Jersey who has worked with multiple small business owners throughout the Coronavirus pandemic.

“If you’re at 50 percent capacity, you can’t bring back your whole staff and pay them all. You just can’t,” said Mr. Campo to the New York Times. “This gives those borrowers flexibility.”

“This is a step in the right direction,” said Aimee Brierly to the New York Times. Mrs. Brierly is a spokeswoman for the Small Business Majority, an advocacy group.

“EZ” Firm for Self-Employed Business Owners

If you received a PPP loan and are self-employed or a partnership, you may be eligible to apply for loan forgiveness through a new, consolidated “EZ” form that does not ask for details about employee information or documents to substantiate your forgiveness application. Nevertheless, lenders still have the right to review and verify some your financial and business records.)

Access PPP Loan Forgiveness Docs Here

If you received PPP loan funds and want to apply for loan forgiveness, here are the relevant application forms:

 

4 Jun

Overview of the Modifications Made to the Paycheck Protection Program

Congress took a big step in modifying the problematic Paycheck Protection Program (commonly referred to as the “PPP Program”). This program was created as part of the multi-trillion dollar aid package to help Americans and small businesses in the midst of the Coronavirus pandemic.  However, the lack of clear guidance on how to administer the PPP Program by the Treasury Department and Small Business Administration led to a chaotic roll out and a number of large businesses gobbling up funds meant for smaller businesses hit hardest by the economic shut down brought on by COVID-19. The chaotic roll out was followed by an array of defects, oversights, and administrative burdens that rankled the business community. One of the biggest concerns raised by many business owners related to the administrative complexity and burden associated with seeking PPP loan forgiveness.

The numerous issues with the PPP Program prompted Congress to pass a series of “fixes” aimed at providing greater flexibility for small businesses in how they use PPP loan funds. The bill passed the House of Representatives on a 417-1 vote and cleared the Senate by voice vote. The legislation now heads to the President’s desk for signature.

Overview of some of the biggest modifications to the PPP Program

Current PPP borrowers can opt to extend the 8-week period to 24 weeks.

New PPP borrowers will automatically enjoy a 24-week period to utilize the loan funds. However, the covered period cannot extend beyond December 31, 2020.

The payroll expenditure requirement drops from 75 percent to 60 percent. However, PPP borrowers need to be forewarned that they have to spend at least 60 percent on payroll or none of the loan will be eligible for forgiveness. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75 percent of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75 percent threshold isn’t met. Instead, there was a sliding scale on the amount that could be forgiven. The new legislation does not include a sliding scale, according to the Journal of Accountancy.

PPP borrowers are allowed to use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by December 31, 2020.

New PPP borrowers now have five years to pay back the loan instead of just two year.

Existing PPP borrowers have the option to request a repayment extension to the 5-year period.

The interest rate on a PPP loan remains at 1 percent.

As you can see, there is never a dull day when it comes to the PPP Program. Some members of Congress even stated that additional “fixes” will need to be made after this series of fixes are enacted into law. Stay tuned.

4 Jun

Overview of the Modifications Made to the Paycheck Protection Program

Congress took a big step in modifying the problematic Paycheck Protection Program (commonly referred to as the “PPP Program”). This program was created as part of the multi-trillion dollar aid package to help Americans and small businesses in the midst of the Coronavirus pandemic.  However, the lack of clear guidance on how to administer the PPP Program by the Treasury Department and Small Business Administration led to a chaotic roll out and a number of large businesses gobbling up funds meant for smaller businesses hit hardest by the economic shut down brought on by COVID-19. The chaotic roll out was followed by an array of defects, oversights, and administrative burdens that rankled the business community. One of the biggest concerns raised by many business owners related to the administrative complexity and burden associated with seeking PPP loan forgiveness.

The numerous issues with the PPP Program prompted Congress to pass a series of “fixes” aimed at providing greater flexibility for small businesses in how they use PPP loan funds. The bill passed the House of Representatives on a 417-1 vote and cleared the Senate by voice vote. The legislation now heads to the President’s desk for signature.

Overview of some of the biggest modifications to the PPP Program

Current PPP borrowers can opt to extend the 8-week period to 24 weeks.

New PPP borrowers will automatically enjoy a 24-week period to utilize the loan funds. However, the covered period cannot extend beyond December 31, 2020.

The payroll expenditure requirement drops from 75 percent to 60 percent. However, PPP borrowers need to be forewarned that they have to spend at least 60 percent on payroll or none of the loan will be eligible for forgiveness. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75 percent of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75 percent threshold isn’t met. Instead, there was a sliding scale on the amount that could be forgiven. The new legislation does not include a sliding scale, according to the Journal of Accountancy.

PPP borrowers are allowed to use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by December 31, 2020.

New PPP borrowers now have five years to pay back the loan instead of just two year.

Existing PPP borrowers have the option to request a repayment extension to the 5-year period.

The interest rate on a PPP loan remains at 1 percent.

As you can see, there is never a dull day when it comes to the PPP Program. Some members of Congress even stated that additional “fixes” will need to be made after this series of fixes are enacted into law. Stay tuned.