Many organizations, ourselves included, are looking around and cannot believe it is already mid-March! That means the March 31, 2021 deadline to apply for the Paycheck Protection Program second draw (PPP2) loan is fast approaching. It is expected some lenders will have earlier deadlines to allow time for processing. For those eligible, the time to apply is now. That said, there is also discussion of potentially extending the deadline.
The PPP2 (or PPP for first-time borrowers) is eligible for many types of organizations and the self-employed if there was a 25% or more decrease in revenues in one quarter in 2020 compared to the same quarter in 2019. This ‘loan’ is forgivable if spent on eligible expenses in the 24-week period after the loan disbursement. For more information, please see our previous article on the program.
The Consolidated Appropriations Act of 2021 (CAA) signed into law at the end of 2020 expanded the types of expenses that are eligible to be used for forgiveness. These expanded expenses include covered operations expenditures, covered property damage cost, covered supplier costs and covered worker protection expenditures. The same rule that payroll costs must make up at least 60 percent of forgivable expenses still applies.
Remember if you are considering getting the PPP2 for 2021, now is also the time to consider tracking non-payroll expenses if you’ll also be eligible for the Employee Retention Credit (ERC.) The change in law made by the CAA allows the taxpayer to count the 2020 or 2021 wages either toward PPP forgiveness or the ERC, but not both. Under the original law, employers that received loans under the PPP were not eligible for the ERC.
The CAA extended the ERC to the first two quarters of 2021. To be eligible for the credit in 2021, an organization must have been closed by a governmental order or experienced a reduction of over 20% in gross receipts in the first or second quarter in 2021, compared to the same calendar quarter in 2019. For 2021, businesses may also choose to use gross receipts in the immediately preceding quarter (i.e., Q1 2021 qualification can be determined by comparing Q4 2020 to Q4 2019.)
For the first two quarters in 2021, there is a 500-employee threshold (increased from 100 employees in 2020) that determines if the credit applies to all wages versus just a credit for amounts paid to employees for not providing services. Continuing, the 2021 maximum credit is $7,000 per employee per quarter, or 70% of qualified wages, whichever is less (expanded from $5,000 for the year 2020, or 50% of an employee’s qualified wages.) For a deep dive on the ERC, watch our webinar here.
For help on determining eligibility for the PPP2, ERC or other stimulus programs, please reach out to your PKF Mueller representative.
Contact us for more information:
Scott Anderson, CPA, CTA
Director, Consulting Services
Covid-19 Response Team Lead
+1 630 524 5259
Chris Gent, CPA, CISA
Covid-19 Response Team
+1 847 649 8839