Axtell Haller & Slachta COVID-19 Update: March 8, 2021
- SBA PPP Loan Rules Change “Again”
- What the $1.9 Trillion “American Rescue Plan Act” Means to You
- Will the April 15th Tax Deadline be Extended?
To our clients and friends,
In the last week we have saw significant changes to the SBA PPP Loan program that were announced on March 4th, and on March 6th the Senate passed the “American Rescue Plan Act” that will probably be signed by the President this coming week. Both changes will impact many of our business clients and most of our individual clients. In addition, there is a strong possibility that tax returns due on April 15th may be extended to either June 15th or July 15th.
SBA PPP Loan Program Qualification Changes:
The first was an announcement on March 4th by the SBA that significantly changes the qualification rules for individuals that report their business income and expenses on a Schedule C within the individual tax return.
When the SBA PPP Loans were first made available last April many of our small business clients were eligible for a small loan or in some cases, not eligible for a loan because they were reporting a small loss. In the last month, at the direction of the Biden administration, the SBA reviewed those rules from the perspective of fairness and has announced some major changes in the computation of loan eligibility.
To illustrate this change, the following is how a business owner reporting their income on a Schedule C without employees would compute how much SBA PPP Loan they were eligible for:
- Old Rules based on net profitability:
- Take the bottom line and divide by 12
- Multiply the result by 2.5 times
- Not to exceed $20,833
- New Rules are based on Gross Receipts:
- Take the gross revenue and divide by 12
- Multiply the result by 2.5 times
- Not to exceed $20,833
The following is our guess on the questions you might be asking and as a qualifier, our responses are based on information that is not as complete as we might like it to be. Keep in mind, the changes discussed only impact those clients that have a Schedule C business schedule within their individual returns. The changes do not apply to those businesses filing as a separate entity.
|1||I missed the deadline for the first round of SBA PPP Loans. Can I apply now?||You can but the deadline is March 31st|
|2||Can I use the 2020 gross receipts that will be reported on my 2020 individual tax return?||You can use the gross receipts from either your 2019 or 2020 return.|
|3||Will this loan be forgiven?||The loan forgiveness application is straight-forward, and forgiveness can be applied for at the end of an 8-week or 24-week period.|
|4||What is the maximum loan if I do not have any employees?||The amount is $20,833|
|5||This seems too good to be true. What am I missing?||The revised rules do come with some limitations. If your gross receipts are more than $150,000 you do have to determine if you meet the “economic necessity safe harbor” rules.|
|6||Is the March 31st deadline a “firm” deadline?||With the lateness of this announcement, we expect this date to be extended but there are no guarantees.|
|7||What do I do next?||The loan is provided through a bank, so the first step is to determine if your banker is still doing the SBA PPP Loans. The application itself can be found on the SBA web site.|
|8||If I applied for the SBA PPP Loan last year and used the net profit from the Schedule C, can I now go back and amend that form and use the gross receipts to increase the original loan?||Based on the information we have; we do not think an amended loan application can be submitted. However, this creates an “unfairness” in the system, and we may see this rule change.|
|9||Can Axtell Haller & Slachta help us?||We can but are challenged with the combination of the tax season, the ever-changing SBA rules, and now, the passage of another major stimulus bill. We will try as hard as we can to help you.|
Other Important SBA Updates:
Last December we saw the passage of the second part of stimulus legislation that includes two very important provisions that we would like to remind you about.
- Businesses that missed applying for the first round of SBA PPP Loans can now apply using 2019 or 2020 information. The deadline is March 31st.
- Businesses that saw a decline of revenue of more than 25% in 2020 or in any quarter compared to 2019 are now eligible to apply for the second round of SBA PPP Loans. The deadline is March 31st.
We are hoping that the SBA announces shortly that the March 31st deadline will be extended.
The SBA and banking industry are struggling with the loan forgiveness documentation process, but we expect those differences to be resolved. Clients that received the first round of SBA PPP Loans and have not received their loan forgiveness should apply as soon as practical. It is very important that you take the time to document the files.
American Rescue Plan Act of 2021 ($1.9 trillion U.S. COVID-19 relief package):
On Saturday March 6th, the Senate voted to approve the relief package and because the Senate made changes, it must go back to the House for another vote. Assuming no changes by the House, the bill should be back to the President and to be signed into law before March 14th.
To give you an idea as to the magnitude of this stimulus bill the following is a summary from an AICPA webinar I sat in on last week:
- $50 billion for Small Business
- $250 billion for Local Government Aid
- $160 billion for Direct COVID Pandemic Response
- $250 billion for Unemployment Insurance
- $465 billion for Direct Payments (the stimulus checks)
- $120 billion for Child Tax Credits
- $605 billion for “Other Spending”
Based on the information we have available here are the major highlights that may or may not impact you:
The third round of stimulus checks is $1,400 per eligible person. Information for qualification and limitations include:
- Will not be eligible if your Adjusted Gross Income (AGI) exceeds or the following situations:
- Married filing jointly with a combined Adjusted Gross Income (AGI) exceeding $160,000 with the phase-out starting at $150,0000
- Single filers the AGI phase-out starts at $75,000 with a complete phase-out at $80,000
- Heads of household filers the AGI starts at $112,500 with a complete phase-out at $120,000
- Each dependent will receive $1,400. For example, a family of 5 would receive $7,000 assuming the AGI on the joint return is less than $150,000. College students would qualify if they were dependents, but the check goes to the parent.
- The amount of check will be determined based on the 2019 or 2020 individual tax returns.
- Any qualified payments not received will be reflected as an additional credit within the 2021 tax return.
- If a check is received and your AGI exceeds the qualifying limits you do not have to send the check back!
Other provisions (or exclusions) in the stimulus package includes:
- Provides $300 a week in federal unemployment benefits through Sept. 6 and makes the first $10,200 in federal unemployment benefits tax-free for households making less than $150,000 per year. We believe this exclusion only applies to the 2020 returns but needs to be confirmed.
- Does not raise the federal minimum wage, which the House bill would have increased to $15 per hour.
- Will not include funding for a bridge to Canada in upstate New York over the St. Lawrence seaway, or the extension of a railway system near San Francisco. Funding for both projects was included in the House bill.
- Significantly expands the child and dependent care tax credit for 2021. $4,000 for one qualifying child and $8,000 for two or more. The credit is also refundable in 2021.
- If the employer agrees, the dependent credit flexible spending accounts can be increased from the present $5,000 limit to $10,500 for 2021.
- The child tax credit would increase to as much as $3,000 per child and to $3,600 for children under the ages of 6. It also raises the age limit for qualifying children from 16 to 17. Subject to AGI limitations. This is effective for 2021 and not 2020.
- From 2021 to 2025 the debt forgiveness income from student loan debt will be tax-free.
- New revenue will come from:
- Extends the “excess loss provision” for one additional year. This rule limits how much a taxpayer can claim as a loss from a business entity. The rule was suspended for tax years 2019-2020 under the CARES Act.
- Expands the list of employees where the deductibility for their compensation is limited to $1,000,000
- Expansion of the employee retention credits for those businesses hit hardest by the pandemic.
- Additional funds set aside for grants for eligible restaurants
This is just a portion of what is included in the bill and as we start to read the bill, we will keep you up to date on any changes that will be of interest.
Tax Season Update:
The IRS has a problem, and it is also ours and yours. To give you an example, the following is some of the challenges the agency is dealing with.
- In early February, the IRS sent out 260,000 notices to taxpayers who had not yet filed their returns. The returns had been filed but the IRS had not processed them. In addition, we have received hundreds of notices from the IRS that are a result of delayed processing of checks and returns.
- The IRS delayed the start of the 2020 filing season by almost three weeks. We were not able to submit a return until February 12th.
- It is taking the IRS 4-8 months to respond to any communication.
- There are millions of returns and communication from 2020 that are still not processed.
- Congress has put the job of managing and handling two (now three) stimulus payments on the backs of the IRS.
- Our women and men who work for the IRS are just like us and they are dealing with the same stresses and interruptions (including working remotely) that all of us had to manage. This become even more problematic when dealing with sensitive and private information.
We have not been proponents of moving the April 15th deadline back because of our experience last year. We, along with other accounting firms, ended up having a “tax season” that never ended that was in part due to moving the April 15th deadline back to July 15th. This created client service issues as everything got delayed and the final July 15th, September 15th, October 15th and, November 15th deadlines were even more compressed.
Our trade association, the American Institute of CPA’s (AICPA), sent a letter on March 4th to the IRS Commissioner of Revenue requesting the April 15th tax deadline be moved to June 15th. The reasons cited include a combination of IRS delays and backlog, the second round of SBA PPP Loans, Employee Retention Credit rule changes, and now the administrative challenge of managing the third round of stimulus payments. In addition, two of the members of the House Ways & Means Committee sent a letter in February also asking the IRS to move the deadline.
The IRS has remained neutral on the moving the April 15th due date, but they may not have a choice based on push-back they are getting from tax professionals and Congress.
In the meantime, we are encouraging our clients to drop their tax information off instead of scheduling an appointment. Until COVID-19 gets to the point where there is minimal spreading, we prefer to be cautious to protect you as well as the office.
If you have any questions, give us a call.