by Justin Mentele
We kick off 2021 with a new stimulus package of benefits for American businesses. President Trump signed the latest stimulus bill Dec. 27. In its more than 5,500 pages, the bill offers tools to support your business, including changes to deductibility and employee tax credits.
Among the most notable pieces of the bill is the creation of a second round of Paycheck Protection Program (PPP) and Congress’s action to allow expenses used for PPP forgiveness to be tax deductible. (At press time, however, states may not have come out with their individual stances on deductibility of PPP forgiveness expenses. You may still have to pay state taxes.)
A business is eligible for the second round of PPP if they do not have more than 300 employees and can show a more than 25 percent reduction in gross receipts for any quarter in 2020. The loans are capped at $2 million.
The bill also added four groups of eligible expenses that are allowed in forgiveness, the most notable to manufacturers being worker-protection costs. These costs include operating or capital expenses made to adapt the business to COVID protocols and personal protection equipment (PPE) costs. In addition, PPP loans less than $150,000 will now be allowed to apply for forgiveness with a much more simplified application.
Another significant change for manufacturers is modifications made to the Employee Retention Tax Credit (ERTC). This is a credit reported on payroll tax form 941 or 943 for qualified wages paid by eligible businesses. For 2020, an eligible business is one that either had operations partially or fully suspended or saw revenues decrease by at least 50 percent for a quarter in 2020 compared to the same quarter in 2019.
The main modification made through this bill is that businesses can use PPP and ERTC together, but they cannot use the same payroll for both programs. This is significant because businesses will want to evaluate the benefit of applying for forgiveness for PPP loans with payroll and foregoing the possible ERTC, or if they should apply for forgiveness utilizing other eligible expenses and utilize the ERTC credits.
ERTC is also extended through July 1. Other applicable changes to the program in 2021 are:
- The eligible business determination is expanded by the decreased receipts requirement (reduced from a 50 percent threshold to 20 percent). Also, with comparing the decrease in revenues, the bill provides a safe harbor allowing employers to use prior quarter gross receipts in addition to the same quarter in the prior year.
- The relevant qualified wage base determination increases from 100 employees to 500 or fewer employees.
- The credit rate increases from 50 percent to 70 percent of qualifying wages.
- The maximum qualifying wage eligible for the credit increases from $10,000 per employee to $10,000 per employee, per quarter.
Finally, within this bill, there are a number of tax credits that were extended. Knowing these will allow you to make decisions for your company in the most tax-efficient way.
The following credits were extended through Dec. 31, 2025:
• Work Opportunity Tax Credit
• Empowerment Zone Tax Credit
• New Markets Tax Credit
In addition, this package also extends the carbon oxide sequestration credit, a credit for electricity produced from renewable sources, mortgage interest premiums deductible as qualified resident interest, and the second generation biofuels producer credit. Notably, the employer credit for paid family and medical leave is extended an additional year.
The new stimulus package is a boost to businesses across the U.S., but it is complex to understand how to maximize those benefits. Please work with a qualified advisor to fully maximize the stimulus support for your specific business needs.
Mentele is principal and CPA for member company KCoe Isom. Members of this Association are entitled to no-cost, confidential, 60-minute consultations with KCoe to discuss the impact of the stimulus bill on their business. To schedule a consultation, contact Jason Southard at Jason.firstname.lastname@example.org.