PPP Information for Valued 365BOOKSPRO Clients
If you are a PPP loan recipient, we have collected the information below to keep you informed on changes and support business owners navigating these changes. Please schedule time with your 365BOOKSPRO professional if you need assistance or have questions.
PPP Loan Recipient Expenses May Become Tax-Deductible
The Small Business Expense Protection Act of 2020 introduced by the senate, if passed to become law, would effectively void the IRS notice stating that no tax deduction is allowed for an expense that results in PPP loan forgiveness. COVID-19 assistance through the PPP would not affect the tax-deductibility of regular business expenses. The hope is this will encourage small businesses to continue using PPP funds to retain employees and keep their businesses afloat.
The IRS has COVID-19 related FAQs regarding Tax Credits for Paid Leave, Employee Retention Credit, Deferral of employment tax deposits and payments through December 31, 2020, and general information.
Employers That Document Attempt to Re-hire Employees to Retain PPP Loan Forgiveness
According to Question 40 of the CARES Act and PPP FAQ issued by the SBA and US Treasury, a PPP loan recipient forgiveness amount will not be reduced should the company make a good faith attempt, in writing, to re-hire a laid-off employee (for the same salary/wages and the same number of hours) and the former employee declines the job offer. The employee’s rejection must be documented. Be aware that in many states, an employee’s rejection of being re-hired could result in a loss of their unemployment compensation.
Deadline for PPP Borrowers to Return Loan Proceeds is May 14, 2020
According to Question 43 of the CARES Act and PPP FAQ issued by the SBA and US Treasury, the deadline for a PPP loan recipient to return loan proceeds, the “safe harbor” period, is extended. Borrowers need not apply for this extension to have their certification made in good faith. In the coming days, SBA plans to revise their interim final rule regarding this safe harbor deadline and will issue additional guidance on how it will review the certification on the Borrower Application Form.
IRS Form 7200, Advance Payment of Employer Credits Due to COVID-19
IRS Form 7200 is used to request advance payments from the IRS of tax credit amounts. This advance payment would generally be applicable to employers with significant reductions in employees in active work status, but that may be paying FFCRA wages to employees that are sick or caring for others due to COVID-19. If an employer estimates that tax credits arising from the Employee Retention Credit and/or FFCRA paid sick or family leave wages will be significantly higher than their expected total federal employment tax liability for the quarter, a request for advance payment via Form 7200 may result in faster receipt of funds.
Any form 7200 requests must be carefully coordinated with 365BOOKSPRO to prevent tax credits from being both applied to current tax liabilities and paid directly to the employer by the IRS. This may result in significant tax underpayments and IRS penalties and interest. Contact your 365BOOKSPRO professional if you’d like help.
IRS Form 941 Revised to Account for FFRCA and CARES Act Tax Credits
Employers use IRS Form 941 to report income, social security, and Medicare taxes withheld by most Eligible Employers from employee wages, as well as the Eligible Employer’s own share of social security and Medicare taxes.
Changes have been proposed to IRS Form 941 with draft instructions released on May 1, 2020. The changes account for and reconcile FFRCA and CARES Act Tax Credits and advance payments of such credits using Form 7200. The new Form 941 will be effective beginning with the Form 941 due for the quarter ended June 30, 2020, although it will feature new reporting elements for CARES Act Employee Retention Credit wages paid as early as March 13. In contrast, the credit for FFCRA-qualified paid sick leave wages and qualified paid family leave wages can only be taken beginning April 1 through December 31, 2020.
Originally, three payroll tax credits were enacted as part of the Families First Coronavirus Response Act (FFCRA) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act also permits all employers to defer employer Social Security taxes beginning March 27, 2020 through December 31, 2020. Such taxes are due in two equal installments, in December 2021 and 2022.
There are at least fifteen new lines and reporting elements added to the Form 941 which previously featured a total of 20 elements. Once the changes are implemented, Form 941 will expand from two pages to three and include:
- Qualified sick leave wages
- Qualified family leave wages
- Nonrefundable portion of credit for qualified sick and family leave wages from Worksheet 1
- Nonrefundable portion of employee retention credit from Worksheet 1
- Deferred amount of the employer share of Social Security tax
- Refundable portion of credit for qualified sick and family leave wages from Worksheet 1
- Refundable portion of employee retention credit from Worksheet 1
- Total advances received from filing Form(s) 7200 for the quarter
- Qualified health plan expenses allocable to qualified sick leave
- Qualified health plan expenses allocable to qualified family leave wages
- Qualified wages for the employee retention credit
- Qualified health plan expenses allocable to wages reported on Line 21
- Credit from Form 5884-C, Line 11, for this quarter
- Qualified wages paid March 13 through March 31, 2020, for the employee retention credit (second quarter 2020 only)
- Qualified health plan expenses allocable to wages reported on line 24 (second quarter 2020 only)
Schedule R (Form 941) Revised from 8 to 24 Columns
Schedule R, Allocation Schedule for Aggregate Form 941 Filers, is used by aggregate filers such as Professional Employer Organizations and others to separately report the employment taxes of each client. It will be substantially revised to accommodate all new reporting lines. While it originally had eight columns, the new form will have 24 columns.
Two Noteworthy Draft Form 941 Instruction Details on Social Security
Employer Social Security Tax Deferral instructions for Line 13b. Deferred Amount of the Employer Share of Social Security Tax, note that “… you can’t defer tax that you already paid” and “The deferred amount of the employer share of Social Security tax is a deferral of deposits and payments, not a deferral of liability. You won’t receive a refund or credit of any amount of the employer share of Social Security tax already deposited for the quarter.” Instructions for this line also remind employers that once they receive a determination of forgiveness of a Paycheck Protection Loan, the employer may no longer defer employer Social Security taxes due after that date. Amounts deferred up to that date remain deferred until December 2021 and December 2022, in equal shares. The instructions advise how to make payments of deferred amounts via EFTPS when such amounts are invoiced by the IRS. For more information, go to IRS.gov/ETD.
FFCRA Tax Credit for Employees That Have Met the Social Security Taxable Wage Limit. The instructions contain a new worksheet through which certain FFCRA and CARES Act provisions are addressed. For example, FFCRA Qualified sick and family leave wages are generally reported on Form 941, Part 1, Line 5a(i) and Line 5a(ii), respectively, Column 1, which implies that FFCRA Qualified sick and family leave wages paid to individuals that have already met the Social Security taxable wage limit for 2020 ($137,700) would result in no FFCRA credit. The worksheet provides Lines 2a(i) and 2e(i) to calculate the credit for such wages not included on Form 941, Part 1, Line 5a(i) or Line 5a(ii), Column 1, because the wages reported on that line were limited by the Social Security wage base.
365BOOKSPRO Supports Businesses in DC, Maryland, Virginia, & Across the United States
We are committed to assisting business owners with navigating the rapidly changing environment that COVID-19 has brought about. We hope the information we provide you helps minimize your administrative burden across the entire spectrum of employment-related payroll, tax, human resources, and benefits so that you can focus on running your business. Below are a few resources we monitor and welcome you to do the same:
- ADP Eye on Washington provides updates on how federal and state tax law changes may impact your business. ADP maintains a staff of dedicated professionals who carefully monitor federal and state legislative and regulatory measures affecting employment-related human resource, payroll, tax, and benefits administration, and help ensure that ADP systems are updated as relevant laws evolve.
- IRS Coronavirus Tax Relief for businesses and tax-exempt entities as well as the IRS Newsroom.
For more information and resources, visit the 365BOOKSPRO blog post COVID-19 Financial Guidance: Resources for Employers & Business Owners.
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