The expanded tax benefits of the Paycheck Protection Program’s new funding round are designed to expand support for small businesses still stuck in widespread closures caused by the pandemic.
The biggest change from the original version of the Pandemic Assistance Program is the ability to receive a PPP loan and claim the Employee Retention Tax Credit, a benefit of the CARES Act (Public Law 116 -136) intended to encourage companies to keep their employees on their payroll. In the first iteration, companies could only choose one or the other.
This flexibility, along with a forced reversal for the IRS to allow deductions on the loan, means that the help available to businesses is now more generous than it was at any time during the Covid pandemic. -19. The latest aid law, which revived the PPP on Jan.11, required the IRS to declare that business expenses such as utilities and rent paid with PPP loans could be deductible, a change from its initial position.
“It’s not very often that you have your cake and eat it too,” said Nicholas Gutzmer, supervisor at Smolin Lupine & Co. “It’s kinda… you get three for the price. of one. “
Fiscal advantages
The new law extended the period during which businesses can apply for the credit until July 1, 2021 and increased the credit rate to 70% of eligible wages, from 50% previously.
In addition to opening the door for PPP borrowers, the law also extends eligibility by lowering the loss threshold to 20% of gross revenue year-over-year, from 50%. It also increases the salary limit per employee to $ 10,000 each quarter, from $ 10,000 per year, and is available for companies with 500 or fewer employees.
Holly Wade, executive director of the research center of the National Federation of Independent Businesses, said that due to the expansion, expansion and removal of the PPP exclusion, more companies are likely to ‘benefit.
In 2020, she said, credit was overshadowed by the popularity and enthusiasm around PPP. This time around, the challenge will be to let small business owners know that the benefit is available to them.
“When we survey our members, very few knew about ERTC, very few applied or used the credit because of its complication,” Wade said. “But now that it’s disconnected from PPP and more generous, it’s a big financial benefit for small business owners who are still negatively impacted.”
The tax advantages of the ERTC and the deductibility of business expenses also have an unexpected benefit: helping to simplify tax filing, said Paul Merski, executive vice president of congressional relations at Independent Community Bankers of America. . The documentation for applying for a loan and receiving the ERTC will make tax filing and the process easier for small businesses, he said.
“The tax changes are beneficial and have kind of liberalized the PPP rules and the tax rules to make it more attractive to obtain or apply for a PPP loan,” he said. The changes “will reduce the tax burden on millions of small businesses that have P3 loans.”
Mitchell Fagen, transactional tax planning partner at Katten Muchin Rosenman LLP, said the government has done a lot to extend lifelines to businesses through various means. It is ultimately up to companies to take advantage of it.
“The government is spending a lot of money to help businesses survive this time around and help the economy recover,” he said. Businesses “should all do their best to make the most of it to the best of their ability, whenever possible.”
