Employee Retention Credit

The recently signed stimulus package included considerable enhancements to the Employee Retention Credit (ERC). The new law, known as the Consolidated Appropriations Act (CAA) expands the ERC under the CARES Act that went into effect January 1, 2021, with the covered wage period extended until June 20, 2021. The new legislation is also retroactive to wages paid after March 12, 2020; so, employers who took Paycheck Protection Program (PPP) loans in 2020 are now eligible to take the ERC, provided these wages are not used for both the credit and PPP loan forgiveness.

 Tax Changes Under CAA 2021

The good news for employers who continued to pay their employees, despite being forced to close their business either fully or partially by a COVID-19 lockdown, is they are now eligible for an ERC refund.

Period of availability: For qualified wages paid after March 12, 2020, and before July 1, 2021, extending availability of the credit to the first two quarters of 2021. These periods may be outside the covered period for many PPP loan borrowers, and the employee retention tax credit is likely available.

Credit amount: The credit amount increased from 50% to 70% of qualified wages, for 2021, which is amended to include the cost to continue providing health benefits.

Maximum credit amount: The credit cap is increased to $7,000 for each of the first two quarters of 2021 ($10,000 in qualified wages X 70% tax credit rate), so that the maximum credit for 2021 will be $14,000. This aggregate $14,000 per employee maximum credit for the first two quarters of 2021 is available even if the employer received the $5,000 maximum credit for wages paid to such employee in 2020.

Credit eligibility requirements: The applicable number of employees increased from 100 to 500. This allows employers who had 500 or fewer full-time in 2019 to be eligible for the credit, even if employees are working, provided they meet other requirements. Note that in calculating this 500-employee threshold, the employees of all affiliated companies sharing more the 50% common ownership are aggregated.

Effective January 1, 2021, business operations that are either fully or partially suspended by a COVID-19 lockdown order, or for a quarter in 2021, if gross receipts are less than 80% of gross receipts for the same quarter in 2019. This differs from the original law in 2020 that stipulated gross receipts of less than 50% qualified.

Because the ERC credit can apply to wages already paid after March 12, 2020, many struggling employers can access this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19 (per IRS website).

Advance payment clause: Advance payment of the credit is allowed for businesses with 500 or fewer employees, based on 70% of average quarterly payroll for the same quarter in 2019. Companies may be allowed to collect the payment prior to the payment of wages. However, if the advance payment is larger than the actual credit calculated, the company will need to repay the excess.

Please contact the Spiegel team for advice and any updates on this new legislation.

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Economic Recovery and Stimulus

President Donald Trump signed into law the Consolidated Appropriations Act, 2021 (“the Act”). The Act is made up of the Additional Coronavirus Response and Relief Act (ACRRA) and the Taxpayer Certainty and Disaster Relief Act of 2020. The approximately $900 billion of pandemic stimulus provides emergency relief for both individuals and businesses, and consists of a multitude of items, including PPP loans, EIDL grants, employee retention credits, economic impact payments, unemployment benefits, the addition of new tax provisions, and the extension of expiring provisions.

The Act’s most notable item is the reopened Paycheck Protection Program (PPP), providing a second round of additional funding for struggling businesses through March 31, 2021. The Act creates “second draw” loans for the smaller, harder-hit businesses, and simplifies the loan forgiveness application process. Perhaps the largest win for businesses was resolving the conflict between Congress and the IRS on the deductibility of expenses funding forgiven PPP loans. While Congress had intended for the PPP loans not to be taxable, the IRS had issued revenue rulings maintaining the position that expenses related to forgiven PPP loans would not be deductible. The Act clarified Congress’ position overriding the IRS, allowing the expenses to be tax-deductible.

Additional Coronavirus Response and Relief Act

The ACRRA was designed to assist individuals and businesses during the pandemic and help the economy recover. While a full summary of the Act is not feasible in this briefing, a summary of key items includes:

  • Economic Impact Payments – a second round of one-time economic stimulus payments of up to $600 per taxpayer, or $1,200 for married filing jointly, plus $600 per dependent under age 17 at the end of 2020. The payments begin phasing out for taxpayers with AGI over $75,000 Single, $150,000 married filing jointly, or $112,000 head of household.
  • Unemployment benefits – extends federal pandemic unemployment compensation by $300 a week for individuals from December 26, 2020 to March 14, 2021.
  • Deductibility of PPP expenses – overrides the IRS position on taxability of PPP loans by clarifying that business expenses used in obtaining Paycheck Protection Program (PPP) loans are tax-deductible.
  • Small business loans – more than $284 billion for additional PPP loans for small businesses.
  • Eviction moratorium, rental assistance – extends the temporary eviction moratorium through January 31, 2021, and provides $25 billion in tax-free rental assistance.
  • Tax credits – tax credits for companies offering paid sick leave.
  • Child care assistance – $10 billion to state revenue funds to supplement child care assistance for low-income families.
  • Broadband – several billion dollars to fund increased broadband access to assist employees in working remotely.
  • Transportation – support for transportation services, including $2 billion for airports and $16 billion in payroll support for airline workers and contractors.
  • Vaccine distribution – over $8 billion for activities to plan, prepare for, promote, distribute, administer, monitor, and track coronavirus vaccines to ensure broad-based distribution, access, and vaccine coverage.
  • Vaccine development – over $22 billion shall remain to develop and purchase vaccines, therapeutics, diagnostics, and necessary medical supplies.
  • COVID testing – $22.4 billion for expenses related to testing, contact tracing, surveillance, containment, and mitigation to monitor and suppress COVID-19.
  • Clinical research – over $1 billion for research and clinical trials related to long-term studies of COVID-19.
  • Health care reimbursement – $3 billion to reimburse, through grants or other mechanisms, eligible health care providers for healthcare-related expenses or lost revenues attributable to the coronavirus.
  • Mental health services – over $4 billion for mental health services and substance abuse and mental health services and suicide prevention programs.

Taxpayer Certainty and Disaster Tax Relief ACT of 2020

Included in the Consolidated Appropriations Act, 2021 is the Taxpayer Certainty and Disaster Relief Act of 2020 (TCDTRA). Several new provisions were added in the TCDTRA, and certain Internal Revenue Code provisions were extended either through 2021, or 2025, while other provisions were made permanent. Key tax items of interest are summarized below:

Full Deduction for Business Meals

Businesses may now claim a 100% deduction instead of 50% for food or beverages provided by restaurants. The meals may be for dine-in, delivery or takeout, for purchases paid or incurred between January 1, 2021, through December 31, 2022.

Charitable Contributions

Individuals may claim a $300 above-the-line deduction ($600 married filing joint) for cash contributions made to qualified organizations for 2021. A 50% accuracy-related penalty will be imposed on an underpayment of tax arising from an overstatement of the deduction.

The AGI limitation on charitable contributions was increased to 100% and extended to include the 2021 tax year.

Contributions must be made in cash to qualified organizations. Contributions cannot be made in property or be paid to private foundations or donor-advised funds.

Retirement Plan Relief

Individuals may take penalty-free withdrawals up to $100,000 from qualified retirement accounts, reduced by other amounts treated as qualified disaster distributions for prior taxable years. The $100,000 limitation is applied separately for individuals affected by more than one disaster. The amount withdrawn is recognized in gross income ratably over a three-year period beginning with the year of withdrawal, unless the taxpayer elects to have it recognized in the year of the withdrawal. The distributions are not subject to withholding.

Individuals with plans accepting rollover contributions may repay the distributed amounts within a three-year period, beginning on the date on which the distribution was received. The distribution repayment will not be counted against the one rollover per year limitation.

Flexible Spending Account Carryovers

The “use it or lose it” nature of health and dependent care plans were temporarily modified. Individuals may carry over unused 2020 benefits remaining in health and dependent care FSA accounts to their 2021 accounts without disqualifying their cafeteria plan. Unused 2021 benefits may be carried over to 2022. Health care FSA will provide post-termination reimbursements for persons terminated in 2020 or 2021 throughout the end of the plan year, including the 12 month grace period.

The age limit on dependent care FSA accounts was increased from 13 to 14 years old during the plan year if there were unused amounts from the preceding year.

Participants in health care and dependent care flexible spending plans may prospectively modify their employee contribution amounts for the 2021 plan year. Employers may retroactively amend their cafeteria plans to the beginning of the previous calendar year.

Employee Retention Credit

The TCDTRA retroactively amended the CARES Act to allow previously ineligible PPP loan recipients the ability to claim the employee retention credit. The eligibility period was extended by six months to qualified wages paid before July 1, 2021. In addition, the allowable percentage increased from 50% to 70% of qualifying wages. The maximum allowable credit per employee was increased from $10,000 qualified wages annually to $10,000 per quarter.

Taxpayers may not receive a double tax benefit. Wages used to determine Work Opportunity Credits, Empowerment Zone Employment Credits, and Employer Credits for Paid Family and Medical Leave, and other credits, may not also be used to claim the employee retention credit.

Disaster-Related Employee Retention Credit

Eligible employers in qualified disaster zones whose businesses were inoperable during the disaster period ending on December 27, 2020, may claim a disaster-related employee retention credit. The credit amount is equal to 40% of the qualified wages paid to each employee, capped at $6,000 per year, per employee, such that the maximum credit amount is $2,400 per employee.

The disaster-related employee retention credit is separate from and not related to the employee retention credit in the previous section, but similarly may not receive a double tax benefit on wages used to determine other credits.

Other Provisions

Highlights of other new provisions included from the TCDTRA include:

  • Pension plans are permitted to make distributions to employees who reached age 59 1/2 and are still working.
  • Allows earned income credit and child tax credit to be based on 2019 earned income rather than 2020 earned income.
  • Taxpayers electing real property trades or businesses under the business interest limitation rules may depreciate the pre-2018 residential rental property over 30 years, regardless of when the property was placed in service.
  • Minimum 4% of low-income housing credit.

Provisions Made Permanent

The following key tax provisions were made permanent through the TCDTRA:

  • Reduces the medical expenses deduction from 10% to 7.5% of AGI.
  • Repeals the deduction of qualified tuition and related expenses, and transitions to an increased income limitation on lifetime learning credits.
  • Section 179D energy-efficient commercial building deduction, with modifications.
  • Excludes benefits provided to volunteer firefighters and emergency medical responders from income.

Provisions Extended Through 2025

The following key tax provisions were extended through the 2025 tax year by the TCDTRA:

  • New markets tax credit.
  • Work opportunity credit.
  • Empowerment zone tax incentives.
  • Employer credit for paid family and medical leave.
  • Exclusion from gross income of discharge of qualified principal residence indebtedness, with a modification reducing the maximum amount from $2 million to $750,000.
  • Exclusion for certain employer payments of student loans.

Provisions Extended Through 2021

The following key tax provisions were extended through the 2021 tax year by the TCDTRA:

  • Treatment of mortgage insurance premiums as qualified residence interest.
  • Credit for health insurance costs of eligible individuals.
  • Nonbusiness energy property.
  • Credit for new qualified fuel cell motor vehicles.
  • Credit for alternative fuel refueling property credit
  • Two-wheeled plug-in electric vehicle credit
  • Energy-efficient homes credit
  • Extension of excise tax credits relating to alternative fuels


Author, Beeta Lecha

Principal, Spiegel Accountancy Corp

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Guidance for PPP 2.0

The latest stimulus bill passed by Congress allocates $284 billion to small businesses through the Paycheck Protection Program (PPP). This new legislation is said to have tighter requirements with more relaxed tax regulations. PPP round two reopens the program for first-time borrowers provides better flexibility for spending PPP funds, and, under certain conditions, allows prior loan recipients to apply for a second loan.

Who Qualifies?

For borrowers to be eligible this round, their business must have operated before February of 2020 and must have fewer than 300 employees, which is down from the previous requirement of 500. Qualified borrowers will have loans capped at $2 million, which is down from the $10 million cap in the first round. The lending guidelines for requested funds still have the amount set at 2.5 times monthly payroll, with restaurants and hotels allowed to request 3.5 times their average monthly payroll. Designed to support employees and prevent layoffs, this new bill requires 60% of the loan be used for salaries.

The first round of PPP loans established the covered period for the borrower, depending on when they received their loans. PPP 2.0 allows borrowers to choose between an 8-week or 24-week covered period. This slight change offers borrowers more control over the handling of potential workforce reductions once the PPP funds are depleted.

Chance for Second Loan?

 A recent study by the National Federation of Independent Business (NFIB) reported one-in-four small business owners reported they will soon be closing their doors if current economic conditions do not improve. The NFIB also stated that the majority of PPP borrowers (91%) have spent all their loan funds. Fortunately, these business owners may apply for a second loan also known as a “second draw.” To qualify, these borrowers must have depleted their first round of PPP and show a 25% reduction in revenue in at least one quarter of 2020 compared to the same in 2019.

Eligibility for Non-profits

Stimulus round two made provisions for 501(c)(6) not-for-profit organizations eligibility for PPP loans. These previously forgotten non-profits are often professional organizations, such as chambers of commerce, boards of trade, small business associations, tourism and hospitality coalitions, and social welfare groups. Such organizations can apply for PPP provided they do not receive more than 15 percent of their revenue from lobbying activities and have fewer than 300 employees.

 Spending Allowances & Tax Breaks

 PPP 2.0 allows for funds to be spent on business expenditures other than wages and rent, unlike the first pass. Borrowers are permitted to pay for supplies, software, accounting expenses, and personal protection equipment. Also covered are costs related to property damage or vandalism, which occurred in 2020, due to looting or public disturbances that were not covered by insurance.

Similar to prior legislation, PPP funds will be tax-exempt. Furthermore, the new legislation also stipulates that expenses paid with proceeds of a PPP loan that is forgiven to be considered tax-deductible. This applies to both new and existing former PPP loans. This reverses IRS and Treasury guidance issued this past November that declared borrowers could not deduct PPP expenses if the loan had been forgiven.

 Loan Forgiveness

 Revisions to the new PPP legislation creates a more streamlined loan forgiveness process. Borrowers who receive no more than $150,000 are now offered a simple one-page application. Round one offered this process for loans up to $50k. The simplified form requires borrowers to provide a description of the number of employees the business was able to retain due to the PPP loan, along with an estimate of the total amount of PPP proceeds spent on payroll costs. Borrowers who choose to submit this simplified application should carefully check their calculations and responses due to penalties for producing false statements. It would be prudent to consult with an accounting advisor, especially considering such expenses are now tax-deductible under the new bill.

 How to Get a PPP Loan

 In an effort to address previous criticism of the PPP initiative, minority-owned or economically disadvantaged businesses will be offered the first crack at PPP loans on Monday, January 11, 2021. The SBA is seeking to ensure that small, vulnerable businesses can access this new round of money before larger businesses claim the funds as happened in the first PPP offering. So-called community financial institutions will have access to the $60 billion set aside for businesses that had been previously shut out, with an emphasis on those with 10 or fewer employees or those in low-income areas.

The second round of loan applications is scheduled to begin on January 13th with the deadline to apply on March 31st.  However, keep in mind, applications will no longer be received once the initial second round of funds is depleted.

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

2020 COVID-19 Tax Credits for the Workplace

Tax credits for paid sick and family leave

The Families First Coronavirus Response Act (FFCRA) provides two self-employed tax credits to help cover the cost of taking time off due to COVID-19. While most of the text in these laws apply to businesses with employees, it also applies to self-employed individuals.

The tax credit for paid sick leave applies to eligible self-employed taxpayers who are unable to work (including telework or working remotely) due to:

  • Being subject to a federal, state, or local quarantine or isolation order due to COVID-19.
  • Being advised by a health care provider to self-quarantine due to COVID-19. Experiencing COVID-19-related symptoms and seeking a medical diagnosis. If you meet all the requirements, you would be eligible for qualified sick leave for each day during the year that you were unable to work for the above reasons (up to 10 days). The tax credit is worth the lesser of $511 per day or 100% of your average daily self-employment income for the year per day.
  • The only days that may be considered in determining the qualified sick leave equivalent amount are days occurring during the period beginning on April 1, 2020 and ending on December 31, 2020.

Under the expanded Family and Medical Leave Act (FMLA) provision of the FFCRA, you would be eligible for qualified family leave for each day that you were unable to work because you were caring for someone else impacted by COVID-19 (up to 10 days), or your child’s school or childcare provider was closed or unavailable due to COVID-19 (up to 50 days). You can claim a tax credit for the lesser of $200 per day or 67% of your average daily self-employment income for the year per day.

 How do I calculate and claim these tax credits?

The “average daily self-employment income” is calculated as your net earnings from self-employment during the tax year, divided by 260. An individual can claim a credit for both qualified sick leave and qualified family leave, but not both for the same time periods. You can claim both the tax credit for paid sick leave and the tax credit for paid family leave on your 2020 Form 1040 tax return. However, you do not have to wait until the next tax-filing season to benefit from these credits

 Employee Retention Credit

 If you have employees, the Employee Retention Credit (ERC) can help you cover the cost of keeping idle workers on your payroll during the pandemic. The tax credit is worth half of what you spent on wages and employee health plan costs after March 12, 2020, and before January 1, 2021, up to $10,000 per worker.

To qualify, your business must have one of the following:

  • A full or partial suspension of its operations due to governmental orders limiting commerce, travel, or group meetings due to COVID-19.
  • A sufficient decline in gross receipts compared to 2019. The decline begins when there is a 50% drop in a calendar quarter compared to the same quarter in the prior year. The decline does not end until a calendar quarter reaches 80% of the same prior-year quarter. This means that if a quarter drops to less than 50% and the following quarter is at 70%, there is still a decline.

You can claim this credit by reducing your payroll tax deposits. If your employment tax deposits are not enough to cover the full credit, you can get an advance from the IRS by filing Form 7200.

If you received a Paycheck Protection Program loan, you cannot also claim the ERC. You can claim both the paid leave credits and the ERC but not on the same wages.

For more information, contact your tax advisor and/or visit the U.S. Department of Labor website: https://www.dol.gov/agencies/whd/pandemic/ffcra-employer-paid-leave

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Paycheck Protection Program Tax Treatment

More than 500 like-minded stakeholders are calling on Congress to overturn an Internal Revenue Service rule and allow Paycheck Protection Program (PPP) loan forgiveness to be fully tax-free.

In a December 3, 2020 letter to leaders of the House and Senate, the groups, led by the Associated General Contractors of America, urged lawmakers to enact legislation before the end of the year to correct the tax treatment of loan forgiveness under PPP.

IRS Notice 2020-32 states that “normally deductible business expenses will not be deductible if the business pays the expense with a Paycheck Protection Program loan that is subsequently forgiven,” which the coalition believes is a misinterpretation of the Coronavirus Aid, Relief and Economic Security Act. Section 1106(i) of the CARES Act states business expenses are “includible in gross income of the eligible recipient by reason of forgiveness” and “shall be excluded from gross income,” for purposes of the Internal Revenue Code of 1986. The coalition wants Congress to clarify this contradiction.

“At the onset of the COVID-19 pandemic, Congress responded with speed, cooperation, and an eye to preventing the worst potential economic outcomes. We ask that you bring that same spirit of urgency and cooperation before the end of this session to prevent an avoidable catastrophe for millions of small businesses that, without Congressional action, will face a surprising, and, in many cases, insurmountable tax bill next year,” the groups wrote. Spiegel Accountancy Corp Founding Principal, Jeff Spiegel, says, “Congress needs to act to get this resolved to allow expenses to be deducted.”

“The terms of the PPP are simple: if qualifying small businesses use a federally-guaranteed loan to pay their employees and cover certain non-payroll expenses, the loan will be forgiven,” the letter continued. “From April 3rd, when the program launched, through August 8th, when its authorization expired, the Small Business Administration guaranteed $525 billion in PPP loans to 5.2 million qualifying small businesses nationwide, preserving tens of millions of paychecks for their employees as the pandemic spread throughout the country.”

The coalition noted that if unchanged, the IRS ruling could increase small businesses’ taxes up to 37%.

“Since the IRS issued Notice 2020-32, Congress has signaled that it intends to reverse the ruling,” the letter said. “The Democratic and Republican Chairs of the House Ways and Means and Senate Finance Committees issued public statements saying that the IRS Notice, and, more recently, the IRS Revenue Ruling, is flawed and contrary to Congressional intent.”

The coalition added that the “most recent IRS revenue ruling” has created a renewed sense of urgency for Congress to address the issue before the end of the year.

“Allowing the IRS position to remain unchallenged will result in a significant tax increase on small business owners already suffering from the effects of COVID-19 shutdowns,” the groups wrote. “This tax will hit small business owners after their PPP loan has already been spent, and just as many states are re-imposing mandatory closures of thousands of businesses in the face of spiking numbers of COVID-19 cases. Many PPP loan recipients retained employees on their payrolls, even when there was little to no work to perform, in compliance with the intent of the program to keep people employed and off the unemployment rolls. The IRS changed the rules after businesses took out PPP loans, and business owners are now being asked to pay what amounts to a surtax on their workforce.

“Without Congressional action, businesses will face an unexpected tax bill when they file their taxes for 2020, as they continue to struggle with government-mandated shutdowns or slowdowns. Many of those businesses will close and never re-open. This senseless tax policy stands both the letter and spirit of the PPP on its head,” the letter concluded.


Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Time to Apply for PPP Loan Forgiveness?

The 24-week period for many of the original Paycheck Protection Program (PPP) loans ended during the month of November. Those who elected for an 8-week program, or have exhausted their funds, may have begun the process of applying for forgiveness even though there is plenty of time left. Fortunately, the application process for loan forgiveness has operated much more smoothly than the original loan application period.

PPP loans were created to incentivize small businesses to retain employees by helping cover payroll costs as many businesses were forced to shutter during the COVID-19 lockdown. These loans also covered mortgage interest payments or rent, along with utilities to help businesses stay afloat. Treasury Secretary Steve Mnuchin stated, “The PPP has provided 5.2 million loans worth $525 billion to American small businesses, providing critical economic relief and supporting more than 51 million jobs.

PPP Loan Forgiveness Application Deadlines

 While borrowers who received their loan prior to June 5, 2020 could have elected for an 8-week or 24-week covered period, loans funded on or after June 5th meant waiting until November (or later) to apply for forgiveness. Keep in mind that loan payments may be deferred for up to 10 months following the end of the established loan period. It is also important to note the covered period begins the day the loan was funded.

In October, the Small Business Administration (SBA) released a new loan forgiveness application, making it easier for those with PPP loans of $50,000 or less. Banks have begun the initial phase of accepting these PPP applications from borrowers even though the time to apply depends on the bank and when the PPP covered period ends. For example, Bank of America will not take submissions until the covered period ends, while other banks will accept applications after the PPP funds have been exhausted. Most banks encourage borrowers to prepare the application for loan forgiveness immediately following the end of the loan period and collect the necessary documentation in preparation. The SBA has provided a fillable questionnaire to assist the application process.

According to the SBA, there are an estimated 3.57 million outstanding PPP loans of $50,000 or less, totaling approximately $62 billion of the $525 billion in PPP loans. The SBA suggests borrowers contact their PPP lender to obtain the correct form. They will provide either the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent. The expiration date listed on the application forms has created some confusion. Essentially, it is a temporary date required by the SBA’s Paperwork Reduction Act, and each month a new expiration date is placed on the forms.

Borrowers may apply for forgiveness any time before the maturity date of the loan, which may be two to five years from loan origination. However, applying after the 10-month deferment means a borrower must begin making payments on the loan. While the SBA has 90 days to review and approve the applications, lenders have seen a much faster turnaround time.

PPP Loan Integrity

Businesses holding loans that exceed the $50,000 threshold require additional documentation to apply. Borrowers are encouraged to maintain close contact with their lenders as each may have developed its own evaluation and process procedures in addition to those required by the SBA. Businesses that received $2 million or more in PPP loans must complete one of two required loan necessity questionnaires, SBA Form 3509 and SBA Form 3510. The SBA recently offered additional guidance on these sizable loans. (See Rev. Rul. 2020-27 on PPP Loans and Taxes)

The U.S. Treasury maintains that all loans above the $2 million mark will be subjected to additional scrutiny under the current audit plan. Additionally, the Department of Justice established a fraud team as soon as PPP loan applications became available. Any amount of fraud has been strongly discouraged. It is important for borrowers to consult with their tax accountant, in addition to their lender, to ensure the application process completed accurately.

For more information on the Paycheck Protection Program, visit the SBA website.


Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

Rev. Rul. 2020-27 on PPP Loans and Taxes

On November 18, 2020, the U.S. Treasury Department and the Small Business Association (SBA) released Rev. Rul. 2020-27 that offers additional guidance on the tax treatment of expenses paid using Paycheck Protection Program (PPP) funds in the event the loan is not forgiven by the end of 2020. The IRS ruling concerning deductions for eligible PPP loan expenses is as follows:

(1) deny a deduction if the taxpayer has not yet applied for PPP loan forgiveness, but expects the loan to be forgiven; and

(2) provide a safe harbor for deducting expenses if PPP loan forgiveness is denied or the taxpayer does not apply for forgiveness.

The Treasury press release stated, “Since businesses are not taxed on the proceeds of a forgiven PPP loan, the expenses are not deductible. This results in neither a tax benefit nor tax harm since the taxpayer has not paid anything out of pocket.” Secretary Steve Mnuchin said, “These provisions ensure that all small businesses receiving PPP loans are treated fairly, and we continue to encourage borrowers to file for loan forgiveness as quickly as possible.”

While debt cancellation is ordinarily considered to be income, the PPP loan amount is nontaxable income. Borrowers may not deduct expenses paid with PPP funds (i.e. rent, mortgage interest, utilities) as that would be double-dipping. One of the most common questions is what if a borrower does not deduct expenses that ultimately end up not approved through loan forgiveness. Answer: It is possible to file an extension on 2020 taxes or file an amended income tax return once loan approval (or partial) has been authorized.

Additionally, the Treasury and IRS released Rev. Proc. 2020-51 this same day. This ruling provides a safe harbor for certain PPP loan participants, whose loan forgiveness has been partially or fully denied, or who decide to relinquish loan forgiveness, to claim a deduction for certain otherwise deductible eligible payments during the 2020 tax year.

Safe Harbor rules allow borrowers who decline loan forgiveness to claim a deduction for the otherwise deductible eligible payments on an original income tax return or information return, as applicable, for the taxable year in which the taxpayer decides to forego requesting forgiveness.

Mnuchin added, “Today’s guidance provides taxpayers with greater clarity and flexibility.”


Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

PPP Loan Forgiveness Form

The SBA has issued a Loan Necessity Questionnaire for Paycheck Protection Plan borrowers with an original principal amount of $2 million or more. This form is to facilitate the collection of supplemental information that the SBA loan reviewers will use to evaluate the good-faith certification that borrowers made on the initial application for the loan that economic uncertainty made the loan necessary.

The borrower is required to complete the questionnaire and return to the lender within 10 days of receipt, along with supporting documents. While the form will be distributed by the lender, you may also download a copy of the fillable form here.

CARES Act Rules for IRAs, RMDs & the August 31 Deadline

Retirees over the age of 70 ½ might be struggling to make sense of the new regulations with the passage of the SECURE Act at the end of 2019 and the current CARES Act. These new regulations may be confusing for retirees in regard to required minimum distribution (RMD) rules.

The SECURE Act passed last December is permanent and essentially raises the age for RMDs to 72; however, it went into effect January 2020. Therefore, if an individual turned 70 ½ in 2019, RMDs must still be taken in 2019 and 2020, since the age of 72 would not be reached until 2021.

So, how does the CARES Act come into play? Some say it’s like an RMD holiday. The CARES Act legislation essentially suspended RMDs from IRAs, inherited IRAs, 401(k)s, and inherited 401(k)s during 2020 and gave everyone the chance to put it back into their account within 60 days without taxation.

If an individual has already taken some or all RMDs and has gone past the 60-day mark, these funds may still be rolled over. The recently issued Notice 2020-51 allows an account holder to rollover all RMDs funds, distributed January 2020 to now, provided the rollover is made by August 31, 2020. Additionally, this move will not count as the one-per-year rollover allowed, so you may still enact a rollover for another purpose.

Another new benefit for retirement accounts is the ability to make a withdrawal from a qualified retirement plan or IRA due to a COVID-19 related issue. An individual can “self-certify” they have been financially impacted due to coronavirus-related circumstances. Plus, individuals under 59 ½ will be exempt from the 10% penalty tax for early withdrawal. Congress realized the need for hardship withdrawals, which meant individuals could access funds in their accounts without penalty. The maximum withdrawal amount is capped at $100,000.00. Participants may be permitted to recontribute the amount over a 3-year period, following the date of distribution, without affecting normal contribution limits. Repayment may be spread over the years 2020, 2021, and 2022 equally, as opposed to the entire amount being taxable the year the distribution was taken.

IRS waives requirements.


Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.

IRS Rules on Deductions & Expenses Regarding Your PPP Loan

Have you considered taking a deduction on your expenses paid with PPP funds?

While it might be tempting, the IRS considers this double-dipping. Standard business deductions are not allowed by the IRS if payment of those expenses also results in PPP loan forgiveness.

Under the CARES Act, PPP loans for small businesses can be totally forgiven provided the funds are primarily used to retain employees, among meeting other requirements. However, CARES Act guidelines also state loan forgiveness is not tax-deductible. The forgiveness of your loan will result in a “class of exempt income” under 1.265(b)(1) of the Regulations.

According to Treasury Secretary Steven Mnuchin, “The money coming in the PPP is not taxable. So, if the money that is coming is not taxable, you cannot double-dip. You cannot say that you’re going to get deductions for workers that you did not pay for.”

Mnuchin stated that he had personally reviewed the IRS guidance and if the loan forgiveness had been deemed taxable, business deductions would be allowed. “This is basically tax 101,” said Mnuchin.

Many lawmakers have expressed a desire to re-address these guidelines in future legislation since the intent of the PPP loan program was to help small businesses maximize their ability to maintain fluidity, retain employees, and recover from this crisis as best possible. It is quite likely that IRS guidelines on tax exemption may be specifically addressed in any new coronavirus-related legislation to clarify the original intent of the PPP loan program under the CARES Act.

Link to IRS document.


Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.