Relief

Article Dean Dorton

On Friday, March 12, 2021, the Kentucky General Assembly passed House Bill 278 (HB 278), providing deductibility for Kentucky tax purposes of expenses paid with Paycheck Protection Program (PPP) loans. The same bill provides for the exclusion from taxable income and deductibility of expenses paid with Economic Injury Disaster Loan advances.

The CARES Act, passed in March 2020, launched PPP loans and Economic Injury Disaster Loan (EIDL) advances or grants. The Act provided that the cancellation of indebtedness income from a forgiven loan would not be taxable income. The CARES Act was silent on the deductibility of expenses paid with loan proceeds and made no provision for EIDL advances.

The Consolidated Appropriations Act, 2021 (Appropriations Act) made expenses paid with PPP loan funds deductible for federal income taxes and provided that EIDL advances would be treated in the same manner as PPP loans. With the Appropriations Act, Congress reversed the Internal Revenue Service’s decision that expenses paid with PPP loan proceeds would not be deductible. A collective sigh of relief could be heard across the country. Then, business owners and their advisors realized that deductibility of expenses at the state level would depend on each state’s laws.

The Kentucky Department of Revenue announced that Kentucky law did not permit the deductibility of expenses associated with income not subject to tax. Thus, Kentucky taxpayers were back at square one for at least a portion of their 2020 tax liability. With the passage of HB 278, expenses paid with PPP loan proceeds are deductible, and EIDL advances are treated the same as for federal income tax; that is, the amount of the advance is not subject to tax and amounts paid with the proceeds of the advance are tax-deductible. The General Assembly’s action is welcome, needed relief for most of Kentucky’s small businesses. Governor Beshear has stated that he will sign the bill when it arrives on his desk.

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Article Dean Dorton

The Consolidated Appropriations Act, 2021 established the Shuttered Venue Operator Grant (SVOG) program. The Small Business Administration announced it expects to begin accepting applications in early April. The American Rescue Plan (ARP) amends a key element of the SVOG program and provides some relief for venue operators that have been waiting for funding.

Previously, an eligible entity could not receive both an SVOG and a Paycheck Protection Program (PPP) loan. With the looming March 31, 2021 deadline for PPP applications and the delays in getting the SVOG program up and running, many entities were left deciding whether they should apply for a PPP loan before the deadline, making them ineligible for an SVOG when it becomes available.

With the ARP, eligible entities can now apply for and receive both a PPP loan and an SVOG—with a caveat. Any PPP loan received will be deducted from an SVOG received by the same entity. Consider the example of an eligible entity that receives a First Draw PPP loan for $30,000 on March 23, 2021. When the SVOG program is up and running, the same eligible entity applies for an SVOG and calculates its potential grant amount to be $100,000. Rather than receiving the full $100,000 grant, the entity will now only receive $70,000.

Click the button below for further details on eligibility, grant amounts, and general terms of the SVOG program:

SVOG Program Information

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The restaurant industry was targeted within the American Rescue Plan (ARP) by establishing the Restaurant Revitalization Grant (RRG) program. The program has $28.6 billion for grants to eligible entities, including $5 billion earmarked for eligible entities with 2019 gross receipts of $500,000 or less. The SBA is expected to issue guidance and open the program soon.

Restaurant Revitalization Grant Eligibility

Eligible entities are defined broadly as “a place of business in which the public or patrons assemble for the primary purpose of being served food or drink.” The ARP includes a list of specific entities, including:

  • Food stands and trucks
  • Caterers
  • Saloons, inns, or taverns
  • Bars and lounges
  • Brewpubs
  • Tasting rooms and taprooms
  • Other licensed facilities or premises of a beverage alcohol producer where the public may taste, sample, or purchase products

The following are ineligible entities:

  • State or local government-operated businesses
  • An entity that, as of March 13, 2020, owns or operates (together with any affiliated business) more than 20 locations, regardless of whether those locations do business under the same or multiple names
  • An entity that has a pending application for or received a Shuttered Venue Operator Grant
  • Publicly-traded companies

During the initial 21-day grant awards period, priority will be given to eligible entities that are small business concerns owned and controlled by women, veterans, or socially and economically disadvantaged individuals.

Restaurant Revitalization Grant Amounts

Grants distributed to eligible entities are expected to be equal to the pandemic-related revenue loss calculated as the difference between 2019 and 2020 gross receipts for each location. Maximum grant amounts are capped at $10 million for an affiliated group and $5 million per physical location and will be reduced for any first or second draw PPP loan received by the entity. An affiliated business is defined as a business in which an eligible entity has an equity or right to profit distributions of not less than 50%, or in which an eligible entity has the contractual authority to control the direction of the business, provided that the affiliation existed as of March 13, 2020.

Restaurant Revitalization Grant Uses

Eligible entities are required to spend the grant money on certain eligible expenses, such as payroll costs, maintenance expenses, supplies (including protective equipment and cleaning materials), operational expenses, utilities, etc. Entities with grant monies that go unused or used for unallowable expenses must return the funds to the U.S. Department of Treasury.

It is anticipated that the SBA will create reporting requirements to ensure grant monies were spent according to program terms and conditions.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

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Article Dean Dorton

The latest COVID-19 relief package, dubbed the American Rescue Plan Act of 2021 (Rescue Plan), extends two payroll tax credits created nearly a year ago to help businesses weather the pandemic. The employee retention credit (ERC), designed to encourage businesses to keep employees on their payroll despite experiencing economic hardship, was set to expire July 1. The Rescue Plan extends the ERC through December 31, 2021. The paid sick and family leave tax credits, available to employers providing paid leave to employees for various COVID-19 related reasons, were scheduled to expire March 31. The Rescue Plan extends the credits through September 30, 2021.

In addition to extending the expiration dates, the Rescue Plan makes several changes to these programs. We break down the major changes below, beginning with the ERC.

The ERC

Background

The ERC is a refundable payroll tax credit for eligible employers, calculated as a percentage of qualified wages paid to employees. As created by the CARES Act, the ERC applied to wages paid from March 13, 2020 through December 31, 2020 (the 2020 ERC). The Consolidated Appropriations Act, 2021 (Appropriations Act) extended the ERC into the first and second quarters of 2021 (the 2021 ERC).

The 2021 ERC is equal to 70% of qualified wages paid to employees, up to a maximum of $10,000 in wages per employee each quarter. To be eligible, a business must meet one of two criteria during the calendar quarter:

  1. The operation of the business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19; or
  2. The employer experiences a significant decline in gross receipts.

For purposes of the 2021 ERC, an employer experiences a significant decline in gross receipts if its gross receipts for the relevant calendar quarter in 2021 are less than 80% of its gross receipts for the same calendar quarter in 2019. An employer also can elect to determine eligibility by comparing its gross receipts for the immediately preceding calendar quarter to the corresponding 2019 calendar quarter.

The definition of qualified wages for the 2021 ERC is more restrictive for employers that averaged more than 500 full-time employees during 2019 (large employers). For large employers, qualified wages include only wages paid when the employee is not providing services.

For additional background on the 2020 and 2021 ERC, click the button below:

Additional ERC Background

The Rescue Plan’s Changes

The Rescue Plan extends the ERC through December 31, 2021, and restructures the credit to be claimed against the employer’s share of Medicare rather than Social Security taxes.

It also expands eligibility for the credit to “recovery startup businesses.” A recovery startup business is any employer that began carrying on any trade or business after February 15, 2020. Guidance on additional eligibility requirements is expected. The credit allowed for recovery startup businesses for any calendar quarter cannot exceed $50,000.

In addition, the Rescue Plan expands the definition of qualified wages for large employers that qualify as “severely financially distressed employers.” A severely financially distressed employer is an eligible employer whose gross receipts for the relevant calendar quarter in 2021 are less than 10% of its gross receipts for the same calendar quarter in 2019. Severely financially distressed employers can count all wages paid to employees as qualified wages rather than only wages paid to employees when they do not provide services.

The Rescue Plan states that wages used in connection with a Paycheck Protection Program (PPP) loan, a Shuttered Venue Operator Grant (SVOG), or a Restaurant Revitalization Grant (RRG) cannot be used for calculating the 2021 ERC.

The Rescue Plan’s changes apply to wages paid during the third and fourth quarters of 2021.

Tax Credits for Paid Sick and Family Leave

Background

The Families First Coronavirus Response Act (FFCRA), enacted in March of 2020, required most government employers, as well as tax-exempt organizations and private employers with fewer than 500 employees, to provide employees with paid sick or family leave for various COVID-19 related reasons. Under the FFCRA, the amount of leave and pay to which employees were entitled varied depending on the reason for leave.

To offset the cost of providing paid leave, the FFCRA provided employers with a refundable payroll tax credit equal to 100% of qualified sick and family leave wages, plus allocable health plan expenses and the employer’s share of Medicare tax paid each calendar quarter. The credit was allowed against the employer portion of Social Security tax. Equivalent credits were available for self-employed individuals.

Under the FFCRA, the requirement to provide paid leave took effect April 1, 2020, and expired December 31, 2020. However, the Appropriations Act extended the payroll tax credits’ availability to cover leave taken through and including March 31, 2021. Notably, the Appropriations Act did not extend the requirement to provide FFCRA paid leave beyond December 31, 2020; it only extended the availability of the payroll tax credits for employers that voluntarily provide this leave to eligible employees.

For additional background on the FFCRA paid sick and family leave tax credits, click the button below:

Additional FFCRA Paid Sick and Family Leave Background

The Rescue Plan’s Changes

The Rescue Plan extends the employer payroll tax credits, but not the requirement to provide paid leave, for sick and family leave taken through and including September 30, 2021. In addition, the Rescue Plan:

  • Resets the 10-day limit for sick leave beginning April 1, 2021 (the FFCRA limited sick leave to 10 days per employee);
  • Allows sick and family leave tax credits for leave provided to employees to obtain a COVID-19 vaccine or recover from an injury, disability, illness, or condition related to the vaccine;
  • Expands the definition of paid family leave to allow family leave tax credits to be claimed for all qualifying uses of paid sick leave;
  • Increases the limit on the tax credit for paid family leave wages to $12,000 (up from $10,000) total per employee;
  • Adds a non-discrimination rule prohibiting employers from claiming the tax credits if paid leave provided to employees discriminates in favor of highly compensated or full-time employees or based on employment tenure;
  • Restructures the tax credits to be claimed against the employer’s share of Medicare tax, rather than Social Security tax, after March 31, 2021; and
  • Permits 501(c)(1) government organizations and certain state and local governments to claim the tax credits.

Under the Rescue Plan, wages used in connection with a PPP loan, an SVOG, or an RRG cannot be used for claiming sick or family leave tax credits.

Self-employed individuals are allowed a refundable income tax credit for paid sick and family leave. The Rescue Plan extends and expands the sick and family leave tax credits for self-employed individuals, similar to the modifications made for employers.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

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Article Dean Dorton

With less than three weeks left to apply for a Paycheck Protection Program (PPP) loan, the American Rescue Plan (Rescue Plan) expands eligibility for first and second draw loans. The expansion includes internet publishing organizations assigned an NAICS code of 519130 and any 501(c) organization except for 501(c)(4) and 501(c)(19) entities, which remain ineligible. Newly eligible nonprofit organizations include labor unions, agricultural organizations, and community locations of larger nonprofits. An applicant must meet the following requirements before applying for a loan:

  • the organization does not receive more than 15% of receipts from lobbying activities;
  • lobbying activities do not compose more than 15% of its activities;
  • the cost of lobbying activities of the organization did not exceed $1 million during the most recent tax year that ended before February 15, 2020; and
  • the organization does not employ more than 300 employees at a single location.

Despite the expectation that the current deadline to apply (March 31, 2021) will be extended, newly eligible organizations interested in applying for a loan should begin working with their lender as soon as possible.

For more information on COVID-19 relief efforts, visit our coronavirus relief resources page or browse the articles below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

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The third round of significant COVID-19 stimulus funding was signed into law on March 11, 2021. The American Rescue Plan Act of 2021 (ARP) includes various items, including aid for vaccinations and testing, state and local governments, schools, rental assistance, agriculture, and the airline industry. The ARP also includes several tax-related provisions and additional business relief. This article details the higher education components.

The Higher Education community has received significant benefits from the various stimulus bills over the past 12 months. The CARES Act allocated approximately $14 billion in funding and the Consolidated Appropriations Act, 2021 added $23 billion for a total of approximately $37 billion before ARP.

ARP allocates an additional $40 billion (available through September 30, 2023) to the Higher Education Emergency Relief Fund (HEERF). The new appropriation follows closely the allocation methodology, terms, and conditions in the second stimulus legislation, Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (CRRSAA). Under the ARP, 91% of the total funds (versus 89% under the CRRSAA), or $36 billion, will be allocated to institutions based on a methodology of:

  • 75% on Pell Grant-eligible students
  • 25% on remaining enrollment (not Pell-eligible).

At least 50% of the funds must be used to provide emergency financial aid grants to students. The funds can be used for the same items as under the CRRSAA:

  • To defray expenses associated with COVID-19 (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff training, and payroll); carry out student support activities authorized by the Higher Education Act of 1965, as amended (HEA) that address needs related to COVID-19
  • Make additional financial grants to students, which may be used for any component of the student’s cost of attendance or for emergency costs that arise due to COVID-19, such as tuition, food, housing, health care (including mental health care), or child care

Also, the ARP requires that a portion of funds received should be used to:

  • Implement evidence-based practices to monitor and suppress COVID-19 under public health guidelines
  • Conduct direct outreach to financial aid applicants about the opportunity to receive a financial aid adjustment due to the recent unemployment of a family member or independent student, or other circumstances, described in §479A of the HEA

We will continue monitoring this program and update you as more information comes from the Department of Education.

For more information on COVID-19 relief efforts, click the button below:

COVID-19 Resources

Do you have questions about the new American Rescue Plan Act? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com