Relief

Article Dean Dorton

Over two months ago, the Consolidated Appropriations Act, 2021 (Appropriations Act) brought welcome news to many Paycheck Protection Program (PPP) borrowers. Until then, PPP borrowers were prohibited from claiming the employee retention credit (ERC), a refundable payroll tax credit created by the CARES Act. The Appropriations Act changed the law to allow PPP borrowers who meet the ERC eligibility criteria to claim the ERC, with the caveat that the same wages cannot be used to calculate the ERC and also obtain PPP loan forgiveness. This change was retroactive to the CARES Act’s effective date, giving PPP borrowers who had not claimed the ERC in 2020 but qualified for the credit the opportunity to claim it for periods beginning March 13, 2020, and ending December 31, 2020.

Despite this favorable development, questions surfaced regarding the interaction between ERC and PPP wages. When the Appropriations Act became law in late December 2020, many borrowers had already applied for forgiveness of their PPP loan. To ensure full forgiveness, some borrowers reported gross wages on their forgiveness application in excess of their loan amount. It was unclear whether gross wages included on a forgiveness application, but unnecessary for full forgiveness, were eligible for the ERC. Also, while many borrowers paid or incurred eligible non-payroll costs during the covered period, they often excluded those costs from their application to streamline the lender and SBA review processes.

On March 1, 2021, these questions were finally answered by the IRS in Notice 2021-20. Per the notice, PPP borrowers may use wages reported on a loan forgiveness application in excess of the amount necessary to support full forgiveness as qualified wages for the ERC. However, borrowers cannot use wages in an amount equal to other eligible non-payroll expenses (such as mortgage interest, rent, or utilities) that they did not include on their submitted application.

To understand the IRS guidance, let’s consider two examples.

Example 1

Employer A received a PPP loan of $200,000 and paid $250,000 of wages that would qualify for the ERC in 2020. Employer A submitted a forgiveness application and reported the $250,000 of qualified wages as PPP forgivable wages. Employer A did not report any other eligible expenses on its application. Employer A’s entire loan was forgiven.

Employer A may not use $200,000 of the qualified wages necessary for forgiveness for ERC purposes. However, Employer A may use the $50,000 of qualified wages reported on the forgiveness application that were not necessary for full forgiveness.

Example 2

Employer B received a PPP loan of $200,000. Employer B paid $200,000 of qualified wages that would qualify for the ERC in 2020. Employer B also paid other eligible non-payroll expenses of $70,000. Employer B submitted a forgiveness application and reported the $200,000 of qualified wages to support the loan’s forgiveness. Employer B did not report the other eligible expenses of $70,000. Employer B’s entire loan was forgiven.

Employer B may not use the $200,000 of qualified wages for purposes of the ERC. Additionally, although Employer B could have reported $70,000 of eligible expenses other than wages, no portion of this amount may be used for loan forgiveness to free up qualified wages for the ERC.

The IRS notice states that PPP borrowers that are eligible businesses can claim the ERC for eligible quarters in 2020 by filing Form 941-X, but only for qualified wages not necessary and used for loan forgiveness.

The notice also formalizes and expands upon many Frequently Asked Questions (FAQs) about the ERC previously posted on the IRS’s website.  The formalization of the FAQs allows taxpayers to rely on the guidance for penalty protection.

The Appropriations Act extended the ERC into the first and second quarters of 2021. The IRS intends to issue separate guidance on the 2021 ERC.

For general information on the ERC, follow the link below:

Employee Retention Credit

Do you have questions about the new law? Contact your Dean Dorton advisor, or contact us at:

covid19solutions@deandorton.com

Article Dean Dorton

The U.S. Department of Education announced today that an additional $21.2 billion is now available to institutions of higher education (IHEs) to serve students and ensure learning continues during the COVID-19 pandemic. This funding is allocated to the Higher Education Emergency Relief Fund II (HEERF II) by the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), which was signed into law by President Donald J. Trump on Dec. 27, 2020.

In total $20.5 billion is available to public and non-profit colleges and universities and $681 million is available to proprietary schools. Public and non-profit schools can use their awards for financial aid grants to students, student support activities, and to cover a variety of institutional costs, including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll. Proprietary schools must use their awards exclusively to provide financial aid grants to students.

Allocations to institutions are based on a formula that includes the relative shares of Federal Pell Grant recipients, the relative shares of non-Pell Grant recipients, and the relative shares of Federal Pell and non-Pell Grant recipients exclusively enrolled in distance education prior to the coronavirus emergency.

Public and private non-profit IHEs that already have approved CARES Act HEERF awards are not required to submit a new or revised application to receive additional funding under the CRRSAA. Public and private nonprofit IHEs that did not receive HEERF Student Portion and/or Institutional Portion awards under the CARES Act, as well as proprietary institutions, may apply for funding under the CRRSAA via Grants.gov.

For more information on HEERF II and the CRRSAA please visit the link below.

CRRSAA: Higher Education Emergency Relief Fund (HEERF II)

Lance Mann, CPA, CFE, CGMA
Assurance Director
lmann@deandorton.com | 502.566.1005

Article Dean Dorton

In late December 2020, the Office of Management and Budget (OMB) released the much-anticipated addendum to the 2020 OMB Compliance Supplement. The addendum’s main focus is COVID-19 awards that were funded under the following Acts:

  • Coronavirus Preparedness and Response Supplement Appropriations Act
  • Families First Coronavirus Response Act
  • Coronavirus Aid, Relief, and Economic Security Act (CARES)
  • Paycheck Protection Program and Health Care Enhancement Act

The addendum is effective for fiscal years beginning after June 30, 2019 and should be in used in conjunction with the original issued 2020 Compliance Supplement from August 2020. Additionally, it provides for a three-month extension for any entity with year ends through September 30, 2020 that received COVID-19 funding.

The OMB also added requirements related to the testing of the Federal Funding Accountability and Transparency Act (FFATA) reporting.

From a higher education perspective, there is specific guidance related to presentation of the schedule of expenditures of federal awards (SEFA). On the SEFA, all COVID-19 funding should be specifically identified as such and the individual breakdown of program number 84.425, which includes both the Education Stabilization Fund and Higher Education Emergency Relief Funds, should be presented on individual line items and disaggregated based upon the ‘lettered’ distinctions of A through P.

For the Education Stabilization Fund (ESF), compliance requirements include Activities Allowed or Unallowed; Allowable Cost Principles; Cash Management; Matching, Level of Effort, and Earmarking; Reporting; and Subrecipient Monitoring.  For the Higher Education Emergency Relief Fund (HEERF), compliance requirements include Activities Allowed or Unallowed; Allowable Cost Principles; Matching, Level of Effort and Earmarking; Period of Performance; Procurement Suspension & Debarment; and Reporting. Although the Department of Education and OMB have identified each of the areas as potential areas of compliance, it is up to the auditor to determine which requirements are direct and material (i.e. required to be audited) to the individual institution based upon their application of the funding.

Key areas institutions should focus on in preparation for audit testing include the following:

  • Well-documented policies and procedures around the use of funds and decisions made by each institution
  • Internal controls related to each applicable compliance area
  • Detailed listing of expenditures and calculations
  • Compliance with reporting and other requirements

Dean Dorton is always available to consult and help prepare for the single audit related to the funds.

Lance Mann, CPA, CFE, CGMA
Assurance Director
lmann@deandorton.com | 502.566.1005

Article Dean Dorton

Earlier today (January 8, 2021), the U.S. Small Business Administration (SBA), in consultation with the Treasury Department, announced the Paycheck Protection Program (PPP) will re-open to eligible borrowers next week.

On Monday, January 11, 2021, eligible borrowers may apply for PPP loans under the original First Draw program. Subsequently, on Wednesday, January 13, 2021, the newly established Second Draw PPP loan program will open to eligible borrowers. In an effort to prioritize and direct funds to underserved communities, for the first several days exclusive access for processing applications has been given to community financial institutions with $1 billion or less in assets. The SBA will release further guidance highlighting when other financial institutions may begin participating in the program. As of the time of this article, new and revised PPP loan application forms have not been released, but we anticipate those will be available shortly.

For more information, refer to the U.S. Department of the Treasury press releases found below.

U.S. Department of the Treasury Press Release

Paycheck Protection Progran (PPP) loan forgiveness application and calculation assistance

Dean Dorton offers Paycheck Protection Program (PPP) loan forgiveness application and calculation assistance to businesses. Our dedicated COVID-19 Solutions Team members, who have kept you abreast of all things PPP loan-related, are ready to help. Follow the link below to learn more.

PPP Loan Assistance

Article Dean Dorton

The latest COVID-19 relief package passed by Congress has provided additional funding for Higher Education Relief. The package, titled the Consolidated Appropriations Act of 2021 (the “Act”), also included a new paycheck protection program and many other relief packages and tax changes. This article discusses the key components of the new higher education relief funding.

Colleges and Universities will receive an additional $23B to help relieve some of the impacts of the pandemic. The Act creates a new and complex formula for allocating these funds than what was used in the CARES Act, and it was difficult to immediately estimate how much each institution will get.

As with the CARES Act, institutions must distribute at least 50% of the funds received directly to students in the form of emergency grants. The remaining funds can be used for the following purposes:

  • Defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll);
  • Carry out student support activities authorized by the HEA that address needs related to coronavirus; or
  • Provide financial aid grants to students (including students exclusively enrolled in distance education), which may be used for any component of the student’s cost of attendance or for emergency costs that arise due to coronavirus, such as tuition, food, housing, health care (including mental health care), or child care. In making financial aid grants to students, an institution of higher education shall prioritize grants to students with exceptional need, such as students who receive Pell Grants.

No funds received by an institution of higher education under from the Higher Education Emergency Relief Funds shall be used to fund contractors for the provision of pre-enrollment recruitment activities; marketing or recruitment; endowments; capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship; senior administrator or executive salaries, benefits, bonuses, contracts, incentives; stock buybacks, shareholder dividends, capital distributions, and stock options; or any other cash or other benefit for a senior administrator or executive.

An institution that was required to remit payment to the Internal Revenue Service for the excise tax based on investment income of private colleges and universities under section 4968 of the Internal Revenue Code of 1986 for tax year 2019 shall have its allocation under this section reduced by 50 percent and may only use funds to provide financial aid grants to students or for sanitation, personal protective equipment, or other expenses associated with the general health and safety of the campus environment related to the qualifying emergency.

The Act also includes major changes to student financial aid including a simplification of FASFA form. There are also changes in how eligibility for Pell Grants is determined that should make it easier for lower-income students to receive the maximum amount of federal student aid.

As with the CARES Act, there will be mandatory reporting and audit requirements.

Do you have questions about the upcoming bill? Contact your Dean Dorton advisor, or contact us at:

insights@deandorton.com

Article Dean Dorton

The latest COVID-19 relief package passed by Congress extends two employer payroll tax credits—the employee retention credit and the credit for coronavirus-related paid sick and family leave. The package, titled the Consolidated Appropriations Act of 2021 (the “Act”), also expands eligibility for the employee retention credit to include employers that received a Paycheck Protection Program (“PPP”) loan. This article discusses the major changes to these credits that will take effect if the bill is signed by President Trump.

The Employee Retention CreditThe Back Story…

The employee retention credit is a refundable payroll tax credit created by the CARES Act, enacted in March. Currently, eligible employers can claim a credit against the employer portion of Social Security tax equal to 50% of “qualified wages” paid with respect to each employee. The amount of qualified wages that can be taken into account per employee for all calendar quarters is capped at $10,000 (for a maximum credit of $5,000 per employee). Under the CARES Act, the credit is available for wages paid after March 12, 2020, through and including December 31, 2020.

The CARES Act defines an “eligible employer” as any employer, including a tax-exempt organization, that was carrying on a trade or business during calendar year 2020 and meets one of the following economic hardship criteria:

  1. The operation of the business is fully or partially suspended during the calendar quarter due to orders from an appropriate governmental agency limiting commerce, travel, or group meetings because of COVID-19; or
  2. The calendar quarter is within the period that: (1) begins with the first calendar quarter after December 31, 2019, for which gross receipts are less than 50% of gross receipts for the same calendar quarter in the prior year; and (2) ends with the calendar quarter following the first calendar quarter for which gross receipts are greater than 80% of gross receipts for the same calendar quarter in the prior year.

The definition of “qualified wages” is more restrictive for employers that averaged more than 100 full-time employees during 2019 (“large employers”). For large employers, “qualified wages” include only wages paid when the employee is not providing services. In addition, “qualified wages” taken into account for an employee cannot exceed the amount the employee would have been paid for working an equivalent duration during the 30 days immediately preceding the period of the employer’s economic hardship (i.e., the “30-day rule”).

Employers that averaged 100 or fewer full-time employees during 2019 can count all wages paid during the period of economic hardship as “qualified wages.”

Allocable health plan expenses also can be treated as wages when computing the credit.

Importantly, the CARES Act provided that employers are not eligible for the employee retention credit if they received a PPP loan. Governmental employers, including the federal government, state and local governments, and governmental agencies and instrumentalities, also are not eligible.

For further details on the employee retention credit in the CARES Act, as originally enacted, click here.

The Act’s Major Changes

The Act makes several changes to the employee retention credit. Some of these changes are retroactive to the effective date of the CARES Act, while others apply going forward. Retroactively, the Act clarifies the definition of “gross receipts” for tax-exempt organizations by reference to the Internal Revenue Code. The Act also states that group health plan expenses can be considered qualified wages even when no other wages are paid to an employee. This change is consistent with previous guidance issued by the IRS.

Significantly, the Act retroactively eliminates the provision in the CARES Act that prohibited employers from claiming the credit if they received a PPP loan. The Act clarifies, however, that forgivable payroll costs for purposes of the PPP do not include qualified wages taken into account in determining the employee retention credit.

The Act extends the availability of the credit for qualified wages paid through and including June 30, 2021, and makes several prospective enhancements. For calendar quarters beginning after December 31, 2020, the Act:

  • Increases the credit percentage from 50% to 70% of qualified wages;
  • Raises the limit on the amount of qualified wages that can be taken into account per employee from $10,000 for all calendar quarters to $10,000 per calendar quarter;
  • Expands eligibility for the credit by reducing the required gross receipts decline from more than 50% to more than 20% of gross receipts for the same calendar quarter in 2019;
  • Allows employers to elect to use prior quarter gross receipts to determine eligibility;
  • Permits certain governmental employers to claim the credit, including 501(c)(1) organizations, colleges and universities, and entities whose principal purpose or function is providing medical or hospital care;
  • Provides that “qualified wages” include only wages paid when an employee is not providing services for employers that averaged more than 500 (increased from 100) full-time employees in 2019;
  • Eliminates the 30-day rule for large employers;
  • Directs Treasury to issue rules allowing employers that averaged 500 or fewer full-time employees during 2019 to elect to receive an advance payment of the credit; and
  • Establishes rules to allow employers who were not in existence for all or part of 2019 to claim the credit.

The Act requires Treasury, in coordination with the Small Business Administration (“SBA”), to conduct a public awareness campaign regarding the availability of the credit.

Tax Credits for Paid Sick and Family LeaveThe Back Story…

The Families First Coronavirus Response Act (“FFCRA”), enacted in March, requires 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 are entitled vary depending on the reason for leave.

To offset the cost of providing paid leave, the FFCRA provides 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 is allowed against the employer portion of Social Security tax. Equivalent credits are available for self-employed individuals.

Under the FFCRA, the requirement to provide paid leave took effect April 1, 2020, and expires December 31, 2020. As enacted in March, the FFCRA provided that payroll tax credits for qualified sick and family leave wages were available for leave taken during this time period.

For more detail on the FFCRA sick and family leave tax credits, click here.

The Act’s Major Changes

The Act makes a handful of technical improvements to the FFCRA, including allowing self-employed individuals to elect to calculate the amount of the credit by using their average daily self-employment income from 2019 rather than 2020. However, the most significant change is an extension of the payroll tax credits to cover leave taken through and including March 31, 2021. Notably, the Act does not extend the requirement to provide FFCRA paid leave, which expires December 31, 2020. But, employers that provide paid leave to eligible employees from January 1 – March 31, 2021 now will have the opportunity to claim payroll tax credits for those wages.

Do you have questions about the upcoming bill? Contact your Dean Dorton advisor, or contact us at:

insights@deandorton.com