As of August 13, 2021 there are several important updates about the Employee Retention Credit (ERC), the Paycheck Protection Program (PPP), and the Shuttered Venue Operators (SVO) grant program.
Employee Retention Credit (ERC) Clarifying IRS Guidance
This week, the IRS issued a revenue procedure that provides a safe harbor for taxpayers when calculating gross receipts. And last week the IRS issued guidance that, among other provisions, clarifies that payroll costs used for Shuttered Venue Operators (SVO) grants or Restaurant Revitalization Fund (RRF) grants cannot be used to claim the ERC.
- Background – the American Rescue Plan Act of 2021 (ARP) extended the ERC through December 31, 2021. Previously, the IRS issued Notice 2021-20 and Notice 2021-23 which provided ERC guidance for 2020 and the 1st and 2nd calendar quarters of 2021, respectively.
- Gross receipts – Good news! The IRS issued a revenue procedure that allows taxpayers, when calculating gross receipts for ERC eligibility, to elect a safe harbor to exclude the amount of the forgiveness of a Paycheck Protection Program (PPP) loan; and the amount of any Shuttered Venue Operators (SVO) grant and Restaurant Revitalization Fund (RRF) grant received. The safe harbor must be consistently applied for each relevant calendar quarter.
- New guidance – Notice 2021-49 addresses the 3rd and 4th calendar quarters of 2021, and clarifies the following:
- Double benefit exclusions – payroll costs paid in the 3rd and 4th calendar quarters of 2021 in connection with a Shuttered Venue Operators (SVO) grant or a Restaurant Revitalization Fund (RRF) grant may not count as qualified wages for purposes of the ERC. This is in addition to limits already in place, which state that an employer cannot use sick and family leave wages for which another tax credit applies, cannot use wages for employees for which a Work Opportunity Tax Credit applies, and cannot use wages submitted for PPP loan forgiveness.
- ERC maximum – The ERC limits ($7K per employee for each quarter) that applied for the first two calendar quarters of 2021 will continue to apply for the second two calendar quarters, except for a “recovery startup business.” For a recovery startup business, the total maximum credit for each of the 3rd and 4th calendar quarter of 2021 cannot exceed $50K. A recovery startup business is a new employer (in business after 2/15/20) with average annual gross receipts of $1M or less that would not otherwise be eligible for ERC.
- Full-time clarification – for purposes of determining whether an eligible employer is a large or small employer, employers are not required to include full-time equivalents when determining the average number of full-time employees. A full-time employee is an employee who averaged at least 30 hours per week – or 130 hours per month – in any month in 2019.
- Other clarifications – these clarifications apply to the ERC in general, not just the 3rd and 4th quarters
- In general, cash tips may be treated as qualified wages for purposes of the ERC (see the definitions set forth in the Notice).
- The notice describes circumstances under which wages paid to majority owners – an employee who owns more than 50% of a corporation – and their spouses may be treated as qualified wages for purposes of the ERC.
- Taxpayers who file an adjusted employment tax return (Form 941-X) may need to file an amended federal income tax return, if applicable.
- Want more information? – you can find a summary of the new guidance on the IRS website.
- New legislation? – a recent Senate infrastructure bill contains a provision that would end the ERC after September 30, 2021. We will keep you posted on the progress of this bill.
Paycheck Protection Program (PPP) Updates
The Small Business Administration (SBA) continues to release updates on the Paycheck Protection Program (PPP), including important changes related to loan forgiveness as detailed in the latest Interim Final Rule
- Loan Necessity Questionnaire eliminated – the SBA eliminated the loan necessity review requirement for PPP loans of $2M or more.
- Direct forgiveness – borrowers with PPP loans of $150K or less may be able to apply for forgiveness directly to the SBA through the SBA PPP Direct Forgiveness Portal. Borrowers can check this lender list to see if their lender is participating. The forgiveness portal can be accessed here.
- COVID Revenue Reduction Score – the SBA has contracted with a third-party to develop a score that lenders can use as an alternative to document a borrower’s compliance with the revenue reduction standard (of 25% or greater in 2020 relative to 2019) for second draw PPP loans of $150K or less. Each second draw PPP loan of $150K or less will be assigned a score, which will be visible to lenders and to the SBA on the direct forgiveness portal. The SBA will be releasing additional guidance on the use of the COVID Revenue Reduction Score.
- Extension of deferment repayment – for borrowers who file a timely appeal of an SBA loan review, the loan payment deferral period is extended until a final decision on the appeal has been issued by the SBA’s Office of Hearings and Appeals.
Shuttered Venue Operators (SVO) Grant Program Updates
The SBA released updated FAQs and information and has greatly expanded its post-application guidance for Shuttered Venue Operators (SVO) grant recipients.
- Frequently Asked Questions – the SBA updated its list of SVOG FAQs by re-numbering the list of questions, providing more information on allowable uses of funds, and adding sections on the appeals and reconsideration processes. Alert: the window under which to request reconsideration is short; funding for reconsideration is preserved only for applicants who submit their request within two weeks.
- Application Checklist – the SBA updated the SVOG Application Checklist and expanded the list of allowable supporting financial documents to include signed financial statements, audits, reports from third-party ticket systems, and CPA attestations. Note: The deadline to apply for funds is 11:59 p.m. Pacific Time on Friday, August 20, 2021.
- Post-Application Guidance – the SBA expanded its SVOG Post-Application Guidance to include specific guidance on how to respond to action items, complete special conditions, and seek additional funding through an appeal, reconsideration, or a supplemental award.
- Regarding supplemental awards, notifications are going out to recipients and applicants prompting them to update their earned revenue figures for the first and second quarters of 2021. Note that if an applicant declines to update this information, the originally submitted information will be utilized for supplemental awards.
- Check the SVOG website for additional program details.
YPTC is here to help – reach out to your YPTC staff member and access our Staying Afloat Resources web page for helpful links and resources.
The Staying Afloat Resources Team at YPTC