Extensions & Expansions: The New Tax Deadline, PPP Loans, ERC, EIDL, & Unemployment
By Martin Fox, CPA/ABV, CVA
WOW! There’s a lot to talk about in this week’s e-blast. We’ll start with the highlights, but for those of you who want the details, you’ll find them below.
Changes continue to roll out under the Biden Administration and our tax advisors are working hard to stay on top of them; many of these will affect small businesses, including those with no employees. Changes made to the 2020 tax deadline and unemployment recalculation along with extensions to the Paycheck Protection Program, Employer Retention Program, and Economic Injury Disaster Loans Program pave a hopeful path to recovery for many local employers.
- 2020 Tax Filing Deadline Extension
- Extended to May 17 for individuals only
- First-quarter estimates are still due on April 15.
- Contributions to retirement and health plans may be made up to May 17.
- C corporations with a calendar year are still due on April 15.
- Paycheck Protection Program (PPP) Extension
- Application deadline extended to May 31 for both First Draw and Second Draw loans
- Schedule C and F filers may use their gross receipts to calculate the owner’s payroll for eligibility. YOU ARE ELIGIBLE EVEN IF YOU HAVE NO OTHER EMPLOYEES.
- Second Draw loans are available if a borrower’s gross receipts fell by at least 25% in any quarter in 2020 as compared to the same quarter in 2019.
- Employee Retention Credits Extension and Expansion
- The credit availability is extended through December 31, 2021.
- Employers are eligible if they experienced a 20% or more decrease in gross receipts in any quarter in 2021 as compared to the same quarter in 2019.
- The credit and eligibility are computed for each quarter.
- Credit equals 70% of each employee’s wages up to $10,000 per quarter.
- Maximum credit per employee is $7,000 per quarter.
- Now available for some small businesses started after 2/15/2020
- Economic Injury Disaster Loans (EIDL) Expansion
- SBA is increasing calculation of economic injury from 6 months to 24 months.
- Maximum loan amount increased from $150,000 to $500,000.
- First payment is not due until 18 months after date of the note.
- Generous terms (fixed rate of 3.75%; 30-year repayment, no pre-payment penalty)
- Unemployment Compensation Exclusion
- Applies to taxpayers with less than $150,000 of modified adjusted gross income
- The first $10,200 of 2020 unemployment benefits is excluded from taxable income.
- For returns filed prior to the change, IRS will automatically recalculate and refund tax.
You don’t want to postpone taking action on these relief programs. Some of them have limited funds and may expire before the deadline. Our tax experts are ready to assist with any questions about the options available to you about relief programs your business filing. Contact Marty Fox, CPA (email@example.com) to start a conversation and #countonus to bring you all the latest.
And, here are the details…
Tax Deadline Extension
The IRS has moved the tax filing and payment deadline for individuals from April 15 to May 17 for all 2020 tax returns (Notice 2021-21). This change is in response to concerns that Americans need more time to file because of the coronavirus pandemic and recent legislation. Last year’s extension to July 15, 2021, covered a broad range of filings in comparison to this year’s narrower range.
The new deadline of May 17, 2021 is for payments and returns alike, which means there is additional time to pay as well as file. IRS contributions, Roth IRA contributions, HSA, Archer MSA, Coverdell ESA – all are due May 17, 2021. The delay does not apply to corporations, partnerships, and non-profit tax returns. First-quarter estimated tax payments remain due on April 15 and after that date, interest and penalties on unpaid amounts apply.
No action is needed for the delay to apply and no form is needed to qualify for the extension. For those who are still in need of an extension, you can still apply for a 2020 tax-filing extension to October 15. The deadline to submit the extension is May 17, not April 15. Taxpayers who file an extension will have until October 15 to finish their return, but they must pay what they owe by May 17. On that day interest and penalties will start to apply.
California has also extended its filing and payment date to match the new IRS dates. We expect most states to follow suit and conform.
Paycheck Protection Program Extension
The Paycheck Protection Program (PPP) application deadline was extended from March 31 to May 31. The PPP Extension Act of 2021 extends the Paycheck Protection Program, established to support small businesses in response to COVID-19, through June 30, 2021. For the final 30 days of the program, June 1 until June 30, the Small Business Administration may only process applications submitted prior to June 1 and may not accept any new loan applications.
Take note, however, that the PPP Extension Act does not provide any additional funding for the current round of the PPP. The SBA estimates that, at the current lending rate, funds may run out in mid-to-late April.
Employee Retention Credits Extension
We continue to urge employers to take advantage of the newly extended Employee Retention Credit (ERC), designed to make it easier for businesses that, despite challenges posed by COVID-19, choose to keep their employees on the payroll.
Over the last month, we have calculated over $750,000 of ERC for our clients and community. These credits are in the form of refund checks coming back to the clients and we continue to look for ways to help our clients see where credits may be available.
- 2020 Employee Retention Credit Criteria
- 50% drop in gross receipts in a single quarter compared to the same quarter in 2019 (or operations were at least partially suspended due to government order)
- Even if PPP1 funds were received, eligibility for ERC is still likely
- Credit equals $5,000 per employee for the year
- 2021 Employee Retention Credit Criteria
- 20% drop in gross receipts in a single quarter compared to the same quarter in 2019
- Even if PPP2 funds were received, eligibility for ERC is still likely
- Maximum credit of $7,000 per employee per quarter
- Expansion under the American Rescue Plan Act
- ERC was extended from June 30, 2021, through December 31, 2021
- The program is available for small businesses started after 2/15/2020 that were at least partially suspended due to government orders (credit limited to $50,000 per quarter)
Expansion of Economic Injury Disaster Loans (EIDL)
The Pandemic has lasted much longer than anticipated and businesses need larger loans. Over 3.7 million businesses have found relief by obtaining a low-interest EIDL loan for emergency capital. The response has been to more than triple the amount of funding available to applicants. Starting the week of April 6, 2021, the Small Business Administration (SBA) is raising the loan limit for the COVID-19 EIDL program from 6-months of economic injury with a maximum loan amount of $150,000 to up to 24-months of economic injury with a maximum loan amount of $500,000.
The SBA will reach out directly via email and provide more details about how businesses can request an increase. Any new loan applications and any loans in process when the new loan limits are implemented will automatically be considered for loans covering 24 months of economic injury up to a maximum of $500,000.
This new relief builds on SBA’s previous March 12, 2021 announcement that the agency would extend deferment periods for all disaster loans, including COVID-19 EIDLs until 2022 to offer more time for businesses to strengthen. To shift all EIDL payments to 2022, SBA will extend the first payment due date for disaster loans made in 2020 to 24-months from the date of the note and to 18-months from the date of the note for all loans made in the calendar year 2021.
Unemployment Compensation Tax Recalculation
The Bureau of Labor Statistics has reported that 23 million U.S. workers nationwide filed for unemployment last year. For the first time, some self-employed workers qualified for unemployment benefits as well.
On March 31, 2021, the IRS announced that it will begin automatically processing refunds this spring and summer to people who filed their tax return reporting unemployment compensation prior to the recent changes made by the American Rescue Plan Act (ARPA), which was signed into law on March 11, 2021. The first refunds are expected to be made in May and will continue into the summer.
The legislation allows taxpayers who earned less than $150,000 in modified adjusted gross income to exclude unemployment compensation up to $20,400 if married filing jointly and $10,200 for all other eligible taxpayers. The legislation excludes only 2020 unemployment benefits from taxes.
The IRS will determine the correct taxable amount of unemployment compensation and tax for taxpayers who already have filed and calculated tax based on the full amount of unemployment compensation. Any overpayment of tax will be either refunded or applied to other outstanding taxes owed.
For any who have already filed, the IRS will do these recalculations in two phases, starting with those taxpayers eligible for the exclusion up to $10,200. The IRS will then adjust returns for those married filing jointly taxpayers who are eligible for the exclusion up to $20,400 and others with more complex returns.
There is no need for taxpayers to file an amended return unless the calculations make the taxpayer newly eligible for additional federal credits and deductions not already included on the original tax return.