Borrowers of COVID-19 relief loans and recipients of COVID-19 relief grants should be aware of the following information:

Economic Injury Disaster Loan

The COVID-19 Economic Injury Disaster Loan, or EIDL, is a loan program introduced in March 2020 that provided eligible small businesses with funding to support their working capital needs during the pandemic. The EIDL has a 30-year maturity, and the loan must be repaid.

To further support working capital concerns, principal and interest payments for EIDLs were deferred up to thirty months from the date of the note, although interest accrued during the deferral period.

For some borrowers, the deferral period is coming to an end meaning that loan payments are due soon. Borrowers who are unsure when to pay can obtain their account balances, interest amounts, and payment due dates by visiting the SBA Capital Access Financial System (CAFS) here. Borrowers with no CAFS account can refer to instructions to create an account at CAFS_Borrower.pdf (sba.gov). Nonprofit borrowers are encouraged to call their loan’s Servicing Center to access their CAFS account.

Borrowers can make loan payments via the following methods:

• Submit payment using https://www.Pay.gov, as an SBA Form 1201 Borrower Payment using a bank account (ACH), PayPal account, or debit card. This is the preferred payment method.
• Submit payment via your personal banking account by adding the US Small Business Association as a payee. Make sure to enter your 10-digit loan number (NOT application number) as the account number. The following information can be used if needed:
  • Address: P.O. Box 3918, Portland, OR 97208-3918
  • Telephone Number: Use the number on the front of your statement.
• Mail your payment to the U.S. Small Business Administration, P.O. Box 3918, Portland, OR 97208-3918. Include your 10-digit loan number (NOT application number) on the memo field of your check or money order. Make sure to include your business’s name, the borrower’s name, the borrower’s address, account number, tax ID/EIN or social security number, and 10-digit SBA loan number with your check.

Pursuant to program guidelines, SBA has filed liens against business assets for all loans greater than $25,000. Businesses with outstanding loans who want to sell assets, including equipment, must contact the SBA to release the lien. Borrowers may need to provide additional payments to SBA to reduce the loan balance for the lien to be released. Borrowers are encouraged to contact the SBA as far in advance as possible of any potential sale, by contacting their local SBA servicing center.

Paycheck Protection Program

Borrowers with a Paycheck Protection Program (PPP) loan authorized in 2021 through the Consolidated Appropriations Act or Paycheck Protection Program Extension Act who have not applied for loan forgiveness should consider doing so. Borrowers have ten months from the end of their twenty-four week Covered Period to submit their loan forgiveness application to their lender. If forgiveness applications are not submitted, borrowers will be required to make principal and interest payments on their PPP loan.

Borrowers with loans of $150,000 or less may also use the SBA PPP Direct Forgiveness Portal if their bank has opted into its use. The portal can be accessed at https://directforgiveness.sba.gov/requests/borrower/login/?next=/. For questions on whether to use this portal or how to access the lenders’ forgiveness portal, borrowers should contact their PPP lender.

Grant Programs

Some grant programs, including the Shuttered Venue Operators Grant (SVOG), Coronavirus Economic Relief for Transportation Services (DOT), or Restaurant Revitalization Fund (RRF) have certain requirements, including reporting obligations that the recipient must complete. All grant recipients should review their grants’ program guidelines carefully and ensure they complete any obligations timely. Failure to meet requirements may result in the issuing organization revoking grant funds.

For questions regarding your COVID-19 relief, please contact your HBK Advisor.

As the pandemic has continued to unfold, so has legislation and guidance on the numerous COVID-19 relief options available. Today, as businesses and nonprofit organizations focus on pandemic recovery and other challenges, the requirements of these relief programs may no longer be at the forefront of leaders’ minds. However, these requirements are equally as important as when these organizations received their relief. The following summarizes the major federal COVID-19 relief options offered and their status as of November 15, 2021. Paid Leave Under the Families First Coronavirus Response Act (FFCRA) Status: Expired September 30, 2021 From April through December 2020, certain employers were required to provide employees with paid sick leave or expanded family leave for certain COVID-19 related absences. To receive reimbursement for the required time, employers could receive a dollar-for-dollar payroll tax credit for qualified wages (including certain contributions to health insurance), which was filed on Form 941 (or Form 941-X). Through two pieces of legislation (the Consolidated Appropriations Act and American Rescue Plan Act), the same tax credits were extended until September 30, 2021, although paid leave from January 1, 2021 through September 30, 2021 was not mandated. Employers who have not reflected this pay and claimed their associated credit on their Form 941 may still choose to do so via an amended Form 941-X. For additional information, including qualifications for leave, visit the US Department of Treasury. Economic Injury Disaster Loan for COVID-19 Disaster (EIDL) Status: Available until the Sooner of December 31, 2021 or the Depletion of Funding The EIDL is available to small businesses and nonprofit organizations located in the United States and its territories, all of which have been considered a disaster area due to COVID-19. This program is a loan of up to $2 million that must be repaid directly to the SBA during a 30 year term. For-profit businesses have a 3.75% fixed interest rate while private nonprofit organizations have a 2.75% interest rate. The low-interest, long-term loan is intended to help eligible organizations overcome the disaster (or pandemic) by providing working capital to meet operating expenses. In September, SBA updated the loan program as follows:

• Borrowers can obtain the full $2 million offered by the traditional EIDL program, rather than just $500,000 used for the COVID-19 related loan (presumably due to high demand).
• Payment and pre-payment of business non-federal debt was added as an eligible use of funds.
• The deferral period was extended to 24 months from the loan origination date for all loans.
• Affiliation requirements were simplified to businesses that owners control or in which they have 50% or more ownership.
• Certain size standards for select NAICS codes were edited to increase eligibility.

While loans are still available, the Infrastructure Investment and Jobs Act, signed into law on November 15, rescinds $13.5 billion of funding from this program. In addition, the law rescinds over $17.5 billion from the Targeted EIDL Advance program, a grant program related to the EIDL for certain borrowers who were hit hardest by the pandemic. As a result, potential borrowers are encouraged to apply for loans or related increases to their loans as soon as possible as funding may not be available when the program expires on December 31, 2021. Paycheck Protection Program (PPP) Status: Lenders and SBA Accepting Applications for Forgiveness Borrowers with first draw PPP Loans likely have applied for forgiveness on those loans or have begun making payments. If a borrower has an outstanding first draw PPP loan, has not applied for forgiveness, and is eligible for forgiveness, it is not too late! Borrowers can apply for forgiveness on their loan balance at any time until the maturity date. Now, borrowers with second draw loans are likely considering how to obtain forgiveness. These borrowers are encouraged to review the SBA forgiveness applications and note key changes, including how to test potential reduction safe harbors and how to test for a wage reduction, given that the reference period has changed. Borrowers should also consider the documentation that they should maintain or submit, which may include resubmitting proof of their gross receipts decline that they used to prove their eligibility for their loan. Borrowers will once again use their lender’s PPP forgiveness portal to apply for loan forgiveness. With ten months from the end of the covered period to apply, Borrowers should not rush, but unlike the first draw, patience for more guidance is not likely needed. All anticipated guidance has been released and is available from the SBA and US Department of the Treasury. Employee Retention Credit (ERC) Status: Program Ended for Most, Filings Still Accepted The Infrastructure Investment and Jobs Act includes the retroactive termination of the ERC, meaning that qualified wages paid after October 1, 2021, are not eligible for the tax credit. However, this change is not applicable for Recovery Startup Businesses, who can continue to take the ERC on qualified wages paid through December 31, 2021. A Recovery Startup Business is defined as a business that began after February 15, 2020, earns average gross receipts of less than $1 million, and does not qualify for the ERC under the original test (which is only applicable through the third quarter of 2021). These businesses are limited to a $50,000 credit for each of the third and fourth calendar quarters of 2021. Eligible businesses who have not filed for the ERC can still do so by amending their Form 941 filings via a Form 941X for each quarter where they have paid qualified wages. As the ERC does affect income tax, it is recommended calendar year businesses calculate their ERC and file Form 941-X before the end of the calendar year. For more information about the program, visit the IRS website. Employer Payroll Tax Deferral Status: 50% Payment Coming Due 12/31/2021 From March 27, 2020 to December 31, 2020 employers had the option to defer the deposit and payment of the employer’s share of Social Security taxes and certain railroad retirement taxes. Half, or 50% of the deferred deposit, must then be deposited by December 31, 2021, and the remaining amount must be deposited by December 31, 2022 to be treated as a timely deposit. As the first deadline is quickly approaching, employers who deferred their payroll tax should ensure that they are ready to make their payment before December 31 approaches. Organizations that use a payroll processor are encouraged to contact their processor in advance to avoid any complications. For more information, visit the IRS website. Restaurant Revitalization Fund Status: Funding Depleted, Reporting due 12/31/2021 The Restaurant Revitalization Fund offered certain restaurants, bars, breweries, wineries, and similar businesses with a grant opportunity equal to revenue lost due to the COVID-19 pandemic. Many businesses that were eligible for the grants missed the opportunity due to a limited amount of funding that was quickly depleted. Those who received funds must report how much of their grant has been used against each expense category by December 31, 2021 using the Restaurant Revitalization Fund portal. Businesses unsure of eligible uses of funds can consult the Restaurant Revitalization Program Guide provided by the SBA. Shuttered Venue Operators Grant Status: Funding Depleted Live venue operators, theatrical producers, museum operators, talent representatives and other similar businesses may have applied for the Shuttered Venue Operators Grant, a grant program focused on the hard-hit entertainment industry. Depending on the award amount, businesses may be subject to certain reporting, monitoring, or auditing requirements. As a result, grant recipients should be aware of their individual requirements and ensure they fulfill them. In addition, recipients should ensure that they watch for communications from SBA, which may indicate the need for additional reporting. Grant recipients can also learn more by visiting the SBA Shuttered Venue Operators Grant relief page. Other Considerations Throughout the pandemic, many programs – at the federal, state, and local levels – became available to help businesses navigate the pandemic. Whether your business received funding from one of the listed programs or funding from any other source, consider refreshing yourself on program requirements. Many programs were implemented quickly and later evolved. Recipients must keep up to date with changing guidance and ensure they meet all requirements to obtain or retain such funding. In addition, as you spend funds, consider keeping detailed records of how each program is used. Each funding program has its own requirements, including how funds are spent. However, most prohibit a borrower or fund recipient from “double-dipping”. This means the same expense cannot be reimbursed by funds from two different COVID-19 relief programs. By reviewing program requirements and documenting the use of funds, organizations are prepared to show that their use of funds meets program requirements. For assistance with your COVID-19 relief, please contact your HBK Advisor.

On November 15, 2021, President Joe Biden signed The Infrastructure Investment and Jobs Act. The new law includes significant changes to the Employee Retention Credit (ERC) for the fourth calendar quarter of 2021.

The ERC has been eliminated for wages paid after October 1, 2021. For employers that were anticipating a credit for the fourth quarter of 2021 and have been holding payroll tax deposits should begin making deposits again immediately. We will continue to monitor if the IRS grants any relief for deposits that were not made timely.

An employer can still claim an ERC of up to $50,000 if they qualify under the recovery startup business rules for the fourth calendar quarter of 2021. This opportunity applies to businesses starting after February 15, 2020 and having annual gross receipts of less than $1 million. If the employer owns multiple businesses, there are additional test that will need to be met before determining eligibility.

While the ERC is eliminated, there is still opportunity to claim credits related to 2020 and the first three quarters of 2021. To see if you may qualify, refer to our July 27th Webinar to learn more about the credit. We’re here to help. Please reach out to HBK to discuss your situation.

Highlights from the July 27 HBK webinar featuring Ben DiGirolamo, CPA, JD, HBK Principal; Donald Trummer, CPA, HBK Senior Manager and Tax Specialist; Amy Reynallt, MBA, Manager, HBK Manufacturing Solutions

Employee Retention Credits

The Employee Retention Credits (ERC) relief program has been updated twice since it was first introduced as part for the 2020 CARES Act, first by the Consolidated Appropriations Act, then under the American Rescue Plan.

• The ERC is available to employers for most of 2020 and all of 2021. It can be very valuable to your business.
• Eligibility: Qualified organizations include businesses or tax-exempt organizations that fully or partially suspended operations during any calendar quarter in 2020 or 2021 due to orders from a government authority limiting commerce, travel, or group meetings due to COVID-19, or experienced a decline in gross receipts during the calendar quarter compared to same quarter in 2019. The IRS has issued FAQs on what it means to be fully or partially shutdown.
• For 2020, gross receipts must be 50 percent less than in the comparable 2019 quarter and the benefit continues until a return to 80 percent of those receipts. For 2021, gross receipts must only be less than 80 percent of what they were in the 2019 quarter, and credits continue until receipts recover to 80 percent.
• The declines do not have to be COVID-related, just a qualifying reduction.
• The 2021 trailing test works to allow your qualification to be based on a prior quarter. If you qualify for one quarter you’re generally going to qualify for at least two.

Qualified Wages

For 2020, the ERC equals half of qualified wages, capped at $10,000 per employee. For 2021 it’s 70% of wages up to $10,000 per employee per quarter—up to $28,000 for the year. Wages paid during the entire quarter qualify.

• For businesses qualifying due to government shutdown, qualifying wages are those wages paid during the period of the shutdown.
• For 2020, if more than 100 full-time-equivalent (FTE) employees in 2019, only wages paid to those not working qualify. For 2021, if over 500 FTE employees, only wages paid to those not working qualify.

PPP & ERC

• Recipients of Paycheck Protection Program (PPP) loans can now also take advantage of the ERC.
• Organizations with 100 to 500 employees are no longer restricted to wages only of employees not working, but all employees.
• Wages and healthcare costs substantiating ERC can now be used to support PPP loan forgiveness.
• Employers can elect not to include wage and healthcare cost in computing ERC in order to maximize PPP forgiveness. You can satisfy your forgiveness requirements then maximize ERC. And if portions of your PPP loan are not forgiven, you can apply related wages to recalculate ERC.
• For the vast majority of applicants, PPP was the better option over ERC. But that changes due to the Consolidated Appropriations Act. Now you can maximize PPP expenses and free up wages over your loan amount to use with ERC.

Claiming the credit

You can amend your 2020 payroll tax returns to claim ERC or additional ERC for up to the next five years.

• For 2021, you can reduce your payroll tax deposits by the anticipated credit or wait to claim the credit.
• By administering the credit through payroll, Congress gave organizations the opportunity to first reduce the anticipated payroll tax deposit and if the anticipated credit exceeds the deposit file for a refund.

Common Issues

How to determine to file for businesses separately or aggregated? Might tie businesses together to maximize ERC, given qualifying via the single employer test. Must ensure there is no double dipping on wages and how the qualification rules apply for aggregating businesses.

• Must use the same accounting method used for your tax returns.
• Can include employer and spouse in qualifying wages but not other family members.
• Maximize non-payroll expenses and non-qualifying ERC payroll when applying for PPP loan forgiveness.
• The quickest way to get an ERC refund is by reducing payroll tax deposits.
• The ERC interacts with other tax credits. You can’t double dip on wages. Generally the ERC will deliver a better benefit dollar for dollar.

PPP

Round 1 forgiveness: Borrowers have 10 months from the end of their 24-week covered periods to submit their applications or will have to being interest and principal payments to their lenders. If your deadline is passed, you can still apply for forgiveness for the unexpired part of the loan.

• Some lenders have imposed earlier deadlines, so follow the guidance from your PPP lender. Some lenders are also re-testing originally provided loans to ensure forgiveness only on the amount of loan that accommodates the rules.
• As of July 9, the Small Business Administration is no longer requiring Loan Necessity Question Forms.
• Round 2 is governed by generally the same rules as round 1. There are some minor differences in wage calculation, and the cap for owner compensation in terms of a different time period for reference than round 1. Additional eligibility documentation is also required.
• If you’re coordinating round 2 with your ERC, it may be beneficial to at least wait until end of the 24 week period to apply wages to the program most beneficial to you.

Updates for other relief programs:

• Economic Injury Disaster Loan – Proof of hazard insurance is being requested or of the approval of the loans by the board of directors. Emails are also being sent regarding targeted EIDL grants, and some regarding loan increases of up to $500,000.
• The Restaurant Revitalization Fund is closed. More than 100,000 grants were issued and $29 billion in funding was awarded. There was controversy over the program as intended grants were rescinded. Watch for updates or new legislation.
• Shuttered Venues Operators Grant – Nearly 9000 grants totaling 6.8 billion were awarded. The SBA has been reaching out to organizations suffering 70 percent or more revenue loss in their most recent calendar quarter about supplemental grants. Program has awarded more than 99 percent of its funds.
• Families First Coronavirus Response Act COVID-19 Sick Leave – Expands eligible leave time to include COVID-19 diagnostic testing and receiving or recovering from the vaccine as of April 1, 2021.

While guidance for the Paycheck Protection Program (PPP) has slowed significantly in 2021, some updates continue to affect borrowers, particularly those applying for loan forgiveness. Borrowers should consider five key updates:

1. If you haven’t submitted your first round PPP’s forgiveness application, consider your timeline to apply.

   All Borrowers must apply for loan forgiveness, regardless of their loan size, by submitting an application for forgiveness to their PPP lender. Borrowers have ten months from the completion of the Covered Period to submit their PPP forgiveness applications, or those borrowers will begin to make principal and interest payments on their loans. All borrowers should understand when they must apply for forgiveness, as the ten month deferral period for early loan recipients may have ended or may be ending soon.

   As of now, second draw PPP loan recipients (as well as recipients of first draw PPP loans received in 2021) will have the same timeline to apply. In determining when to apply for forgiveness, Borrowers may consider their deadlines, coordination with other COVID-19 relief programs, individual business circumstances, and any instructions provided by their lender. Some lenders may not open their PPP forgiveness portals for 2021 loans until later in the year.



2. SBA drops the controversial Loan Necessity Questionnaires.

   On July 9, the SBA withdrew their requirement for the loan necessity questionnaires by notifying lenders that the loan necessity review for borrowers of loans $2 million or greater would be eliminated. These forms, Form 3509 (for for-profit borrowers) and Form 3510 (for non-profit borrowers) should no longer be requested, and form requests in progress should be closed. SBA committed to providing additional guidance, which has yet to be released.



3. All loans, regardless of size, can be reviewed.

   Borrowers should be aware that all loans, regardless of loan size, can be reviewed by SBA. Borrowers will be notified if they are reviewed, and additional documentation may be requested. All borrowers should be aware of the documentation requirements for their PPP loan. A list of documents to submit with forgiveness applications and to maintain (but that are not required to be submitted) are available on the SBA Loan Forgiveness Application Form.



4. Rumors persist regarding a direct to SBA PPP forgiveness portal.

   Several news outlets are reporting that the SBA is expected to release an online portal for PPP loan forgiveness applications, where borrowers submit their forgiveness applications direct to the SBA. For a business to use the portal, it is expected that the business’s lender must opt into the SBA platform. Until more information is available, borrowers should continue following their lenders’ processes to apply for loan forgiveness. More information is expected as early as August.



5. More simplifications for select borrowers are possible.

   News outlets are also reporting that the SBA is working to further simplify the PPP loan forgiveness process for borrowers with loans between $150,000 and $2 million. Since the program was introduced via the enactment of the CARES Act in March 2020, SBA has released nearly 100 Frequently Asked Questions, as well as over thirty Interim Final Rules and several Procedural Notices. Borrowers should continue to watch for guidance, and be prepared to follow any guidance available that may affect their loan or forgiveness.

For questions about your PPP loan, its forgiveness, or other COVID-19 relief programs, contact a member of HBK’s COVID-19 Response Team or your HBK Advisor.

The CARES Act, passed in March 2020, included the Employee Retention Credit (ERC) and Paycheck Protection Program (PPP) both intended to support employers with payroll expenses during the COVID-19 Pandemic. Initially, businesses were forced to choose between the two programs, as they could only use one. However, when Congress passed the Consolidated Appropriations Act (CAA) in December 2020, eligible organizations were offered more support as they could benefit from both programs, even retroactively. Paycheck Protection Program: first and second draw loans With the enactment of the CAA and American Rescue Plan Act (ARPA), eligibility was expanded to allow certain previously excluded nonprofit entities to apply for a first-draw PPP loan while others who received the first-draw loan could apply for a second-draw loan. This expansion provided many nonprofit organizations additional relief from the COVID-19 pandemic. The program was scheduled to close on March 31; then Congress extended the deadline to May 31. However, on May 5, the Small Business Administration (SBA) announced that lender funding was depleted, closing the application opportunity for most organizations. PPP forgiveness update Borrowers should be aware that any “excess loan amount” received will not be entitled to forgiveness. An excess loan amount is defined as a “borrower or lender error made in good faith that caused a borrower to receive a PPP loan amount that exceeds the borrower’s correct maximum loan amount under the CARES Act and the Economic Aid Act.” Excess loan amounts do not include a knowing misstatement, which could result in fraud charges. The CAA made several changes to PPP loan forgiveness, including making additional nonpayroll costs—certain supplier costs, worker protection expenditures, operations costs, and property damage costs—eligible for forgiveness; permitting borrowers with loans under $150,000 to use a simplified forgiveness application, and giving all borrowers the option to choose a covered period of between 8 and 24 weeks. Borrowers who have not applied for forgiveness for the first-draw PPP loans may want to prepare to apply. The SBA states that “If the borrower does not apply for loan forgiveness within ten months after the last day of the maximum covered period of 24 weeks, or if SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred and the borrower must begin paying principal and interest.” Borrowers should review guidance and forgiveness instructions carefully before beginning the application process. They should also consider benefits applied for and received from other COVID-19 relief programs, such as the Employee Retention Credit (ERC) and Families First Coronavirus Response Act (FFCRA) COVID-19 sick and expanded family leave, to ensure programs are used properly in relationship to one another. 2020 Employee Retention Credit The ERC is a 50 percent refundable payroll tax credit for eligible employers on up to $10,000 of qualified wages paid to employees between March 12 and December 31, 2020. The credit can be broken into two steps: • Determining Eligible Employers: Eligible employers are certain organizations that experienced either of the following during a calendar quarter of 2020: – The organization’s operations were fully or partially suspended during the calendar quarter due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings for commercial, social, religious, or other purposes due to COVID-19 – A significant decline in gross receipts during a calendar quarter as compared to the same quarter of 2019. The first eligible quarter is the quarter in which gross receipts are less than 50 percent of the gross receipts for the same quarter in the prior year. Each succeeding quarter is eligible until the following quarter, in which gross receipts exceed 80 percent of the gross receipts for the same quarter in the prior year. For nonprofit employers, the definition of gross receipts has been modified solely for purposes of the ERC to include all operations, investment income, rents, royalties, gross amounts received as contributions, gifts, grants, and similar amounts. • Determining Qualified Wages: Qualifying wages are wages and allocable healthcare costs. For employers eligible under the first scenario above, only wages paid during the period in which operations were suspended qualify. For employers eligible under the second scenario, all wages paid during the quarter fall within the qualifying period. Employers that did not pay wages but covered healthcare costs are eligible for a credit. Qualified wages are further distinguished based on the number of full-time equivalent employees (FTE) during 2019: – For employers with more than 100 FTEs, qualified wages are wages paid to employees not providing services during the qualifying period. – For employers with 100 FTEs or fewer, qualified wages are any wages paid to employees during the qualifying period. Claiming both ERC and PPP loan forgiveness PPP loan borrowers should understand how the PPP interacts with the ERC. The CAA explains: • Wages and health care costs used to substantiate the ERC cannot be used for PPP loan forgiveness (no double-dipping). • Wages must be used first to claim the ERC. • Employers can elect not to include certain wage and healthcare costs in the computation of the ERC, to maximize PPP forgiveness. • Eligible employers may recalculate the ERC in the event the PPP loan is not forgiven. In Notice 2021-20, the IRS provided updated guidance and examples of maximizing the ERC while satisfying PPP loan forgiveness. Generally, the guidance allows taxpayers to take the minimal amount of wages required to satisfy PPP loan forgiveness while potentially increasing their ERC. To claim the ERC for the 2020 tax year, the taxpayer will need to amend their quarterly payroll tax form 941 by filing form 941X for the applicable quarters. If a shutdown impacted the eligible organization in the first quarter of 2020, claim the credit by filing a 941X for the second quarter. 2021 Employee Retention Credit   In addition to permitting organizations that received PPP loans to be eligible for the ERC, the CAA enhanced the ERC through the first two quarters of 2021 as follows: • The credit was increased from 50 to 70 percent of qualified wages. • Qualifying wages were increased from $10,000 per employee per year to $10,000 per employee per quarter. • The “significant decline” in gross receipts was changed from 50 to 80 percent for either quarter as compared to 2019. • Employers can elect to use the immediately preceding quarter and the matching quarter from the prior year to satisfy the gross receipts test. • The number of FTEs was increased from 100 to 500 for determining qualified wages. • The cap on qualified wages using the equivalent duration during the 30-day period immediately before the eligible quarter in which wages were paid was removed. • Businesses can receive the credit in advance. American Rescue Plan Act (ARPA)   On March 11, 2021, ARPA became law, creating additional modifications to the ERC for 2021: • Extends the availability of the credit through December 31, 2021. The ERC and PPP have been modified with multiple changes since their introduction. Employers should consider their options and the relationship between COVID-19 relief programs to maximize their benefits. • Removes the alternative method allowing employers to use the immediately preceding quarter and the matching quarter from the prior year to satisfy the gross receipts test. • Adds Recovery Startup Businesses (RSB) to the list of eligible employers. To qualify as an RSB, the business must have been started after February 15, 2020; have less than $1 million in gross receipts; not be subject to a shutdown order, and not have a significant decrease in gross receipts. RSBs are eligible for and limited to a $50,000 credit for the ERC in the third and fourth quarters of 2021. • Allows “severely financially distressed” employers, those whose quarterly gross receipts declined 90 percent or more compared to the same calendar quarter in 2019, to treat all wages (up to the $10,000 limitation) paid during those quarters as qualified wages. The rule allows an employer with over 500 employees under severe financial distress to treat those wages as qualified wages whether or not its employees actually provide services for the third and fourth quarter of 2021. Eligible employers have three options for claiming the ERC for the 2021 tax year: • Report the ERC on quarterly Form 941, and request a refund or apply it as a credit to the following quarter. • Reduce federal employment tax deposits based on the anticipation of the ERC for the quarter. • File Form 7200 to request the refund in advance based on a projected credit amount that exceeds the amounts that can be withheld from federal employment tax deposits. Use Form 941 to reconcile the actual amount of the credit to the projected amount to correct any balance due or overpayment. The ERC and PPP have been modified with multiple changes since their introduction. Employers should consider their options and the relationship between COVID-19 relief programs to maximize their benefits. We’re here to help. Please reach out to HBK to discuss your situation. Read the full Summer issue of HBK Nonprofit Solutions quarterly newsletter.

On Monday, February 22, the Biden-Harris Administration announced changes to the PPP program that focus on small businesses. These changes included expanded eligibility and a fourteen-day period during which only businesses that employ fewer than 20 people could apply for a PPP loan. This period ends on March 9.

In addition, the Administration announced that sole proprietors, independent contractors, and self-employed individuals could be eligible for more financial relief. At the time of the announcement, no specifics regarding how to calculate the larger loan amount were released.

On March 3, SBA issued an Interim Final Rule detailing this new calculation. Now, Schedule C tax filers with or without employees can apply for a PPP loan based on the net income or the gross income reported on their Schedule C. By using gross income, some Schedule C filers who were excluded from the PPP could now be eligible to apply for a PPP loan while others could receive substantially larger loan amounts.

Schedule C filers seeking to apply using their gross income should consider the following:

• Borrowers whose loans were approved before March 3 cannot modify their loan amount. Only Schedule C tax filers who are eligible for a first or second draw PPP loan and who have not applied for that loan may now apply with this new calculation.
• SBA released revised loan applications for first draw and second draw applications using this calculation methodology. Interested borrowers may choose to discuss any revised processes regarding the submission of this application version and related documentation with their PPP lender.
• If a first draw PPP Borrower who applies for a loan using the gross income calculation has Schedule C gross income that exceeds $150,000, they will not be automatically deemed to have made the certification concerning the necessity of loan in good faith. SBA has determined that these borrowers may have other sources of liquidity and is committed to reviewing a sample of these loans. This does not apply to second draw loans since those applicants are required to certify a reduction in their gross receipts.
• The period to apply for a loan has not been extended. Loans must be approved by March 31, 2020.

For questions regarding your PPP loan, please contact your HBK Advisor.

When the Economic Aid Act, part of the Consolidated Appropriations Act, 2021, was enacted in December of 2020, a new round of Paycheck Protection Program funding was released allowing eligible borrowers to apply for first or second draw PPP loans. Loans can be approved through March 31, 2021. (Note: PPP loan forgiveness applications are not affected by this date.)

Many borrowers worked with their lenders to receive these PPP loans, but some borrowers have not yet received their funding. Others have delayed their applications, waiting for clarifications in guidance or updates to lender processes that would accommodate previously enacted changes to the program.

This week, some lenders began announcing that they will soon or have already closed their application processes for this round of PPP loans. The AICPA and other organizations are calling for SBA to extend the application period; however, it is uncertain whether this may occur.

As a result, Borrowers who are eligible and interested in PPP loans may consider taking the following actions:

1. Submit your loan application. Most lenders are using PPP loan portals to accept new loan applications. However, potential borrowers can visit the Treasury or SBA websites to obtain copies of the applications that will help them to prepare the documentation and data required by the lender portal. Copies of these applications are available as follows:

   a. Schedule C filers applying for a first draw PPP loan using their gross income: https://home.treasury.gov/system/files/136/PPP-Borrower-Application-Form-for-Schedule-C-Filers-Using-Gross-Income.pdf

   b. Schedule C filers applying for a second draw PPP loan using their gross income: ttps://home.treasury.gov/system/files/136/PPP-Second-Draw-Borrower-Application-Form-for-Schedule-C-Filers-Using-Gross-Income.pdf

   c. Other eligible PPP borrowers applying for a first draw loan: https://home.treasury.gov/system/files/136/PPP-Borrower-Application-Form.pdf

   d. Other eligible PPP borrowers applying for a second draw loan: https://home.treasury.gov/system/files/136/PPP-Second-Draw-Borrower-Application-Form.pdf



2. If you have applied for your PPP Loan but have not received funding, check the status of your loan application. Some lenders will allow you to do this within the PPP loan portal while others may require that you reach out to them directly. If you have concerns about your loan status, contact your PPP lender.


3. Lastly, continue to stay abreast of changes to the program. This recommendation continues to be important for borrowers in all stages of the Paycheck Protection Program. The program continues to change and evolve, and borrowers should be aware of the latest guidance and how it may affect them.

For questions about your PPP loan, please contact your HBK Advisor.

The Paycheck Protection Program (PPP), was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act and authorized loans to qualifying businesses affected by the COVID-19 pandemic. Businesses are permitted to use their PPP loans for certain qualified business expenses and are afforded partial or total forgiveness up to these amounts, so long as the other PPP Loan provisions are met. Specifically, CARES Act Section 1106(i) explicitly excludes the forgiveness of PPP loans from gross income on a federal level. The Consolidated Appropriations Act, 2021 goes on further to state that deductions shall not be denied, meaning that expenses paid with forgiven loan proceeds are tax-deductible for federal income tax purposes.

For the states, however, there is not an automatic adaptation of this provision depending on how that state has chosen to adopt the Internal Revenue Code (“IRC”). To fully conform with the nontaxable PPP Loan Forgiveness, a state must adopt the most current IRC as well as conform to the CARES Act provisions. States typically fall into several buckets of conformity: rolling conformity, static conformity, or selective conformity.

• Rolling Conformity: States with rolling conformity will adopt the most recent IRC as it becomes available.
• Static Conformity: States with static conformity will adopt the IRC on the date on which they have chosen and new adoption dates must be set by the state regularly as the IRC is updated.
• Selective Conformity: States with selective conformity pick and choose the provisions that they will adopt at the state level. These adaptation policies have had a significant impact on state tax matters following the CARES Act and could cause significant income tax adjustments for taxpayers at the state level regarding PPP Loan forgiveness.

Conformity Issues

Twenty-one states and the District of Columbia are states that implement rolling conformity, meaning they automatically have conformed to the CARES Act and all subsequent IRC provisions, adopting the most up to date version. Taxpayers with forgiven PPP loans in those jurisdictions will most likely exclude the forgiven loan proceeds from taxable income at the federal and state-level unless the state has specifically adopted their own provision creating an add-back for PPP forgiveness or other income adjustments. It is important to note that while the CARES Act modified what is included in gross income, i.e., forgiven PPP loans proceeds, there is no specific IRC provision that was created, which means of the nineteen states that follow static conformity, those state lawmakers must vote to change their state’s conformity date to include the CARES Act.

For Static conformity states, unless they have updated their date of conformity to the most recent IRC or date of the CARES Act, these states would not be in conformity with the PPP forgiveness provisions, and PPP loan forgiveness may not be exempt from gross income for that state. This is also dependent upon whether a state has a federal adjusted gross income or taxable income starting point in calculating that state’s taxable income. This means that states not only have to ensure that they have adopted the most recent IRC and conform to the CARES Act provisions, but they have ensured their state starting point for calculating taxable income accurately includes or excludes PPP loan forgiveness. This may require some states to update forms, worksheets and/or instructions to affirmatively income or exclude PPP loan forgiveness from their taxable income calculation.

States Impacting Many of our Clients:

Many of our clients are concentrated in Ohio, New Jersey, Florida and Pennsylvania, and each of these states has differing conformity issues. The following provides a state-by-state breakdown of the current status of PPP Loan forgiveness as it relates to state income tax.

Ohio:

The state of Ohio has affirmatively stated that for CAT purposes PPP forgiveness will not be subject to taxation, which was a critical addition to the law as the Ohio CAT calculation typically includes debt forgiveness. However, it should be noted that the Ohio Department of Taxation has recently issued guidance that this relief does not extend to Economic Injury Disaster Loan (EIDL) advance grants and other county-issued relief grants.

For income tax purposes, the state of Ohio has conformed with the most up to date IRC as well as the CARES Act. While the state of Ohio has not affirmatively stated whether or not they will have any specific modifications relating to PPP, it can be assumed that Ohio will follow the federal code for income tax purposes unless another guidance is released.

New Jersey:

On February 9, 2021, New Jersey Governor Phil Murphy and State Treasurer Elizabeth Maher Muoio announced that New Jersey will follow the federal treatment and that PPP loan forgiveness will be tax exempt at the state level. In addition, the related business expenses that were paid with the loan proceeds will be deductible.

They have stated “New Jersey can follow the federal government’s treatment without enabling legislation under existing authority.” Therefore, related expenses paid for with PPP loans will be deductible for both Gross Income Tax (“GIT”) and Corporation Business Tax (“CBT”) purposes and forgiven loans will be excluded from being subject to either tax.

Pennsylvania:

In Pennsylvania, PPP forgiveness is exempt for sole proprietors, partnerships, and S Corporations under Act 1 of 2021. The Act also states that the related expenses are deductible in calculating taxable income. Pennsylvania C Corporations follow federal rules.

New York:

The state of New York has recently announced its intent to conform to the federal rules against taxing PPP loan forgiveness. At this time New York has not formally confirmed, and we will be awaiting additional information from the state.

Florida:

Florida will follow the federal rules for C Corporations.

Florida does not have an income tax for individuals.

The year 2020 might be behind us, but the pandemic rages on, as does the burst of stimulus-boosting legislation aimed at assisting businesses, including and sometimes specifically for long-term care facilities. As we take a deep breath and let the dust settle, consider these four elements when preparing and planning for upcoming tax reporting:

1. PPP: rounds one and two. Facilities that received the Paycheck Protection Program (PPP) loans in 2020 and have not yet applied for loan forgiveness should consider the best timing to apply for forgiveness, based on their individual situation. For Borrowers with loans up to $150,000, filing for forgiveness should be less cumbersome, due to the revised 3508S application; however, Borrowers, should carefully review the application requirements and watch for their lenders to update their PPP forgiveness portals to accommodate the revisions.

   To qualify for a second round Payment Protection Program loan, you must have received and used—or will use—the funds from a first-round loan. As well, the business must have no more than 300 employees, down from 500 for the first round, and have gross receipts in any 2020 quarter of at least 25 percent less than the corresponding 2019 quarter. We still await potential further guidance on how funds received from other programs, like the Health and Human Services Provider Relief Fund, will affect your ability to qualify for a second PPP loan, but we are advising facilities that may have suffered a 25 percent decrease in receipts in a 2020 quarter to reach out to your professional advisor for guidance.

   Most notably with the passage of the Consolidated Appropriations Act (CAA), expenses incurred on forgiven amounts are now tax-deductible.

2. HHS Provider Relief Funds. During 2020, most facilities received an HHS Provider Relief Fund (PRF) payment through one or more of the agency’s General Distribution phases. Now, facilities are required to submit a report on how those funds were used. Facilities will need to substantiate how the PRF they received covered increased expenditures attributable to the coronavirus and related lost revenues during 2020. Funds reimbursed by other sources, such as the PPP, cannot be used when reporting the usage of the HHS PRF. If a facility received a payment, or combined payments, more than $10,000, the facility must submit the initial report covering the 2020 year through the HHS portal. The portal was set to be open between January 15 and February 15, 2021, but has since been postponed absent of guidance on an opening date. Facilities expending more than $750,000 in federal financial assistance during their fiscal year should plan to receive a single audit and begin contacting a qualified CPA to ensure they can meet the required reporting.

   Note that the funds are considered taxable income. Providers receiving the funds will be issued 1099-MISC for 2020.

3. Work Opportunity Tax Credit. The Work Opportunity Tax Credit (WOTC) was created in 1996 to allow for-profit employers to claim a tax credit against their federal income tax liabilities for hiring members of certain groups who have historically faced significant hurdles to employment. The CAA extends this credit through December 31, 2025.

   To take full advantage of the WOTC, it is necessary that facilities not “double-dip” on expenditures when supporting for other sources or tax credits, such as the PPP forgiveness or the Employer Retention Credit. Entities should consult with your professional advisor to maximize available tax credits, while remaining compliant with other reporting requirements.

4. Employee Retention Credit. The Employer Retention Credit (ERC) was created in 2020 by the CARES Act to encourage employers to keep employees on the payroll and continue offering health benefits during the coronavirus pandemic. The ERC is a 50 percent refundable payroll tax credit for eligible employers on up to $10,000 of qualified wages paid to employees between March 12 and December 31. The program was extended through June 30, 2021, with a 70 refundable payroll tax credit for eligible employers on up to $10,000 of qualified wages paid to employees per quarter. Employer eligibility is achieved when the entity’s operations are suspended through governmental orders or there is a significant decline in gross receipts, which is assessed on a quarterly basis (current year vs. 2019). Significant declines are defined as 50 percent or more for 2020 and 20 percent or more for 2021.

   While long-term care facilities did not, by and large, face governmental shutdowns, some may have found light in the second eligibility criteria. Standard turnover, coupled with fewer elective surgeries, which ravaged the skilled nursing sector, and families hesitating to move loved ones into assisted and independent living communities, have created a dwindling in-patient/resident census. When analyzing decreases in gross receipts one may consider factoring in funding from sources like HHS or other state-sponsored efforts. At this time current regulations are unclear on the matter. A requirement to factor such funding may diminish the likelihood of qualifying for the ERC.

   For those who qualify, facilities claiming the ERC cannot “double-dip” on expenditures when reporting for other sources or tax credits, like the WOTC, or other COVID-19 relief programs such as the PPP. More guidance is expected soon on the coordination of the PPP and ERC.

With correct balancing, the above elements create the opportunity to minimize tax liability while maintaining compliance with applicable laws and regulation. We invite you to call us with your questions and concerns at 330-758-8613. Or email us at kcrouthamel@hbkcpa.com or jzarlenga@hbkcpa.com.

HBK Healthcare Solutions is a dedicated team of healthcare provider subject matter experts within HBK CPAs & Consultants. Among more than 800 clients in the healthcare and social assistance businesses, we serve more than 300 private physician and dental facilities. Our unique depth and breadth of experience in medical verticals manifests itself in a full complement of compliance and consulting services, a holistic financial solution.