The $1.9 trillion law signed by President Biden last week includes funding for agriculture, nutrition, education, veterans, vaccines, therapeutics, testing, public health, housing, airlines, state and local governments, and, this is where you come in….… help for small business and individuals.
Here are some highlights that may be of importance to many of our clients, and generally interesting to those who are in the tax and accounting business.
(As usual, understand these are broad comments. The details will define you here. This is our general understanding of the law as it stands now, but comments from both government and non-governmental analysts may change some of our thoughts.)
- The PPP loan window is now closing on March 31. If you want PPP money, now is the time to apply.
- Many of our clients and their children may be entitled to the $1,400-per-family-member for the Recovery Rebates. If your income was higher in 2020 than in 2019, you might want to hold off filing a 2020 return so the IRS can look at your 2019 to determine your eligibility. On the other hand, you might want to file your 2020 returns if doing so shows the government that your more recent income makes you eligible for the rebate. Check with your tax preparer. The rebate is phased out beginning at $75,000 per single individual, with total phase out at $80,000.
- Some of you must report unemployment compensation on your tax filings, which represents a change from the earlier requirement that 100 percent of this money was taxable to you. Under the revised rules, the first $10,200 of unemployment compensation is not taxable. A married couple can report tax-free unemployment income up to $20,400. That said, this revision to prior law applies only to folks with modified adjusted gross income under $150,000, so check with your tax adviser if you have questions about where you fall.
- Of high importance to those in the restaurant industry are the provisions related to the Restaurant Revitalization Grants. The IRS earmarked a $28.6 billion fund for relief of restaurants and other like establishments. The grants will be issued directly by the SBA. Since the funds are limited, keep tabs on the SBA website and be prepared to drop your application as soon as you can. Money is likely to run out.
Grant amount is limited to the difference between 2019 gross receipts and 2020 gross receipts. It is further reduced by prior PPP funds obtained.
The grants are limited to $10 million per entity and further limited to $5 million per physical location. The total number of locations an entity may have is 20. If you have 21 units, you are out of luck. If you are publicly traded, forget about applying. In addition, if you file for relief under the Shuttered Venues Act, you may not apply for this grant.
In addition, there is a special fund for those that had less than $500,000 in receipts. It is $5 billion dollars, specifically for those restaurants in the revitalization plan. Figure most food trucks, for example, would qualify.
Grant funds may be used to pay a broad range of expenditures made by the restaurant recipient dating back to February 15, 2020 and continuing through December 31, 2021. Those include the usual items included in allowed expenditures for PPP forgiveness, as well as a few additional items that include:
- Improvements to establish outdoor seating.
- Food and beverage expenses.
- General operational expenses.
- Anything the SBA deems is essential to the running of an operation.
Unused funds must be returned to the SBA. Restaurants that go out of business before December 31, 2021 must return unused funds.
A certification of need is required. Like the PPP loans, you must be able to represent that, for your business, the uncertainty of economic conditions makes the grant necessary for the support of your ongoing operations. There is no bright line definition of the term “necessary,” so talk this through with your attorney. If you are sitting on a load of cash, you might not want to apply for this.
Finally, a special 21-day time period has been set aside for banks to receive applications from certain restaurants owned by women, vets, and socially and economically disadvantaged individuals.
- Available funding exists for EIDL loans for companies with no more than ten employees that have had a 50 percent decline in gross receipts. Grants are capped at $10,000 initially, with an additional $5,000 supplemental payment.
- The Congress has, again, slapped the IRS hand and has precluded them from taxing any grant income, loan forgiveness and basically any benefit conferred by this new law. In addition, the IRS can’t disallow any expense that was paid for by the grants. You don’t have to recognize income, lose deductions or sacrifice something called tax basis if you are a partner or S-Corp shareholder. Keep in mind, your state may not have afforded the same treatment, so you have to check your state of residence to see what is up with that. For example, California has recommended waiting to file and extending business returns and it looks like some states will follow suit but certainly not all. Double check your area before making any decisions.
- The Act has many, many other features. Check with your advisors for more clarity, particularly with respect to the following areas, which have some modifications and some enhanced benefits.
- For venues that were shuttered by the pandemic, funding was increased by $1.5 billion, but each grant will be reduced by prior PPP funding granted to those venues.
- The Employee Retention Credit will now expire December 31, 2021.
- The Child Care Credit has been expanded.
- Earned Income Tax Credits have also increased.
- There is an extension of ten additional days for credits for sick and family leave.
- Forgiven student loan debt will not be taxed as income.