Here’s the scoop on PPP Round Two, plus other financial assistance and tax breaks to counter the pandemic’s economic blows to your business.
The federal government’s $900 billion package, signed on December 27, 2020, and officially called the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, provides much-needed relief to dance businesses suffering because of the pandemic. Whether you own a dance studio, a dance retail store or a dance company, or you are a self-employed dancer, here’s a look at the financial assistance and tax breaks that may be helpful to you.
PPP Round Two
The new law provides $284 billion for another round of loans under the Paycheck Protection Program (PPP), a forgivable loan administered by the SBA through banks and other lenders. Like the earlier PPP, the new version offers loans that can be forgiven, and the forgiven amount is not added to your gross income—it’s tax-free.
It also offers some helpful changes: The new law makes clear that business expenses from the period covered by loan forgiveness are tax-deductible. Eligible expenses for forgiveness now include not only compensation (including health coverage), rent or mortgage interest, and utilities, but also personal protective equipment and other items needed to comply with health and safety guidelines; “covered operating expenses,” such as software and cloud-computing services for human resources and accounting needs; property-damage costs related to vandalism or looting in 2020 not covered by insurance; and certain supplier costs.
And the U.S. Small Business Administration (SBA) is making PPP loans available first through community financial institutions in order to reach businesses owned by minorities, the underserved, veterans and women, groups that were less likely to get PPP loans the first time round.
For those businesses that did receive a PPP loan in the first round, some may qualify for another loan (“second draw loan”) up to the lesser of $2 million or 2.5 months of average monthly payroll costs. To qualify, you must show there was a 25 percent reduction in gross receipts as compared with the same quarter in 2019 and that original PPP funds have or will be used in full. If you were not in business in the first, second or third quarter of 2019, you can use the fourth quarter for determining need. If not in business in 2019, but active by February 15, 2020, then the first quarter of 2020 can be compared to second, third or fourth quarter of 2020 for this purpose.
Applications for the second round of PPP close March 31, 2021.
If your business is located in a “low-income community,” you may qualify for an Economic Injury and Disaster Loan (EIDL) through the SBA. These low-interest loans are being offered through December 31, 2021.
Note: If you previously received the EIDL $10,000 advance payment, the new law makes it clear that this is a tax-free grant. Do not include it in your 2020 gross income for federal income tax purposes. And you can deduct expenses paid with this tax-free money. Originally, you were supposed to repay the grant if you received a PPP loan, but the new laws says no repayment is required. If you already repaid it, you can get it back.
Grants to Shuttered Venue Operators
There is some direct aid for live-entertainment venues and arts organizations, such as dance companies, that have had to shut down because of the pandemic. Grants are available to live performing arts organization operators through the SBA to cover payroll costs, rents, utilities and personal protective equipment.
To be eligible, you must have been in operation on February 29, 2020, and plan to reopen after government-ordered shutdowns. You must have experienced a reduction in revenue of at least 25 percent compared with the previous year (on a quarterly basis). But there’s priority in giving out these grants, with grants during the first 14 days of the program limited to those with at least a 90 percent reduction in revenue between April 1, 2020, and December 31, 2020, compared to the same period in 2019. During the next 14 days, it’s at least a 70 percent reduction in revenue. After 28 days, the 25 percent reduction applies.
These grants are tax-free. And like PPP loans that are forgiven and the $10,000 EIDL grant, the expenses covered by the direct grants to shuttered venues are still tax-deductible.
Employee Retention Credit
The new law makes this existing tax credit for businesses that keep workers on their payroll even more attractive by extending and expanding the credit. As an employer, you get an immediate cash benefit because the credit reduces the quarterly employment tax deposits you are required to make.
The extension runs through June 30, 2021, and the credit can now be claimed by employers who were not in existence for all of 2019. The credit is now 70 percent of wages (plus health insurance) rather than 50 percent. The credit applies to wages per employee up to $10,000 per quarter instead of $10,000 per year. And the required decline in year-over-year gross receipts, which makes a business eligible for the credit, is only 20 percent instead of 50 percent. Also new: The credit can be claimed even if you take a PPP loan, so you don’t have to choose between them. However, there’s no double-dipping: You can’t claim the same wages for your PPP loan forgiveness and for the employee retention credit.
Other Financial Assistance and Tax Breaks
The new law is peppered with other financial assistance and tax breaks, which may or may not be relevant to your business. For example, in 2021 and 2022, you can deduct the full cost of business meals at restaurants (meant to be a boost to the restaurant industry) instead of merely 50 percent. So, if you take a business meeting at a restaurant, you can deduct 100 percent of the bill. Here are a couple of breaks that may be helpful to you:
Additional unemployment benefits for the self-employed. Unemployment benefits usually are paid by state unemployment funds to qualified individuals. Under the new law, in addition to any state unemployment benefits, there is a $300 per week benefit payable through March 14, 2021. This additional benefit may be paid to self-employed individuals, as well. As in the case of employees, the additional benefit runs for 11 weeks. Unemployment benefits are taxable income.
Tax credits for paid sick leave and paid family leave. Small employers may, but are not required to, continue to provide paid sick leave and paid family leave to eligible employees through March 31, 2021. These payments are essentially refundable employment tax credits (instead of depositing payroll taxes, they are used to pay the employee benefits so the benefits don’t cost employers anything out-of-pocket). Self-employed individuals impacted by COVID-19 (i.e., they would qualify for benefits had they been employees) can claim income tax credits equivalent to the payroll tax credits used by employers for these benefits. They can elect to use their 2019 net earnings in determining average daily self-employment income for purposes of the credits in 2020. If the prior year net earnings are higher, it may result in larger credits.
The Bottom Line
Because some of the changes impact 2020 taxes, the IRS will have to revise instructions to forms and provide guidance where needed. Changes applicable to 2021 need to be factored into your business plans. Interim rules issued by the SBA and the U.S. Treasury provide some quick guidance on the new lending programs. As a new Congress convenes, stay tuned for additional updates. To keep up to date on these matters—and how your business could benefit—consult regularly with your financial and tax advisors.
Barbara Weltman, an attorney and small-business expert, is the author of J.K. Lasser’s Small Business Taxes 2021: Your Complete Guide to a Better Bottom Line and publisher of “Idea of the Day®” at bigideasforsmallbusiness.com.