What Is the Law?
Congress passed the Consolidated Appropriations Act of 2021 on December 21, 2020. President Trump is expected to sign the Act into law. The Act contains much needed economic assistance for the restaurant industry. Please keep in mind this legislation just passed and is part of a 5,593-page bill that will require extensive interpretation and guidance from the U.S. Treasury, IRS, and SBA. In the bill, there is a second round of Paycheck Protection Program loans, an expansion of the Employee Retention Credit, an extension of Emergency Paid Sick Leave, and some very favorable tax updates. At this point, however, it is unclear when the funding of banks will begin and businesses can begin to apply for a PPP Second Draw loan. The SBA has up to ten (10) days to write and publish guidance regarding the continuation of the Paycheck Protection Program.
What are the most impactful changes to the Paycheck Protection Program?
PPP Second Draw is to help small businesses open before February 15, 2020, with 300 or fewer employees. A business that has used or will use all of their original PPP loan amounts and meets the prior qualifications must demonstrate a 25% reduction in gross receipts in the 1st, 2nd, or 3rd quarter of 2020 when compared to the same quarter in 2019. Restaurants, Bars, Caterers, Food Trucks, Cafeterias, and any other business listed under the NAICS code 72—Accommodations and Food Services qualify for a PPP Second Draw loan equal to 3.5 times the average monthly payroll costs.
The definition of non-payroll costs eligible for forgiveness has been expanded to include software, cloud computing, HR, accounting/billing expenses, property damage repair from vandalism and looting due to public disturbances that occurred during 2020, PE, worker protection, sanitation/safety requirements, delivery expense, and purchases of perishable goods under a contract, order, or purchase order.
RASI has produced many resources regarding the Paycheck Protection Program that will be very beneficial if you are not familiar; you can view all COVID and PPP related resources!
What are the most impactful changes to the Employee Retention Credit?
The Employee Retention Credit (ERC) has been extended through June 30, 2021. A business must demonstrate a 20% reduction of gross receipts to be eligible for the ERC. The ERC has been increased to 70% of wages up to $10,000 per employee/per quarter; e.g. If an employee was paid at least $10,000 in Q1 of 2021 the credit would be $7,000. Beginning in 2021 the ERC can be used in conjunction with a PPP Second Draw loan but the ERC cannot be claimed on wages paid for with forgiven PPP funds.
RASI has produced a webinar regarding the Employee Retention Credit that will be very beneficial if you are not familiar; you can view the ERTC webinar!
The webinar will explain the fundamentals of the program, but please keep in mind the changes mentioned above.
Are there any other changes that will impact restaurateurs in 2020 & 2021?
Emergency Paid Sick Leave (EPSL) and Paid FMLA under the FFCRA were scheduled to expire on December 31, 2020 but now has been extended through March 31, 2021. RASI has produced a webinar regarding Emergency Paid Sick Leave (EPSL) and Paid FMLA that will be very beneficial if you are not familiar with the legislation.
The only change to this program is that it has been extended through March 31, 2021.
- Section 276 clarifies that forgiven PPP loans are not taxable and indicates that the expenses paid for with forgiven PPP loans are deductible on 2020 year-end tax returns!
- Section 333 states that EIDL grants will no longer be deducted from PPP forgiveness amount; talk to your lender if you had the EIDL grant reduce your PPP forgiveness amount—the section of the CARES Act that enacted the deduction was repealed.
- There will also be a simplified forgiveness application for loans up to $150,000 released by the SBA and business meals are now 100% deductible by businesses in 2021 & 2022 so hopefully, this will help increase business for restaurants across the country.
How can RASI assist restaurants to remain in compliance with the law?
RASI’s PPP report that was used to calculate average monthly payroll costs during the first round of PPP loans will be utilized for eligible businesses applying for a PPP Second Draw loan. The PPP report will be ready for clients when banks have been funded and are ready to accept applications.
The changes to the Employee Retention Credit will require upgrades to our payroll and 941 calculations but will be up and running in time to claim the credit on Q1-2021 941 report for eligible businesses.
Emergency Paid Sick Leave (EPSL) and Paid FMLA job codes will remain available through March 31, 2021, and RASI will continue to calculate the associated payroll tax credits.
As more details and guidance is published RASI will continue to provide updates. As always, if you have any questions please send a support request to Compliance or an email to Compliance @rsiaccounting.com!