10 Ways Business Owners Can Take Advantage of the Federal Stimulus Package

Updated info on the various opportunities available for (and obstacles in acquiring) loans, unemployment benefits and more.
10 Ways Business Owners Can Take Advantage of the Federal Stimulus Package
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This piece has been updated since its original publication, and we will continue to update it as more information changes and becomes available. 

It’s been less than three weeks since passage of the largest single piece of legislation in American history, and it continues to evolve. Not only have there been daily updates and changes by either the SBA, the Treasury Department or the IRS, but we are on the precipice of Congress passing another bill because the plan is running out of money.

Business owners have been frantically trying to keep up with the changes, to the point of exasperation due to information overload or because of the complexity in all the hoops they have to jump through to get any money.

I started presenting my analysis of the CARES Act with eight options for business owners, but in light of subsequent changes and modifications, I've expanded that guidance to 10.

But first, here is a summary what we have learned since the Paycheck Protection Program (PPP) was rolled out:

  • The PPP equation is not as simple as the SBA would like to think. It seems almost every bank has a different way of calculating it.
  • The sole-proprietor Schedule C business owner has had to wait a lot longer than expected to even apply for the PPP, with a tremendous amount of confusion as to what banks are requiring.
  • Unemployment benefits are not being doled out to small-business owners as promised because states are confused as to how to work with business owners lost compensation, or they are simply overwhelmed with the number of applicants for unemployment.
  • To make matters worse, the original $350 billion appears to have ran out, and there are still thousands of business owners in flux with applications pending.
  • Finally, on the bright side, the Employee Retention Credit and Payroll Tax Deferral strategies (previously even barely discussed) are evolving to be credible strategies for business owners who can’t use the PPP.

Bottomline, more and more experts, as well as average Americans, are realizing it’s going to take years to dig out of this financial mess. For business owners to get as much financial help as possible from all of the legislation being passed, it’s critical to not just hyper-focus on the two primary loans: The Econiomic Injury Disaster Loan (EIDL) and PPP (more below). 

A wise business owner with different types of operations could find that a combination of several strategies could help their business, their employees, themselves and their family. Also, just because you think you are a smaller operation without “employees,” don’t think that unemployment benefits or the Paid Sick Leave provision wouldn’t apply to you. If you have the right structure, there might be thousands of dollars sitting on the table just waiting for the taking.

Here are the 10 topics — each of which we will break down in greater detail — you should at least familiarize yourself with when putting together a strategic plan and meeting with your advisors:

  1. Stimulus Checks
  2. Economic Injury Disaster Loan (EIDL)
  3. Paycheck Protection Porgram (PPP)
  4. SBA Loan Forbearance
  5. Increased Access to Retirement Accounts
  6. Unemployment
  7. Paid Sick Leave
  8. Family Medical Leave (FMLA)
  9. Employee Retention Tax Credit (ERTC)
  10. Payroll Tax Deferral (PTD)

As an additional warning or cautionary point, please keep in mind that there are scam artists all over the web offering to get you money for a fee. Be very careful, know who you are working with, and don’t give any money in advance to someone promising dollars or success.

Related: $205 Billion of the $350 Billion Appropriated for PPP Loans Has Been Claimed

At the very least, work with licensed individuals who have a legitimate presence as a professional such as a CPA or attorney. Get a second opinion if something sounds fishy, and remember: You are the captain of your ship. Understand which way you are headed and why!

Now, back to those 10 essential topics....

1. Stimulus Checks

Every business owner is a citizen first, and it’s important that if you qualify for a stimulus payment you should do what you can to get this shot in the arm, financially speaking, as quickly as possible.

Here are the problems we have seen or heard of from our clients who are receiving, or not receiving, their funds:

  • The IRS is first doing bank transfers to taxpayers for whom they have banking information on in the IRS computer system. These transfers started on April 9.
  • If you haven’t filed in 2018 or 2019 for a refund and submitted banking information on file with the IRS, you’re going to have to wait for a paper check. Non-filers can update their banking info here.
  • Due to the outcry of so many Americans not wanting to wait for the infamous "check in the mail," the IRS is creating a webpage where you can update your banking info. It’s supposed to be available any day now, and you can also go here to check the status of your payment and apply to update your banking info.
  • If you were divorced in 2018 or 2019 and the IRS doesn’t know your filing status or where you live, file ASAP, or you might be fighting things out with your ex when they get the check and you don't.
  • Paper checks will be sent through the mail over a 10-week timeframe beginning sometime in April, and according to the legislation the IRS has until the end of 2020 to transfer the payments.
  • Finally, if the IRS doesn’t have your correct mailing address, you may want to go here to update your mailing address with the IRS.

Just as a reminder, the payments will be $1,200 for individuals, $2,400 for married couples and an extra $500 for each child younger than 18. Unfortunately, that’s when things get complicated....

  • Single individuals won’t get the payment if making more than $99,000 (starts phasing out at $75,000).
  • Married couples making more than $198,000 won’t get a check either (starts phasing out at $150,000).

And one last reminder, this isn’t "free money" for some taxpayers. For accounting purposes, the IRS is essentially treating this as an "overpayment" on your 2019 tax return. So if you haven’t filed your 2019 tax return, and you get a refund based on your 2018 filing, but then come to find out you really didn’t qualify for the payment based on your 2019 filing and got the check anyway, the IRS is going to expect that money back on your 2020 return (at least that is what they are saying the plan is).

The Takeaway: Make sure your address is up to date with the IRS, you have filed a 2018 or 2019 return, and if you haven’t been claiming your children over age 18 on your return previously, have them file a simple return for 2019 immediately.

2. EIDLs

This little gem in the stimulus package has been the biggest disappointment so far. Millions of business owners and rental property owners ran straight away to www.sba.gov to file for EIDL (as I did as well), only to discover they wasted their time. Many are going to get very little, if not nothing at all.

The original "promise" was $10,000 to every business owner in the form of an easily forgivable loan, to the point they were simply calling it a grant. All of us were looking forward to this immediate benefit to help us through a very difficult time.

Now, it has been modified in two significant ways:

  • First, there is confusion as to whether it’s a loan or grant. It’s now being referred to as an "Advance" on the borrower's EIDL, and any discussion of forgiveness is conspicuously missing in certain updates. But then in other statements by the SBA, they’re saying it does not need to be repaid. Yes, it’s confusing, and we’re advising our clients to wait and see if they get the $$.
  • The biggest blow was that the advance was significantly reduced and will only provide $1,000 per employee (based on your pre-disaster employees as of January 31, 2020). These payments are up to a maximum of $10,000, and it’s devastating to rental-property owners who will be losing rent due to the crisis and don’t have employees on the payroll.

It’s also become clear that the "long-term loan" portion, or the traditional EIDL we're all familiar with, is no longer looking as rosy as originally promised. Dreams of obtaining a loan up to $200,000 with no personal guarantee or collateral, disappeared quickly.

The SBA has historically offered many favorable terms in their EIDLs, with loans are up to $2 million, 30-year terms and 3.75 percent interest. But again, we’ll see how many small business owners actually qualify for these loans when it’s all said and done.

Finally, it is true that small business owners can apply or both the EIDL and PPP. However, the EIDL funds will reduce the amount forgiven under the PPP if both amounts would qualify for forgiveness (this is another mathematical demonstration yet to be fully explained or seen until the forgiveness process actually begins).

You can start immediately and apply for these loans directly through the SBA at www.sba.gov. and there is no need to make an appointment with a banker to start the loan process. In fact, we have had several people call our office who thought they had applied for the PPP because they went to the SBA website and believed the EIDL and PPP were the same thing — or at the least you applied in the same place. Wrong! The EIDL is applied for at the SBA website directly, while the PPP must be applied for through a banker (more below).

The Takeaway: Still apply for the EIDL if you think you qualify, OR if you are interested in a long-term loan and believe it’s the best move for your business or rental property. If you choose not to take or use the money, you’ll have the opportunity to decide that later. But if you don’t apply, you’ll never have the option.

3.  PPP Loans

This loan is great if you fit into the parameters provided by the government, and it’s not wise to assume you’ll receive 100 percent forgiveness of the money you receive. You must understand what you are doing and not depend on anyone blindly to guide you through this process.

We are learning more and more and instructing our clients on this point that it’s critical they understand how the numbers work and what they need to spend the money on it order to have it forgiven.

But let’s not get ahead of ourselves. Getting the money in the first place is turning out to be very challenging for hundreds of thousands of business owners around the country. Don’t think you are alone if you feel like you are hitting your head against the wall in this process.

On the face of it, one may think it’s a simple equation and all the banks should be on the same page with the application and documentation. This is certainly not the case. Congress truly did intend for all business owners affected by COVID-19 to apply for and get at least something under this program, but it’s been one problem after another trying help the business owner through the process.

Here are the basics and the process that we’re supposed to follow:

  • In order to qualify, a business must have fewer than 500 employees, show that it was in business on or before February 15, 2020 and can certify that the business has been economically affected by the coronavirus, or even that economic uncertainty makes the loan necessary.
  • The loan is up to $10 million, but the amount each business gets is based on its payroll costs. The amount you qualify for is based on 2.5 times your average monthly payroll costs. Your monthly average payroll is calculated based on your prior 12 months of payroll. Take the average monthly payroll number and multiply it by 2.5. For example, if your monthly average payroll was $20,000, then you would qualify for a $50,000 PPP loan.
  • The true beauty of this loan is that if you use the money for payroll, rent, mortgage obligations, utilities and other fixed-debt obligations in the first eight weeks after the loan funds, the debt is completely forgiven!
  • Whatever funds you don’t get forgiven convert to a two-year loan that is nearly interest-free. The bill allowed for a maximum rate of 4 percent, but the guidance issued by the U.S. Treasury is stating that the maximum rate would be 0.5 percent.

However, proving your payroll to bankers has been a hodgepodge of document requests ranging from tax returns, to P&Ls, to 941s, to W-3s and everything under the sun. One bank in particular requested from a client of ours a full SBA 7(a) application — not what Congress intended.

Next, for the business owner operating as a sole proprietor with a Schedule C, it’s proved tremendously problematic, if not impossible, to get the PPP process started. One moment, the SBA said the sole proprietors could apply, the next they said they had to wait, and then they didn’t tell the bankers what information they should ask for in order to fill out the application. From the outset, bankers's heads were already spinning with the simple two-page application for S-Corps and C-Corps and pushed off sole proprietors because they were swamped anyway.

Here’s what we have learned about the PPP and need to consider

  • Business owners operating as S-Corps with traditional payroll reports are receiving PPP money already and loving it. The problem is, the SBA has ran out out of money (or only now we hope), and those who were in line first got their funds. Everyone else is praying and hoping Congress approves more money.
  • Next, business owners who received their PPP now have eight weeks to spend the money on payroll and specific expenses, but if they are in a state with a shelter in place order, many are struggling on how to open their doors and get employees back to work before the eight weeks run out. Go figure.
  • Finally, if that wasn’t bad enough, the equation of what you get and what will be forgiven is still extremely complex at best. The SBA has contradicted themselves several times, and frankly who even knows what the final application to get funds forgiven will look like? Even though the SBA feels they’re clear and keep sending out guidance almost daily, the bankers can’t keep up with it and in many cases are authorizing more PPP money than may be forgiven.

What can Sole Proprietors do now?

One piece of good news is that the SBA provided an Interim Final Rule for Sole Proprietors with guidance on how to apply for the PPP. Bankers jumped on this like a hot potato (I have an office in Idaho, so I can use that analogy).

Simply stated, there are essentially two equations for sole proprietors to use when applying for the PPP:

  1. Sole Proprietors with no employees take their net-income reported on their 2019 Schedule C, divide it by 12 and then multiply it by 2.5. That’s it! That’s your PPP loan. There isn’t any consideration in the process for health- insurance premiums paid or contributions to their retirement accounts.
  2. For Sole Proprietors with employees, they take their net income reported on their 2019 Schedule C, add back to it any payroll costs for outside third-party employees in 2019, add any health insurance premiums paid for on the employee’s behalf, add any matching retirement plan contributions paid by the business for the employee, then take the total and divide it by 12, multiply the result by 5 ... and there’s your PPP loan.

The biggest issue to remember? None of this happens, nor does the application even get underway, until the sole proprietor files their 2019 1040 Schedule C. Based on SBA guidance, the bankers are requiring the tax return to do the math for your PPP.

More to come in the weeks to come regarding the application for forgiveness that needs to be presented to the banker eight weeks from when you receive the money. This process of forgiveness is very important (obviously), and math is actually quite complex with a 75 percent/25 percent test. But again, the good news is at least some money is flowing out into business owners's bank accounts, and we all hope the economy starts to show some life.

The Takeaway: Determine if the PPP works for your business, and do so by calculating the numbers on your payroll for the past 12 months. If it looks like the program could work for you, immediately contact an SBA-qualified loan officer at a bank and get the application process started. If you are a sole proprietor, hurry and file your 2019 1040 and accompanying Schedule C, then go see your banker ASAP. Get in line as soon as you can if you are seeking the PPP loan and have a consult with a professional while you wait for the PPP.

4.  SBA Loan Forbearance

No major updates here. In fact, we have had many many positive reports from our clients around the country that SBA loan payments are being made for them by the banks, and it’s been a huge relief to many business owners.

Some of you may already have one or more SBA loans in your business that you used for equipment, expansion or even real estate, including your own building. If this happens to be a SBA 7(a), 504 or Micro loan, the CARES Act requires the government to automatically make the payments for you over the next six-month period beginning April 1, 2020.

I use the word forbearance because it’s a unique program and not simply a payment holiday. The government will literally cover payments, including principal and interest, for the next six months. At the end of that time, your mortgage balance will be reduced, your credit will not be affected, you don’t have to claim the payments made on your behalf as income, and you are back to your regular payment cycle.

In fact, in my own particular situation (I have an SBA 504 loan), my lender sent me an email that I didn’t even have to apply for the benefit. It was automatic!

The Takeaway: Don’t wait and hope your bank sends you an email or letter stating your SBA loan is in forbearance. If you haven’t heard from your loan officer by now, or the bank, and you have the proper SBA loan that qualifies, reach out to everyone involved and make sure this happens.

5.  Increased Access to Retirement Accounts

Again, no major updates here either, and the rules haven’t changed since the passage of the CARES Act. This is still proving to be a great strategy in the short run to access cash while you wait for other benefits, but may not be a good strategy in the long run. 

Tapping into your retirement accounts, or some might say "raiding" your future savings and retirement, is a very dangerous proposition. If you asked me whether it was a good idea for you, you'd better sell me on one of two points: 1. You are going to use the money in the short run and pay it back through your EIDL or PPP loans, or 2. Your business is so amazing that this loan is a no-brainer. If not, I would think twice or three times before you touch that sacred money.

Now, assuming you need to use your retirement money, the new CARES Act gave some wonderful benefits and perks on how to access it:

  • Increased loan provisions for 401k. First, the new law increases the dollar amount you can loan yourself from your own 401(k) from $50,000 to $100,000. Historically, it’s been 50 percent of your account value, or $50,000, whichever is less. There are no taxes or penalties owned when you take the loan, and so long as you pay the loan back, it's a tax- and penalty-free opportunity to access your own retirement savings early. You have five years to pay back the 401(k) loan, and it must be paid back in substantially level payments, at least quarterly, within five years. A lump-sum payment at the end of the loan is not acceptable. The interest rate for 401(k) loans is currently 5.25 percent. By law, the interest rate to be charged is a “commercially reasonable” rate. This has been interpreted by the industry and the IRS/DOL to be prime plus 2 percent (prime is currently 3.25 percent).
  • Penalty-free distributions from any retirement account. Next, the new law also creates a penalty-free early distribution rule whereby taxpayers under age 59-and-a-half can take a penalty-free account distribution from their retirement account of up to $100,000. This includes IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, pension plans, 457 plans and 403(b) plans. The 10 percent early withdrawal penalty is waived, but you are taxed on traditional funds distributed. However, the special distribution provision allows you to pay back the retirement account over a three-year period. You can make multiple payments back to the account or one lump-sum payment to the account by the end of the three-year window. This is an excellent option, as it allows those who can get back on their feet financially to return the funds to their retirement account. And if you do, you’ll avoid any taxes on the distribution. The penalty-free distribution option is available on qualifying distributions made from January 1, 2020 to December 31, 2020.

The Takeaway: Review all of your account balances in your retirement accounts and decide if you really need the cash and if it’s worth it to access these accounts. If so, get in touch with your account custodian, broker or administrator as quickly as you can to get the process started.

6.  Unemployment Benefits for the Self-Employed

This has been a nightmare for thousands of small-business owners. States are simply not prepared for the type of paperwork a small business owner will submit to verify their income during the same period a typical applicant would be providing a cancelled check or W-2.

We have had clients across the country get rejected for unemployment benefits and others fly right through with success. The most important takeaway is to not give up! If you deserve benefits, keep fighting with the state. Make sure you have your 2019 1040 Schedule C filed, and jump through any hoops necessary to prove what you made last year so the state agency can try and calculate your unemployment benefit.

Before I get to the steps and strategies you could employ to get unemployment benefits, it’s important to know what the benefits are. You want to do the calculations and determine the cost benefit of different strategies under the CARES Act, including unemployment.

Some of our clients are walking away from the business for three-to-four months and claiming unemployment, while others are applying for the PPP but having their spouse or family members claim unemployment because they were previously on the payroll of the business.

So in order to do the math and properly consider if seeking unemployment benefits is worth it, here are the amazing provisions of the new law:

  • State unemployment benefits have been expanded by an additional 13 weeks, for a total of 39 weeks. Regular state unemployment eligibility is typically 26 weeks. Benefits can range from $200-$550 a week, depending on the state.
  • Next, the federal government is giving out $600 a week, in addition to the state benefit. But in order to get the federal benefit, you first must be approved for state unemployment.
  • The Federal benefit lasts for up to 12 weeks and ends by July 31, 2020 (if it isn’t extended under a forthcoming fourth iteration of the Stimulus Act).

Next, here are the basic steps to pursue unemployment if you decide to move forward. Please know that these can vary depending on your situation and the state you live in, but they are certainly a great place to start:

  1. If you have rank-and-file employees you had to furlough or terminate, it’s up to them to claim unemployment, which they probably will.
  2. Did you have any family members on your payroll (W-2), not 1099 subs, over the past year?
    • If yes, you want to determine if it’s best to keep them on payroll or let them claim unemployment.
    • If you decide to claim unemployment, we’ll go to Step 4.
  3. Are you as the business owner completely stepping away from the business and have no other sources of earned income? Meaning is the business not making a profit, or you are completely shutting it down?
    • If yes, then move onto Step 4.
  4. Research your state requirements for qualifying for employment. This means determining the base period for which an employee must have worked, how much they received and what the benefits would be. Decide if it’s worth applying.
  5. If you are a sole proprietorship, get your 2019 1040 filed (with your Schedule C) as quickly as you can.
  6. Get your application in for state unemployment. This is required.
  7. In order to get the federal "kicker" of $600 a week, you first must be approved for state unemployment and receive that benefit as stated above.

Individuals who haven’t been laid off or can’t work due to a variety of reasons related to the coronavirus would also be eligible for unemployment checks. These reasons would include a case where they were diagnosed with coronavirus, were awaiting a diagnosis or had a family member diagnosed with the disease.

The Takeaway: Remember, "unemployment" really means being "unemployed." You can't continue to work your business or have any other income if you are going to try and qualify for unemployment benefits. Start with Steps 1 and 2 above and see if unemployment benefits could work for your small business and family circle.

7.  Emergency Paid Sick Leave (EPSL)

When President Trump signed the Families First Coronavirus Response Act, the new law now required certain employers to provide EPSL in certain circumstances. It takes effect on April 2, 2020 and will expire on December 31, 2020.

This is an unheard-of law that’s never been on the books before. Essentially, qualifying employees (see the six reasons below) can receive paid leave for up to two weeks in advance (while not working), and the federal government will pay for it.

Only employers with fewer than 500 employees, including public agencies, are required to provide the EPSL benefit. The law also allows for subsequent Department of Labor regulations to exempt small businesses with fewer than 50 employees if applying these provisions would jeopardize the viability of the business.

Keep in mind, the EPSL doesn’t cost employers anything! Once benefits are paid, employers simply apply for a full, 100 percent reimbursement and receive a dollar-for-dollar tax credit against any payroll taxes paid with their quarterly payroll reports.

If employees qualify under one of six reasons (see below), they can receive benefits in the following amounts:

  1. Two weeks (80 hours) of pay, immediately (not after they come back) paid at their regular rate of pay, for reasons 1-3 below (employee is sick with COVID-19). This is at a maximum of $511 a day and $5,110 in total.
  2. Two weeks (80 hours) of pay, immediately (again, not after they come back to work) paid at two-thirds their regular rate of pay, for reasons 4-6 below (caregiver reasons). This is at a maximum of $200 a day and $2,000 in total.

In order to qualify, employees must show the inability to work or telework due to any of the following:

  1. The employee is subject to a federal, state or local quarantine or isolation order related to COVID-19.
  2. The employee has been advised by a healthcare provider to self-quarantine because of COVID-19.
  3. The employee is experiencing symptoms of COVID-19 and is seeking a medical diagnosis.
  4. The employee is caring for an individual (not limited to a family member) subject to a quarantine or isolation order or advised to quarantine or isolation.
  5. The employee is caring for a son or daughter whose school or place of care is closed or childcare provider is unavailable, due to COVID-19 precautions.
  6. The employee is experiencing any other substantially similar conditions as specified by the Secretary of Health and Human Services, in consultation with the Secretary of the Treasury and the Secretary of Labor (a catch-all!).

Incredibly, the sick-leave provision applies to all employees, regardless of length of service.

The Takeaway: If you have a spouse or family member on the payroll, and they qualify under one of the above six reasons, they could receive two week’s pay, and all it costs you is the employment taxes. That’s close to $5,000 of free money. Just remember to be honest and keep good records if you make the claim.

Related: Entrepreneurs Review the SBA PPP Loan-Application Process

8.  FMLA Benefits

The new CARES Act also dramatically expands FMLA benefits. This portion of the law was passed to give employees compensation and the necessary time to take care of a family member effected by the virus. It also takes effect on April 2, 2020 and will expire on December 31, 2020.

Essentially, if an employee qualifies, it allows the employee up to 12 weeks of paid leave, and the employer is reimbursed up to certain limits and amounts.

Again, not all companies will participate, as this law only applies to employers with fewer than 500 employees, including public agencies. However, employers of an employee who is a healthcare provider or an emergency responder can elect to exclude the employee from this FMLA provision. The law also allows for subsequent Department of Labor regulations to exempt small businesses with fewer than 50 employees if applying these provisions would jeopardize the viability of the business.

This is limited to an employee who cannot work or telework due to the need to care for the employee’s minor son or daughter if the minor child’s school or place of childcare has been closed, or the childcare provider is unavailable due to a public-health emergency with respect to COVID-19 declared by a federal, state or local authority. Basically, it is caregiver leave.

Unlike EPSL, under the FMLA provision, only full- and part-time employees who have been on the employer’s payroll for 30 days are eligible.

The first 10 days (two weeks) are unpaid, but an employee can substitute accrued paid leave, including the new EPSL. The remaining leave (a maximum of 10 weeks, as the total available is still 12 weeks) is paid at two-thirds the employee’s regular rate, for the number of hours the employee would be otherwise scheduled to work. This pay is capped at $200 a day and $10,000 total.

Finally, under the expanded FMLA provision, the employee must be restored to the same or equivalent position. However, there is an exception for employers with fewer than 25 employees, if the employee’s position no longer exists due to operational changes related to the public-health emergency, such as a reduction in force or restructuring because of a downturn in business. Essentially, an employer cannot retaliate against an employee for exercising his or her rights under these new laws. You will also have to post a notice detailing these laws, and the Department of Labor is in the process of drafting that notice.

The Takeaway: If you have had a spouse or family member on the payroll for at least 30 days, and they qualify for paid FMLA, this could be another perfect fit for your business while you as the business owner continue to get paid under the PPP.  

9.  The ERTC

The Employee Retention Tax Credit benefit under the CARES Act was initially ignored by many business owners and business advisors, primarily because it can’t be used in conjunction with the PPP. Obviously, the big money is with the PPP if a business owner can qualify and the money doesn’t run out. However, it’s also reasonable to presume that the PPP isn’t for everyone. That’s where the ERTC comes in.

The ERTC is easy to understand, calculate and implement. Here are the basics.

  • Only businesses with less than 100 employees are eligible for the program without limitations on the number of hours worked by the employee.
  • It’s a refundable payroll tax credit of 50 percent of up to $10,000 in wages per employee (including health care premiums), essentially $5,000 per employee. 
  • It doesn’t have to be paid back, easy to claim and applies to all payroll between 3/12/20 and 12/31/20.
  • The ERTC is fully refundable, and it is applied to the portion of payroll taxes paid by the employer. The IRS also allowing eligible businesses to receive an advance payment on their credit. According to the IRS website, there are two ways an employer can qualify. They must: 1. fully or partially suspend operations at any point during 2020 due to a coronavirus government mandate, or 2. Show a significant decline in gross receipts during a calendar quarter in 2020. To qualify under this requirement, gross receipts of any given quarter must be less than 50 percent of the gross receipts of the same quarter in 2019.
  • But again, if a business owner received a loan under the PPP, they can’t take advantage of the ERTC.

Where we’re seeing this as a viable option, much simpler and less risky than the PPP that may not be entirely forgiven, is when we have a smaller family owned S-Corp. 

The Takeaway: Don’t jump on the bandwagon of the PPP lock, stock, and barrel before running the numbers on the ERTC, especially if you have total payroll last year of $50,000 and maybe 2-3 employees.

10.  The Payroll Tax Deferral (PTD)

The beauty of the PTD is that can be used in conjunction with the ERTC. It’s essentially an interest-free loan from the IRS and allows business owners to defer their share of FICA, specifically the 6.2 percent Social Security tax if an employer, or half of their self-employment tax if a sole proprietor.  Here are the principle benefits:

  • The deferral of payroll tax applies to wages paid or self-employment income between 3/27/20 and 12/31/20.
  • Fifty percent of whatever amount of payroll tax during this period the business owner decides to defer is due 12/31/21.
  • The remaining amount of tax is due 12/31/22.
  • The IRS will revise Form 941 for the second quarter of 2020 to accommodate employers who make this election. In no case will employers be required to make a special election to be able to defer deposits and payments.

Again, taxpayers who elect to participate and receive funds under the PPP are ineligible to participate in the PTD.

Our firm feels that this is a very dangerous game to play with the IRS. Payroll-tax deposits are the most sacred of funds in the eyes of the IRS. and if a business owner gets behind on these payments it can be disastrous.

The Takeaway: We strongly recommend clients consider the gravity of pushing these payments off into the future and better see a bright future for the business. Not being able to make these payments in the future could snowball into a problem that many business owners never recover from. Be careful. 

In summary, please realize that changes are happening daily as we all navigate rough waters, and we are doing our best to keep our clients, and even non-clients, up-to-date by publishing more videos, podcasts and articles. We pray your family will be blessed with health safety and success. Hang on!

Mark J. Kohler is a CPA, Attorney, co-host of the Radio Show, Refresh Your Wealth, and author of the new book, The and Legal Playbook — Game-Changing Solutions for Your Small-Business Questions: 2nd Edition, and The Business Owner’s Guide to Financial Freedom — What Wall Street Isn’t Telling You. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP.

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