Stimulus Bill Quiz: PPP and ERC

Over the past few weeks, Accountalent has been sharing the latest updates on the most recent stimulus bill, including:

If you’re still wondering if you qualify for PPP2, ERC 2020, or ERC 2021, continue reading to find a simple “Yes or No” quiz on whether you qualify for any of these. If you have any other questions on the stimulus bill, Accountalent is here to help.

Stimulus Bill Quiz: Do I qualify for a PPP2 loan?

Do I qualify for the 2020 Employee Retention Credit?

Do I qualify for the 2021 Employee Retention Credit?


Strategies to maximize PPP2 and Employee Retention Credit

The new stimulus bill includes a fresh round of PPP, but the MOST important part of the bill is allowing businesses to take both the new PPP2 and Employee Retention Credit, so how do you maximize the benefit of the two?

Below, we’re breaking down some of the key parts of both benefits, including threshold/eligibility, amount of credit/loan, start and end dates, maximum benefit amount, and more.

ERC
(2020)
ERC
(2021)
PPP2
Threshold/Eligibility1. 50% Reduction in Quarterly Sales for any quarter in 2020 vs. 2019, or
2. Shut down by government order
1. 20% Reduction in Q1 2021 and/or Q2 2021 sales vs. same quarter in 2019, or
2. Option to use the quarter immediately preceding calendar quarter and comparing to corresponding 2019 quarter
Demonstrate at least a 25% reduction in gross receipts in any quarter of 2020 relative to the same quarter in 2019
Amount of Credit/Loan50% of Quarterly Wages up to $10k per year, so maxes out at $5K Refundable Credit per employee for 202070% of Quarterly Wages up to $10K for Q1 2021 and Q2 2021, so maxes out at $14K Refundable Credit per employee for 20212.5 times the monthly trailing 12 month payroll up to $2M. 3.5 times if in the hospitality industry.
What are “Wages”?Salary + Employer-paid Health InsuranceSalary + Employer paid Health InsuranceSalary + Group Health Insurance + Certain Payroll Taxes
What are the start and end dates?Wages from 1st Quarter of Threshold qualification to end of Quarter when 2020 Quarterly Sales are 80% of corresponding 2019 QuarterWages from 1st Quarter of Threshold qualification to end of Quarter when 2020 Quarterly Sales are 80% of corresponding 2019 QuarterUnknown
What happens if I incorporated in 2019 or 2020?Compare the 2019 quarter you incorporate in to the corresponding 2020 Quarter. Estimate full quarter 2019 sales if did not incorporate on first day of quarter.If incorporated in 2020, compare Q1 of 2021 to Q1 of 2020 and/or Q2 of 2021 to Q2 of 2020.Need additional guidance if not incorporated in 2019
Maximum Amount$5K per employee for 2020$14K per employee for 2021$2M
CommentsLanguage in new bill is conflicting on process of claiming retroactive credit and does computation include wages and health insurance or just health insurance costsCannot use wages for both ERC and R&D Credit.Forgiveness now can be payroll (not less than 60% of total forgiveness); SW for cloud computing, HR, accounting, etc.; essential suppliers; property damages.

The Treasury and SBA will be releasing additional guidance and application process information for both PPP2 and Employee Retention Credit this week. As always, we will keep you updated as this becomes available.

It’s important to note, when companies are able to apply for both, there will probably be a mad rush. PPP1 was $521B, and PPP2 is only $284B. Also, if you plan to apply for the new PPP and/or the Employee Retention Credit, you should be dusting off your 2019 and 2020 quarterly financial statements. They will be needed to determine if you are eligible.


The Best Kept Secret – How Your State Will Fund Your Startup’s Cash Flow Gap

Smartco Corp is a 2-year old startup that recently started selling product to a few large customers. They have 30 employees and a $250K monthly payroll.

Recently, Smartco ran into a serious cash flow problem due to a late-paying customer.

Most startups will experience cash flow problems. They often rear their ugly head when the business just becomes cash flow positive and is no longer living off investor life support money. For many companies, especially if the investors and owners are tapped out after a long development stage, it can be the final straw.

Smartco was exactly at that juncture. Many years and millions of dollars to develop the product had finally come to an end. They had real customers and a working product. Cash flow was tight, but improving when a major customer went south on a large receivable that jeopardized Smartco’s future existence.

Like many tech startups, most of Smartco’s expenses were payroll. They did not want to lay off employees, though, but needed a temporary 20% reduction in payroll cost to survive.

Luckily, Smartco was located in a state (such as MA and about 25 other states) that have a Work Share program. These programs let a business reduce the hours of certain or all workers and allow the employee to collect Unemployment Compensation from the state for the hours cut.

So, Smartco temporarily reduced everyone’s pay to 4 days. They remained open 5 days, as they are able to dictate what day each employee can take off. Some of the hourly and lower paid employees actually received most or their entire regular payroll, as overtime plays into the benefit calculation. All of Smartco’s employees, though, were happy to collect for the other day and spend it skiing or at the beach.

The details of these Work Share programs vary by state, but can be incredibly valuable in retaining employees while going through cash flow problems. Recently, Congress passed a bill that federally funded these programs, so most states currently without a Work Share program will probably implement one soon.
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IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

The Dumbest and Most Dangerous Startup Financing

Dumbo Corp is a 2-year old startup that recently started selling product to a few large customers.  They have 30 employees and a $250K monthly payroll.  The employees are paid on a monthly basis and Dumbo runs its own payroll through QuickBooks.   

Recently, Dumbo ran into a serious cash flow problem due to a late-paying customer. To bridge the cash flow problem, they delayed paying the IRS $50K in payroll taxes just withheld from the employees’ most recent paycheck. The customer said they would pay within a week and Dumbo would then make the IRS whole.

You know the rest of the story – customer never pays, cash flow problems get worse, Dumbo continues to fund operations with employees’ payroll taxes, Dumbo goes bankrupt.

Now, why is financing operations, when there is a cash flow problem, by not paying the IRS “the dumbest and most dangerous startup financing”?  Big companies often string out vendors to fund operations.  Plus, in a worst-case scenario, bankruptcy dissolves all debts and the corporate veil personally protects employees – right?  No one going to jail here – right?

Wrong and wrong.  Corporate bankruptcy will not discharge this type of IRS tax debt. Even personal bankruptcy will not discharge this type of IRS tax debt.  The IRS will chase you forever.  Plus, the corporate veil is pierced very easily by not paying the IRS.

For trust fund taxes (i.e., withheld payroll taxes), the IRS holds every “responsible person” personally and criminally liable for “willfully” failing to ensure that payroll taxes are paid.  They move very quickly when a quarterly payroll tax return is not filed or there is a payroll tax deficiency. They can demand full payment from any “responsible person” without first trying to collect the payment from the employer or other “responsible persons”.

Oh by the way, a “responsible person” is broadly defined as anyone with substantial authority over business operations even if somebody else has the ultimate authority over which bills get paid.  The IRS has successfully prosecuted CEOs to AP clerks under this “responsible person” definition.

The penalty becomes criminal when a “responsible person” intentionally violates a legal duty – knowingly not remitting withheld payroll taxes.

So, any “responsible person” at Dumbo who knew the IRS was not being paid while vendors, such as the landlord or electric company were being paid is personally and criminally liable.

The IRS process always starts with a notice.  If you receive one regarding payroll taxes – do not take it lightly, even if you never had a payroll.  Get professional help (preferably a CPA) to respond to the notice immediately.  The IRS acts very quickly, including personal visits to the business and bank account liens.

(One fool-proof way to avoid this temptation and a good business practice is never to do your own payroll.  Use a payroll service provider, such as Zen Payroll).

 

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IRS Circular 230 Disclosure

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this document is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.

 

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