Justin Smith CPA
Get your federal stimulus and your PPP loan forgiven
The Internal Revenue Services has issued more than 88 million Economic Impact Payments (EIP) totaling approximately $158 billion since it first started issuing them around Easter weekend. The 2020 CARES Act authorized the payments, and relies on taxpayers who have either filed a 2018 or 2019 tax return with a refund, or who receive Social Security payments.
Millions of taxpayers have not yet received their EIP, and the IRS has announced it will commence distributing check payments to citizens’ last known address at the rate of approximately 5 million checks per week. Consider the population of the United States, it could potentially be months before you receive your payment if you take no action.
Taxpayers who have not yet received their EIP should visit www.irs.gov/eip and use the “Get My Payment” application to enter their bank account information to receive a direct deposit payment more quickly. Alternatively, a “Non-Filer” portal is available on the Web site to provide taxpayers an opportunity to receive a direct deposit if they have not filed a 2018 or 2019 tax return. Generally, Social Security recipients already on direct deposit should still receive an automated payment.
Because the EIP is an advance on a 2020 tax credit, two important items should be noted. The first is that if you are paid less than you are eligible for, you can claim the remainder on your 2020 tax return. The second is that under the CARES Act, you will not be responsible for repaying any of the credit should you receive more than you were eligible for this year.
The Paycheck Protection Program (PPP) exhausted its original authorization of $350 billion within its first two weeks, and a $310 billion extension was signed into law last week. Applications were being accepted again on Monday morning, and it is expected this second authorization will likely be exhausted in record time as well.
At least 75% of PPP loans must be used for payroll with the remaining 25% allowable for company expenses in order to obtain full forgiveness of the loan, which will technically be treated as a nontaxable grant this year. However, it is critical to follow the PPP rules to ensure full forgiveness and not get stuck with a 2-year repayment plan that can put a significant strain on your organization’s cash flow.
First, keep in mind that while the PPP loan provides up to 2.5 times your 2019 average monthly payroll, you only have 8 weeks from the loan’s disbursement date to actually use the funds. That is, you may need to either increase employee compensation or pay bonuses if you elect to use your loan for 100% payroll purposes. Funds must actually be distributed by the end of the 8th week.
Second, any non-payroll expenses you use the PPP for (such as rent or utilities) should be supremely well-documented. Obtain and retain statements, invoices and bills along with evidence that you paid the bill. I recommend you consider writing checks and keeping copies of them with your bills to provide proof of the funds’ use to your bank. As the forgiveness rules have not yet been fully documented or communicated yet, the best thing you can to is retain excellent documentation of your records.
Some business owners are actually opening new bank accounts and putting their PPP funds into that account. Forgiveness rules are likely to become clearer over the next several weeks, and the banker you worked with to obtain your PPP loan should be able to provide a list of documentation you will be required to submit to them. Banks will have 60 days to make their forgiveness decision in accordance with the program’s rules.
Visit www.sba.gov/disaster for more information on the PPP as well as possible news and guidance related to the forgiveness requirements.