On December 27, 2020, the Consolidated Appropriations Act of 2021 (Act) was signed into law. This legislation provides various benefits to those who have suffered an economic fallout from the pandemic, which has greatly impacted business owners in the restaurant, hotel, distribution, and retail industries. Below is an overview of what the new Act entails.
Second Draw of Paycheck Protection Program
The Act provides an extension of the Paycheck Protection Program (PPP) to March 31, 2021. The second round of PPP will work almost identical to the first round but with the following rules and stipulations to borrowers:
- Were in business prior to February 15, 2020
- Maximum loan of $2 million
- Must have 300 or fewer employers per business or individual location
- Must have used or will use the full amount of their first PPP loan
- Funding will be based on 2.5 months of average monthly payroll from 2019 or 12 months before the loan; this increases to 3.5 months for hotels and restaurants with a NAICS code starting with 72)
- Can show at least a 25% decline in gross revenue in any 2020 quarter compared to the same quarter in 2019
- New additions to the qualified non-payroll costs under the second round of PPP now include:
- Supplier costs (e.g., perishable goods) made before or during the life of the loan
- Protective personal equipment
- Property damage due to public disturbances in 2020 not covered by insurance
- Cleaning products and services
- Costs incurred for software, cloud computing, and other human resources and accounting needs
Tax Deductions and Streamlined PPP Loan Forgiveness
- Expenses paid with the proceeds of PPP loans can be deducted for income tax purposes even if the loan is forgiven
- A simplified forgiveness application for PPP loans of $150,000 is now available. The borrower would sign and submit a certification that includes:
- The total loan value
- A description of the number of employees the eligible recipient was able to retain because of the PPP
- The estimated amount of the covered loan amount spent by the eligible recipient on payroll costs
- Any advances received under the Economic Injury Disaster Loan (EIDL) will no longer be subtracted from PPP forgiveness
Employee Retention Tax Credit
The Employee Retention Tax Credit (ERTC) was first introduced under the CARES Act as a refundable tax credit against payroll taxes. There are no changes to 2020’s ERTC except now employers can retroactively claim both the ERTC and the PPP in 2020 as long as the PPP funds weren’t used to fund the wages eligible for the ERTC.
The ERTC was originally set to expire at the end of 2020 has now been extended thru June 30, 2021. The 2021 version of the ERTC includes many enhancements in comparison to the 2020 version, which include the following:
- Available in 1st and 2nd quarters of 2021 on what is believed to be a quarter by quarter election
- Equal to 70% of wages paid to each employee per quarter ($10,000 maximum of eligible wages per quarter)
- Available to business owners that employ less than 500 employees
- Can access ERTC if business owner experienced a decrease in gross revenue of at least 20% in gross revenue compared to that same quarter in 2019 (e.g., compare Q1 2021 to Q1 2019)
- Employers not in service in 2019 would compare the same quarter in 2020 to see if they meet the 20% revenue decrease test (e.g., compared Q1 2021 to Q1 2020)
- Employers can claim both the ERTC and the PPP as long as PPP funds aren’t used to fund these wages eligible for the ERTC.
Other Relief Options
- Work Opportunity Tax Credit
- This employer tax credit is extended 5 years until December 31, 2025
- Maximum $9,600 credit per employee that is hired from targeted groups (e.g., veterans, felons)
- 100% deductibility of business meals incurred in 2021 and 2022
There is much to digest from this new Act, but there is plenty that could benefit business owners in the hospitality industry. More guidance on some of these areas will be forthcoming in the near future.
Our tax specialists are also available for consultation on this for restaurants, hotels, distributors, and retailers. Please contact Aaron Boker or one of our hospitality tax advisors at 301.231.6200 for more information.