Tag Archives: small business

Education, IRS, Tips

Payroll Protection Program – New Guidance and Important Reminders

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I woke up today ready to finally get some real client work done — tax returns have been sitting floundering for over two weeks now and I have a backlog of emails that gives me bad dreams — and found that new guidance on the Payroll Protection Program (PPP) was given to bankers last night by the Treasury Department and the SBA. Game on!

But in actuality it’s all really good news, because it ends the constant obsession with researching all the different possible interpretations, weighing the consequences of taking each approach, worrying about accidentally advising a client to ask for too much or too little, bickering with colleagues about differing opinions, and second-guessing an approach in the face of a banker who says otherwise.

(If you’d like a summary of the total mess Congress and the Treasury Department created when they rolled out this program, see this excellent article by my favorite tax writer, Tony Nitty.)

(And if you’d like a clear summary of the PPP program as it now stands, see this article from earlier today by another great Forbes writer, Kelly Anne Smith.)

So, first: here’s the new guidance that was given to bankers last night — and here’s the audio for the call itself.

And here’s a very brief summary of the highlights:

a) Use Gross Payroll (Not Net) – you will not subtract federal withholding or the employee portion of SS/MC after all — just like we all understood it from the beginning, before this whole fiasco with the interim guidance (because, we said… otherwise it would be silly, we said). You should not add in the employer portion of federal taxes, but you can still add in the employer portion of state taxes, like SUTA (state unemployment tax — in Illinois, that’s IDES).
b) Add Benefits to Payroll – the salary cap of $100K only refers to salary itself, and not benefits — you can add health/retirement benefits on top of this. I recommend using the W-2 Box 5 for the payroll portion, since it’s rarely adjusted for anything.
c) Don’t Worry If You Used the Wrong Rules – If a loan application has already been processed by a lending institution, then the applicant need not do anything more — they will be processed accordingly, given the interpretation of the law at the time it was processed. If a submitted loan application has not been processed, the applicant may revise their application and should work with their lender to do this.
d) Applications Are Not Going Into a Black Hole – 78,000 PPP loans have been approved, worth about $22 billion so far (though how many borrowers have actually received their money so far has not been shared). The banks are accepting applications and submitting them to SBA as their online systems can take it (they keep going offline). Treasury has said they will go back to Congress for more money if necessary — and as of tonight it seems we’re likely to get another $250B.

In addition to these new guidance clarifications, I wanted to list of some reminders about what we already know — specifically, things I keep noticing clients and colleagues are missing in their understanding of the program — as well as a few tips.

  • BEWARE OF SCAMS — especially from people who say they can get you a loan faster for a fee. They’re all over the place and easy to fall prey to, especially with all the confusion regarding the PPP. Remember, you shouldn’t have to pay a cent to submit a Paycheck Protection loan application.
  • The total amount of the loan is 2.5 times your average monthly payroll costs, period. Rent, mortgage interest, and utilities do not enter into this part of the calculation — they only are in the calculation for loan forgiveness.
  • No more than 25% of the PPP can be used on non-payroll items (again: rent, mortgage interest, and utilities).
  • Self-employed folks — sole proprietors and partners in partnerships — are eligible to apply for the PPP, and to include their self-employment earnings as if it were payroll. If they have employees, they can apply now; if not, they can apply starting April 10th. I recommend using Form SE (part of the personal tax return, not the business) to substantiate the full amount of their own “payroll” income, plus (as mentioned above) Box 5 of the W-2s for your staff (up to a $100K limit per person).
  • For full loan forgiveness, a borrower cannot let the dollar amount of payroll or the number of FTE (full-time employee equivalent) hours dip below 75% of the prior-year monthly average; but it won’t all be lost — it will be phased out.
  • You can choose from a bunch of different date ranges to calculate your monthly average (Gusto now allows you to change the date range on the PPP report):
    a) 2019 calendar year.
    b) Most recent 12-month period before your loan application.
    Most businesses will select either (a) or (b).
    Pro tip: If you’re trying to get the highest loan possible, pick the period that is higher. If you’re worried about hitting 75% of your prior-year monthly average, pick the period that is lower.
    c) Seasonal business that has its highest payroll this time of year: use info between February 15, 2019 and June 30, 2019.
    d) New businesses, or ones that expanded this year (i.e., FTEs and payroll were higher during the first part of 2020 than they were during the other acceptable reporting periods): use the alternative reporting period of Jan 1-Feb 15, 2020.

This is a lot of info to take in, I know… but hang in there and run the numbers — if you already own a small business, you’ve had to deal with way worse calculations than this. Now that we have reliable guidance and clarity on what will be accepted for the loan calculation and forgiveness calculation, it’s just a matter of crunching the numbers and preparing the documentation.

Speaking of which: next blog post — a checklist of information, calculations and documents to pull together so you have them ready for your PPP application!

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, IRS, Tips

SBA Economic Injury Disaster Loans (EIDL)

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UPDATE 6/10/20:
Sec. Carranza indicated today that new EIDL applicants will begin to be accepted next week — they are still working through the queue of previous applicants, but as they get a handle on that, the system will be available again (currently it is only available to farmers). I have a client who applied on April 8th who received their loan this past week, so I can confirm that they really are still in-motion… when you see money suddenly show up in your bank account with “SBA TREAS” in the description, that’s probably it.

UPDATE 4/27:
As of 11:15 am Central, the SBA now notes on their website that they are continuing to review the existing queue of EIDL applications and will provide further information on new applications soon. More information in a new blog post here.

UPDATE 4/25: the EIDL program has had some funds replenished in the most recent round of legislation, and full information on it and how to apply can be found here.

We’ve spent so much time talking about PPP loans that we’ve left its older sibling, the Economy Injury Disaster Loan (EIDL), in the shadows.

The idea when you apply for an EIDL is that you need cash fast to save your business (historically, these types of loans are given out to businesses hit by a natural disaster of some type). So when you apply, they try to fund an advance of up to $10k (not necessarily the full $10k) in approximately three days — you even give them your bank info when you apply so they can deposit the funds stat.

In other words, if you meet the minimum qualification criteria to apply for an EIDL loan, and submit an online application to the SBA, you will receive up to a $10,000 advance in short order — that does not need to be repaid.

From Nav.com, a lending site I’ve used in the past for clients: If you meet the minimum requirements to apply for a disaster loan, the grant will be available to you whether or not your loan application is approved. With that in mind, if you need access to capital quickly, and don’t need a larger loan amount, this may be a good option for you.
These working capital loans (including the grant) may be used only to pay fixed debts, payroll, accounts payable, and other bills that could have been paid had the disaster not occurred. The loans are not intended to replace lost sales or profits or to pay for expansion. Funds cannot be used to pay down long-term debt. They also cannot be used to consolidate debt.

So you certainly could receive an advance, and then not be granted a loan, and yet still get to keep the advance.

But as to a question I was recently asked during one of my daily client Q&A sessions: could you get the advance… but not apply for a loan, or decide against the loan if granted? And if not, then what’s the lowest amount you could request as a loan?

From what research I’ve done (by no means authoritative, so please reach out if you discover otherwise), it sounds like you do have to apply for some sort of loan. I have not yet found an answer about how small a loan you could request. If you apply for $25k or less, there is no personal guarantee and no collateral required. Over that amount, but under $200k, will require a personal guarantee and collateral — but it will avoid some additional costs that come with higher loan amounts.

There is an interesting note on the SBA site, however:
There is no obligation to repay the grant. To receive the $10,000 emergency grant, it is not necessary to have an approved EIDL loan. However, if you are able to secure a PPP loan, the $10,000 grant will be subtracted from the forgiveness amount.

I am unsure about whether this is still true or not — it certainly was initially, but in the past week it’s been widely reported that you may receive both a PPP and an EIDL loan as long as both are not paying for the same expenses, so it’s possible that the info on the SBA site is outdated. It remains important to have a good relationship with your lender to get these kinds of questions answered before signing.

I’ll leave you with some additional info from Brian Thompson over at Forbes:

The EIDLs expanded provisions include: 

  • Can be approved by the SBA based solely on an applicant’s credit score (not repayment ability and no tax return is required).
  • EIDLs smaller than $200,000 can be approved without a personal guarantee. They are also not requiring real estate as collateral and will take a general security interest in business property. 
  • Borrowers can receive $10,000 in an emergency grant cash advance that can be forgiven if spent on paid leave, maintaining payroll, increased costs due to supply chain disruption, mortgage or lease payments or repaying obligations that cannot be met due to revenue loss. 
  • It expands access to sole proprietors or independent contractors, as well as tribal businesses, cooperatives, and ESOPs with fewer than 500 employees and all non-profits including 501(c)(6)s. 

Because lending decisions are based on self-certification and the applicant’s credit score, the review process should go quickly. CARES also waives the requirement that you be unable to obtain credit elsewhere. That means you can apply even if you already have a credit line.

You apply for these loans directly through the SBA at www.SBA.gov/disaster.  There are no loan fees, guarantee fees or prepayment fees. As of March 30, the new streamlined online application is up and running. Make sure to apply for Economic Injury for the Coronavirus, rather than physical damage due to another disaster (that is a different declaration number).

UPDATE 6/13/20: Although there is much disagreement among colleagues on this topic, according to the AICPA it is likely that EIDL grant advances will have to be subtracted from PPP forgiveness when the time comes.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, IRS, Tips

Payroll Protection Program Calculation Template

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IMPORTANT: This blog post is now out-of-date due to new guidance released on April 6th — see new post here.

The most recent interim guidance for the Payroll Protection Program makes a few vague and misunderstood items clearer… and creates some new issues in the process.

From my colleagues over at KMK Law:

Material Changes in PPP

  • Independent contractors do not count as employees for PPP loan calculations or loan forgiveness.
  • All federal employment taxes, including employee’s federal income tax withholding and both employer and employee’s share of FICA from February 15, 2020-June 30, 2020 are excluded from “payroll costs”.
    • This means that businesses are eligible for loan forgiveness based on the after-tax pay to employees (after FICA and income tax are withheld), not the gross pay made by the employer.
    • This exclusion applies only during the Feb. 15, 2020-June 30, 2020 period, which seems to imply that borrowers do not have to deduct employee income tax withholding and FICA when calculating the loan amount from 2019 payroll costs, except to the extent total payroll costs exceeds $100,000 per employee (including FICA and income tax withholding).
  • Interest rate is 1.0%.
  • At least 75% of PPP loans proceeds must be used on payroll costs (whether or not used in the 8-week period eligible for forgiveness; and to be eligible for forgiveness such payroll cost must be paid during the 8-week period).
  • Borrowers knowingly using PPP loan funds for unauthorized purposes may result in additional liability, including fraud.  In addition, if one of the borrower’s shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against that shareholder, member or partner.

Note in particular the bit about payroll taxes: as a result, a lot of folks could be caught by surprise due to the fact that the initial loan request amount is based on gross pay, and the loan forgiveness is based on net pay. Most of us are pretty sure this was not the law’s intent, but we have to work with the most recent regulations released by the Treasury.

This excellent template by Joey Brannon at Axiom takes the new regs into account and explains his analysis by referring directly to each passage in the most recent release. Keep in mind that if you use Gusto or ADP, they will have calculated much of this for you — just make sure to gut-check the results.

The Treasury has also released a PPP Fact Sheet (it’s a little vague, but relatively simple to follow).

Of course, the entire small business community, accountants, advisors, lawyers, banks and other lenders are all frustrated beyond compare that this calculation couldn’t have been standardized and applied consistently. My favorite tax writer, Tony Nitti at Forbes, wrote an excellent article in the form of an open letter to the Treasury Secretary that outlines everything we’re thinking and feeling (but more intelligently, backed up with data, and without swear words).

Furthermore, Gusto is getting push-back from some clients and lenders who disagree with the interpretation of the new regs, and they have released an updated report that allows users to choose either method of calculation.

Hopefully this is just a glitch that will be remedied in the next week, after the ten days of comments are up — but just in case, you may wish to have all employees go to 9 exemptions for those eight weeks, making up the under-withholding later in the year. (And it serves the dual purpose of getting cash into the hands of people now, rather than at tax-time.)

Are we having fun yet?

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Illinois, Tips

BCBS Relaxes Eligibility Requirements for Current Health Insurance Group Members

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I honestly never truly expected to see this day come. Hoping against hope two weeks ago, I spent many hours on calls with my benefits advisors, health insurance reps, and every HR resource I could find, to no avail. But apparently, since then, even big bad for-profit health insurance corporations have recognized that forcing millions of furloughed Americans into losing their group health insurance is maybe a bad idea.

Here’s the issue — let’s say you run a small business and you want to start a group insurance plan for your staff. Group plans tend to be less expensive, give you more for your money, and allow access to a wider network of health providers. (Don’t get me started on why all plans aren’t group plans, or why discrimination against self-employed or single-owner businesses is allowable.) But here’s the trick: they require you to have at least one non-owner on the plan. And the second hurdle: with a group plan they require employees to work at least 20-30 hours per week to qualify for coverage (depending on the plan). You’d think the employer would get to choose the number of hours, but no — the for-profit health insurance company does. (Again: do not get me started.)

Enter the COVID-19 crisis. Suddenly small business owners are having to lay off or furlough their staff left-and-right. Hopefully they’ll be able to hire them back when PPP funds, grants or loans come through, but in the meantime, they’re on unemployment. So this means:
1) Employees who have been furloughed or laid off don’t have health insurance unless they can afford to reimburse the employer via COBRA. Which they can’t. Because they just lost their job.
2) The employer may be generous enough to pay for the health insurance for the employee in the meantime, at least to the extent they were previously contributing to it if not more, but they’re not technically allowed to do this if the employee is no longer working 20-30 hours per week (30 hours for BCBS). Some small businesses were doing it anyway and hoping insurance companies were turning a blind eye; or they were technically putting folks on COBRA but not requiring employees to pay for it, booking it instead as an “advance” to be paid back when the business could hire them back.
3) Lastly — and this part stung the most: remember I said earlier that a business owner had to have at least one non-owner in order to have a group plan? Well, what happens if you have to lay off all your employees? The group plan would be terminated and now the owner and their family aren’t even covered anymore. (This is so messed up.)

So you can imagine my shock and thrill when I received the email below last night! Blue Cross Blue Shield of Illinois is actually relaxing the eligibility requirements for currently-enrolled group members, at least through April 30th: this includes staff who are laid off, are on a leave of absence, are furloughed, or are working fewer hours. The relief will last at least through April 30th.

They are also opening up a special enrollment period for staff who had previously declined coverage to be able to get on the company health insurance plan now, or for covered employees to add dependents. This is extremely helpful for staff who may have been covered under a spouse who just lost their job. However, these folks don’t get the same flexibility I mentioned above (which is totally ridiculous, but whatever — I don’t write these rules; if it were up to me we’d all be on a single-payer system).

The take-away: PLEASE DO NOT FLIP THE SWITCH TO COBRA YET FOR YOUR COVERED EMPLOYEES, REGARDLESS OF THEIR CURRENT EMPLOYMENT STATUS. They will remain covered, hopefully up through when the PPP or other funds come to fruition and you can hire them back. If you need to be reimbursed by your employees for their portion of insurance, consider working with them on a case-by-case basis to see who is best able to afford it. Make sure to treat them fairly, but also understand that some have more means than others. For those whose hours are reduced, work with them to make sure they have sufficient pay in their paycheck to have their contribution portion withheld as usual.

And if you are a furloughed employee in danger of losing your coverage, contact your employer to negotiate an extension of benefits at your prior contribution amount — many are willing to make exceptions to reward staff loyalty. Check out this 1-minute video on how to maintain your insurance benefits.

The full text of the email I received from BCBS is here:

Special Enrollment Period and Resources for Group Members Losing Coverage
We are committed to standing with our customers and members in this changing environment. As part of that commitment, we want to let you know about some of the options that may be available to you and several different ways we can help group members who may need coverage support due to COVID-19.

Eligibility Requirements
We have relaxed the eligibility requirements for currently enrolled/covered group members. 

  • From now through April 30, employers can maintain employees who were enrolled on their plans as of March 20, regardless of the eligibility definition stated in their plan or the BPA. 
  • This includes reduced work hours, furlough, leave of absence or layoffs.
  • Groups do not need to do anything. No paperwork or email is needed, as we will accept current and accurate eligibility files.
  • This flexibility does NOT apply to those who are newly electing coverage via the special enrollment period (see below).

Special Enrollment Period
We are also offering groups an optional special enrollment period from March 30 to April 30. This would apply to eligible employees and their dependents who previously declined coverage and now want to enroll, or currently enrolled employees who wish to add an eligible spouse or dependent to their existing coverage.

  • Applicable enrollment changes must be received on or before Friday, May 1. 
  • Effective date of coverage will be the group’s standard coverage effective date/billing date – for most groups this will be April 1.
  • This enrollment event will be for medical/pharmacy and dental coverage only.
  • Employers should notify their account representative if they plan to use this special enrollment option and use the standard eligibility process to add employees.

Other Coverage Options
If you have employees losing coverage through your group health plan, those employees may have several options for alternative coverage.

Federal COBRA: Eligible employers with 20 or more employees must offer coverage under federal COBRA. Employees losing coverage due to a qualifying event, which can include job loss or a reduction in hours, may have the opportunity to enroll in COBRA coverage to continue their current group health plan.

Individual coverage:

Marketplace plans – Any individual can enroll in a Marketplace plan, and some may qualify for financial assistance, depending on their income. Employees can view their benefit plan options at Selectbcbsil.com. 

Medicaid plans – Eligibility for Medicaid depends on income and other state requirements. Employees can view their benefit plan options at bcbsil.com/bcchp.

Additional Resources
We have created materials to help you communicate these options to employees:

  • An email template you can use to explain their coverage options
  • A flier that can be printed or shared electronically

We are here to help our customers and our members during this difficult time. Please don’t hesitate to reach out to your account representative with any questions.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Illinois, Tips

City of Chicago Small Business Resiliency Fund

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Applications for the Chicago Small Business Resiliency Fund are now open. The loan application went live yesterday afternoon (March 31st).

The Chicago Small Business Resiliency Fund is designed to provide small businesses and non-profits with emergency cash flow during this health crisis. Funds will be provided to eligible businesses as low-interest loans.

Most importantly, the Resiliency Fund is structured to complement the new federal Paycheck Protection Program that the Small Business Administration (SBA) is launching.

The way it works is that when you apply for Chicago’s fund program, they assign you a community lender who can help you navigate all the options you have as a small business. So it’s worth applying even if you decide not to take the Chicago Fund loan, just for the free assistance in navigating these difficult waters.

The loans are available on first-come, first-served basis, but they will be taking measures to make sure that they are distributing them equitably. See their FAQ here.

This loan program is intended to be a small loan that is a stop-gap measure so you can pay your staff and bills in the short term while you are searching for other options. There is no application fee. Terms are listed here. The fixed annual interest rate on the loan will be 1% for the first 18 months. After 18 months, the rate will increase to 5.75% for the duration of the loan.

You can borrow up to $50k, based on revenue prior to the crisis. Funds are to be used for working capital, with 50% going to payroll. Borrowers must commit to retaining workforce at at least 50% of level prior to crisis, but there will flexibility for closed businesses and other situations that might prevent this.

More requirements to qualify:
– Must have suffered at least 25% revenue decrease due to the crisis.
– 0-50 employees (sole props can apply)
– Gross revenues <$3M
– Located within City of Chicago – show business license or address
– 50% or more of employees must live in Chicago
– Must have been in operation at least one year at time of receiving the loan
– Non-profits are eligible
– If you have multiple businesses, you apply for one loan that covers them all

Required documentation:
– Business address within City of Chicago
– If you have a Chicago business license, provide it
– Bank statements dating back to October 2019
– Most recent tax return (whatever the year)
– Photo ID of at least one of the owners
– You will get a debt check to see if you currently owe the city

For application support, contact your local Neighborhood Business Development Centers (NBDC). The Resiliency Fund staff will also be able to assist in the application.

Supposedly, the lender you are connected with will help you navigate the full landscape of what is available to you: not only this loan, but other SBA loans, PPP loans/forgiveness, grants and other funds and resources.

They suggest you apply regardless, just so you are connected with a neighborhood lender, BACP fund staff, and your local Neighborhood Business Development Fund just to get info on what your options are about all resources that might be available to you.

However, if you have the time and resources, please continue to contact other SBA preferred lenders so you have the opportunity to choose the path that is ultimately most quick, cost-effective, and appropriate for your business.

Other Chicago Resources
Chicago has deferred all tax payments until April 30th — you still must collect restaurant, bag, amusement, etc. taxes from consumers, but the tax payments themselves will not be due until April 30th.

Though the Business Affairs & Consumer Protection (BACP) offices are closed, they are still processing business licenses, but late and renewal fees are deferred until April 30, 2020.

www.chicago.gov/coronavirus
www.chicago.gov/BACPCOVID19
www.chicago.gov/nbdc
www.chibizhub.com/covid19support
www.chicagobusinessdirect.org

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Illinois, Tips

Pro Tip: Get Your Ducks In A Row and Find a Small Business Lender TODAY

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I originally intended this post to be about the City of Chicago Small Business Resiliency Fund loan application process. And, well mostly, it is. But I learned a couple pretty important things over the past week of researching funding options for small businesses — something more general, and in a sense more important:

  • Find a good lender immediately. As in, today.
  • Get your financials ready. As in, today.

In the fast-paced world of obtaining small business resources during the COVID-19 crisis, preparedness is the word.

For example, in a webinar this morning, I found out that the City of Chicago’s program application will go live later today. And guess what: the funds are distributed first-come, first-served. I am not kidding. This means that businesses that already have a relationship with a banker or community fund will be able to navigate this maze more quickly than others — the same for businesses who are large enough to have an internal staff member or even an accountant to prepare the application, or the capital to hire a specialist.

With that said:

1) Finding a lender you trust seems to be the #1 most important thing you can do right now. A good lender is qualified to help you walk through the myriad funding options available, and may be able to predict what items will be needed to apply for specific programs, even before those programs have released guidance. (As an accountant, I am doing my best to get up-to-speed, but it’s simply not my area of expertise. I’m very good at helping pull together financial information for applications, however!)

2) The City Of Chicago Small Business Resiliency Fund presenter today encouraged everyone to apply, because it will connect you with a lender who can help you navigate the full landscape of options, not just this fund.

3) However, not all lenders are created equal. For example, lenders outside of Chicago will not know much about city-specific programs. And let’s face it, we’ve worked with a lot of banks and community funds, and some folks just have no idea what they’re doing (on a good day, not during a crisis, and without an overwhelming amount of information to evaluate). And I’ve heard from some clients that their usual lender isn’t even participating in the PPP program.

So, find a lender, now. Ask around to other small businesses to find out who they use. Ask your bank. If you already have an SBA or other loan, reach out to your loan officer (presuming you’ve had a good experience with them). Sometimes a big bank will be the better choice, sometimes the smaller community bank in your neighborhood, sometimes a community lending organization. Cross-reference by checking the SBA website “find a lender” tool. I don’t know a single decent one so far, so if you find somebody you like, please introduce me!

UPDATE 4/1 — A few clients have responded with recommendations: Chase, Wintrust, Radius Bank, Huntington Bank, Bank of America… all of them do 7(a) loans quite consistently so they are used to the documentation requirements, and can quickly pivot to offer PPP loans. These SBA “preferred lenders” (rather than just “certified lenders”) seem to be ready to take documentation Friday and issue loans ASAP thereafter.

And as for getting your financials together, here’s a list to get you started for any loan or grant:

  • Bank statements for the past year
  • Most recent business tax return (sole prop, partnership, S-Corp, C-Corp, Co-op, Not-For-Profit)
  • QuickBooks Profit & Loss and Balance Sheet comparative reports for the past 3 years
    (you can run one report for 1/1/17-2/29/20 and change the columns to “Years”; make sure to run these on cash- or accrual-basis to match your tax return)
  • W-2s for 2019 and payroll reports for 2019 and the first quarter of 2020

Rather than include my specific notes on the City of Chicago Small Business Resiliency Fund application process below, as originally intended, I’m going to link to them here as soon as I can (done!), so that I can get this info out ASAP to all small businesses that may need this guidance, not just those in Chicago.

Get on it!

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, IRS, Tips

Paycheck Protection Program Loans: What We Know So Far

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IMPORTANT: This blog post is now out-of-date due to new guidance released on April 6th — see new post here.

The new CARES Act has introduced the “Paycheck Protection Program” (PPP) — $350 billion in loans to be administered by the SBA. The loans may be used to cover a borrower’s payroll and payroll taxes, mortgage interest, rent and utilities for eight weeks from the date of the loan.

But this is the key: if an eligible borrower uses the loan for qualifying expenses “while maintaining its workforce”… the loan may be forgiven. This makes the PPP way more valuable than most other federal, state and city aid (with the exception of flat-out grants, and possibly some credits).

The loans aren’t available yet — hopefully we’ll begin seeing these within the next two weeks. This legislation is hot off the press, and lenders do not yet have guidelines or checklists in place to know how to process applicants. I know this sounds awful to ask of you at a time like this, but: please be patient. Use the time to get your books and documentation in order, select and reach out to your favorite lender, and get everything ready to apply the moment they open the gates.

Qualification and Terms

To qualify for the loan program, a borrower:
(1) must have been in operation on February 15, 2020;
(2) have no more than 500 employees; and,
(3) must certify that the uncertainty of current economic conditions makes necessary the loan request to support its ongoing operations.

  • The amount of a loan cannot exceed 250% of the borrower’s average total monthly “payroll costs” during the one-year period leading up to loan origination. “Payroll costs” include salaries, wages, commissions, tips, paid time off, health insurance, retirement benefits, and state and local taxes not to exceed $100,000 per employee.
  • Loans are subject to a maximum of $10 million.
  • Amounts not forgiven (explained below) will have a maximum maturity date of 10 years from the date the borrower applied for loan forgiveness.
  • Interest on the loans shall not exceed 4% until June 30, 2020, but may be subject to change afterwards. All loan payments (principal, interest and fees) are deferred for at least six months, and up to one year.
  • Loans are “non-recourse” (which means company owners are not responsible for payments if the company defaults), except to the extent the loan proceeds are used for a purpose other than borrower’s payroll, mortgage interest, rent and/or utilities expenses.
  • Borrowers/owners will not need to provide any collateral or personal guarantee during the “covered period” (February 15-June 30, 2020). (It’s unclear whether lenders will require collateral and/or a personal guarantee to spring into effect upon the loan continuing to remain outstanding — or not completely forgiven — after June 30, 2020.)

Loan Forgiveness

The total of all payroll costs, mortgage interest payments, rent and utility payments incurred and made by a small business PPP borrower during the eight weeks following the loan — capped at the total loan principal amount — is potentially eligible for forgiveness. Unlike other forms of forgiveness of indebtedness, the amount of forgiveness received by a borrower will not be taxed as income. So this is kind of a big deal.

However, the maximum forgiveness amount will be reduced if the company reduces its number of Full-Time Equivalent Employees (FTEs) and/or reduces wage or salary compensation in excess of 25%. The reduction of forgiveness is reduced in proportion to the decrease in the number of FTEs during the eight-week period following the loan origination date, and the borrower’s monthly average FTEs from either (1) February 15, 2019 – June 30, 2019 or (2) January 1, 2020 – February 15, 2020.

In addition, the maximum forgiveness amount will be reduced dollar-for-dollar for any wage or salary reduction of an employee (who is paid less than $100,000 year) in excess of 25% (measured against the wage and salary for that employee during the most recent full quarter prior to the loan origination date).

If the small business previously reduced its workforce or the salary/wages it pays its employees, they can still qualify for loan forgiveness if FTEs are re-hired and/or wages are restored by June 30, 2020.

After an application is submitted for loan forgiveness, the lender will have 60 days to make a determination as to whether the loan will be forgiven. Lenders will then work with the SBA to be reimbursed for the forgiven amount; this won’t be something the small business owner has to do.

Information on Lenders

The Paycheck Protection Program will be administered by the existing network of approved SBA lenders, but the SBA and Treasury Department have said they are adding qualified lenders to disburse and service loans made with the guarantee of the SBA. Supposedly it’s not that hard to qualify as a lender, so if you have a good business relationship with a bank or other lending organization, encourage them to apply to become a qualified lender ASAP.

Lenders can make borrower eligibility determinations without SBA approval, using only the program eligibility rules. A borrower does not need to show it is unable to obtain credit elsewhere (a customary SBA loan requirement). This is also kind of a big deal.

Loans under the program are fully guaranteed by the federal government, which is an increase to the existing guarantee percentages under the current SBA loan program. (Ditto on the big deal.)

The SBA and the Department of Treasury are in the process of developing the guidelines lenders will use to administer the Payroll Protection Program loans. They must issue regulations within 15 days of enactment of the CARES Act, which means it’s possible that lenders could begin taking loan applications in two weeks. Just to be clear here: this is light-speed for a newly-enacted government program.

Recommendations for Potential Borrowers

I’m hearing from clients and colleagues that none of the lenders have received guidance yet for these PPP loans. However, if you have your books in order and gather all the appropriate documentation that you expect they’ll ask for, then you’ll be ready when the time comes.

In addition to getting the books in order for 2018, 2019 and up-to-date through 3/31/20 (if they’re not already), I’m recommending to clients who may be interested in the program, as potential borrowers, start working on documentation to verify the following:
1) the number of full-time equivalent employees on payroll and pay rates for the applicable periods: including payroll tax filings, state income, payroll, and unemployment insurance filings (basically, payroll from a comparable period one year ago); and,
2) payments on mortgage obligations, lease obligations and utilities: including payment receipts, transcripts of accounts, or other documents (to prove you had a lease or mortgage and utilities in service before February 15th of this year).
3) You’ll need some type of certification by an “authorized individual” (presumably an owner, partner or officer) as to the business having been negatively impacted by COVID-19;
4) And of course you’ll need some relationship with an SBA-approved Sec 7a lender, which means start calling around now.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Illinois, Tips

Illinois Hospitality Emergency Grant Program

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UPDATE 4/9/2020: Per Crain’s Chicago —
More than 12,000 applied for the grants, and 700 were drawn at random from a pool of applications. The winning 450 bars and restaurants each will get an average of $14,000, which can be used for payroll and general corporate purposes. The 250 small hotels get an average of $30,000. Officials said they are looking for other sources of funds to offer more grants in the future.

To help hospitality businesses make ends meet in the midst of the COVID-19 pandemic, the State of Illinois launched the Hospitality Emergency Grant Program. Grant funds are available to support working capital like payroll and rent, as well as job training, retraining, and technology to support shifts in operations, like increased pick-up and delivery. Eligible businesses include:
  • Bars and restaurants with a valid license to serve food or liquor and who generated revenues of less than $1 million in 2019.
  • Hotels with a valid license (hotels, motels other lodging establishments) and who generated revenues of less than $8 million in 2019.
Find application here. Applications are due April 1st by 5PM. Winners will be selected through a lottery.

Source: Hospitality Emergency Grant Program | Accion

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Education, Illinois, Tips

Questions About Illinois Unemployment (IDES)

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I’m getting a lot of client questions about unemployment these days — understandably… one person referred to it as the “IDES of March” — and thought a short Q & A + random notes and tips might be helpful. Some of these are notes from clients and friends based on their own experiences and research.

None of this should be taken as legal advice. Please see the State of Illinois’ unemployment website or give them a call (I’m hearing wait-time is about 45 minutes, so get a book or magazine out) with specific questions.
For Employers: (800) 247-4984
For Employees: (800) 244-5631
I’ve also heard that some of the branch offices have shorter wait times, such as Arlington Heights (847-981-7400) and Skokie (847-745-3242).

Block Club Chicago has done a lot of excellent reporting since its inception, and the journalists have earned my deep respect. And they are providing all COVID-19 coverage free to the public (consider subscribing to support their work if you are able). This particular article does a nice job outlining how to obtain unemployment benefits, rent relief, and more.
https://blockclubchicago.org/2020/03/18/out-of-work-due-to-coronavirus-heres-how-to-get-unemployment-benefits-rent-relief-and-more/

IMPORTANT NOTE:
For some reason, IDES benefits cannot be applied for with a smart phone — YOU MUST APPLY USING A COMPUTER. I know, this is ridiculous. Don’t shoot the messenger. Here’s the information you’ll need to apply.

Q: What if I’m temporarily laid off because the place where I work is temporarily closed because of the COVID-19 virus?
A: An individual temporarily laid off in this situation could qualify for benefits as long as he or she is able and available for and actively seeking work. Under emergency rules IDES recently adopted, the individual would not have to register with the employment service [office of IDES]. He or she would be considered to be actively seeking work as long as the individual was prepared to return to his or her job as soon the employer reopened.

Q: What if I quit my job because I am generally concerned over the COVID-19 virus?
An individual who leaves work voluntarily without a good reason attributable to the employer is generally disqualified from receiving UI. The eligibility of an individual in this situation will depend on whether the facts of his or her case demonstrate the individual had a good reason for quitting and that the reason was attributable to the employer. An individual generally has a duty to make a reasonable effort to work with his or her employer to resolve whatever issues have caused the individual to consider quitting.

Q: How are unemployment benefits calculated?
A: Here’s the place where IDES shows how they calculate the amount: 
https://www2.illinois.gov/ides/IDES%20Forms%20and%20Publications/CLI105L.pdf  — see page 16 starting with “how your benefits are determined”.
Basically, they take the prior three 3-month periods (quarters) and average your wages during that time. So contrary to popular belief, it’s not based on the most recent week or pay-period. (In fact, the most recent quarter is not even included in calculations.) Then they pay 47% of that amount.

And for more information on how unemployment benefits vary so widely from state-to-state, check out this great article. The number of complicating factors involved makes apples-to-apples comparisons almost impossible.

Q: I heard that the federal government is paying an additional $600 per week as well. Do you have to apply separately to get the federal government amount?
A: To the best of my knowledge at this time, there is no separate Federal application form. The state is supposed to be handling that aspect, and be reimbursed for the Federal amount, as well as their “extra” expense to process everyone. Heads-up that the one week “waiting period” will not apply for the $600 weekly amount — just for the state benefit amount. Once the Federal portion kicks in, the $600 will continue for up to four months, with the state paying for normally 29 weeks, plus another 13 weeks per Congress’ bill.

Q: I use Gusto as my payroll service. What are my options for making sure my employees are eligible for unemployment until I’m able to get everyone back to work again?
A: You have two main options:
1) Dismiss all your furloughed employees in Gusto so they can apply for unemployment — Gusto will save all their data, and they will still be in the system the moment you are able to rehire. To rehire: Go to People –> Show dismissed people (right column) –> Select employee –> on the right, under actions, click “rehire employee”.
– If you dismiss an employee in Gusto, then you will no longer be charged the monthly fee to keep them in the payroll system.
– Keep in mind that when you dismiss an employee, you must then report to your benefits coordinator or health insurance company that the employee has been dismissed. This makes them eligible for COBRA for 18 months. COBRA allows them to remain on the group plan and reimburse the company for the cost (plus an admin fee).
However, many employees cannot afford to do this, given that they’ve just lost their jobs. (Desperately trying to refrain from dwelling how immensely stupid this is, and wishing we had a single-payer tax-supported universal healthcare system.)
Luckily, all the arrangements for COBRA payments happen outside both the payroll and health insurance systems. You can negotiate any arrangement you want with employees, as long as they are all treated fairly. So if the company is able to and wants to foot the bill for health insurance while the employees are furloughed, they can. If they want the employee to continue to pay only their employee percentage, and not the whole cost, they can. Or if they want to offer to fully or partially foot the bill, but defer the employee’s payment until the company reopens and they can return to work, that is also a choice you can make. Just be sure to track the liability, and document the agreement in writing.
2) The other option is to keep them on payroll at a zero or very reduced pay rate. Some employers are keeping the pay just exactly high enough for the employee to be able to have their portion of health insurance benefits withheld from their paycheck. However, it is not as easy to apply for unemployment, and they may only qualify for partial benefits. But they should be able to show the reduced or zero wages, explain that they are furloughed due to business slowdown from COVID-19 sequestering orders, and be treated accordingly as unemployed or partially-unemployed per IDES regulations.
– One benefit of this approach is that they do not use up any of their 18 months of COBRA, and it allows you to easily have them pick up a shift or an odd job here or there.
– This allows the employee to potentially qualify for up to 2 weeks of paid sick leave (or partially-paid leave to take care of a sick family member or a child that must be home-schooled due to school closings), and another 10 weeks of partially-paid family medical leave — to be reimbursed to the employer by the federal government in the form of refundable payroll credits.
– Gusto is also providing options for deferring or waiving monthly payroll processing charges for those who need it.

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Illinois, IRS, Tips

Changes in Tax Return, Tax Payment & Estimated Payment Due Dates

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  • MyTaxIllinois Quick Links

UPDATE: On April 9, the IRS issued Notice 2020-23, which expands the deadline extension to many more tax returns and payments. The most important is that second-quarter estimated tax payments are also due July 15th now, rather than the original date of June 15th. More here.

Obviously things have been changing daily in the surreal and crazy world we’re all living in right now. As of March 28, 2020, here are the new deadlines for 2019 income tax returns and 1st & 2nd-Quarter Estimated Tax Payments — for both the IRS and Illinois Department of Revenue.

Both Federal and Illinois income tax returns and payments that were due on April 15 are now due July 15. (This includes both calendar and fiscal-year filers, as well as fiscal-year extended due dates that land on April 15th.)

However, keep in mind that the new stimulus checks will be based on 2018 tax returns if the 2019 return is not filed soon — more on that in this excellent article by Tony Nitti. And of course, if you are due a refund, it is best to get that filed sooner rather than later.

An extension can be filed before July 15 to extend the filing date (but not payment date) until October 15, the usual extension date.

Federal 1Q estimated tax payments are also now due July 15 — BUT Illinois 1Q payments are still due April 15.

Federal and State 2Q estimated tax payments are currently still due on June 15. (One month before Fed 1Q, yes.) UPDATE: the federal but not Illinois 2Q payment due date has now been moved to July 15th as well.

Note: payroll, gift and excise tax returns, as well as international filers and informational returns retain their original deadlines. UPDATE: most of these have since also been extended, though not payroll returns.

New automatic, systemic liens and levies are suspended for now. New delinquent accounts will not be forwarded to debt collection for now.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.