By Daniel Van Schoiack, CPA
Last week’s article outlined two forms of relief available to business, nonprofit organizations and churches who have experience economic hardship from the COVID-19 restrictions: the PAYROLL
PROTECTION PLAN (PPP) and the Economic Injury Disaster Grant (EIDL). Both of these programs were part of the recently passed CARES ACT by congress and administered by the SBA.
Generally a business or nonprofit organization with 500 or less employees can apply for both of these relief programs. However, there is a trap, the amount of proceeds from the PPP that are equal to the amount of an EILD Grant must be paid back per section 1110(e)(6) of the CARES ACT . But as a result of last week’s crash of the EIDL Grant program, that might not be a big concern to some applicants.
Originally, the maximum amount of the EIDL Grant was $10,000 per applicant. However, due to the overwhelming number of applicants, e-mails have been sent out stating that the maximum amount of the grant will now be $1,000 per employee of each recipient. As previously mentioned, the proceeds from the PAYCHECK PROTECTION PROGRAM are also subject to repayment for failure to maintain or restore average number of employees and total wages to a prior base period. Also, since 75% of the proceeds from PPP must be used for payroll cost, it is important to monitor and account for the funds in a separate bank account.
As an alternative to applying for the PAYROLL PROTECTION PLAN, a qualifying employer can use the EMPLOYEE RETENTION CREDIT where relief is immediate as a credit against federal payroll taxes. The credit applies to 50% of wages from March 13 through December 31, 2020. The credit can be applied to a maximum of $10,000 in wages, therefore the maximum credit allowed is $5,000. The credit can be applied on any federal payroll reporting Form 941 beginning with the 2nd quarter of 2020. An employer may also request an advance payment for the credit by submitting Form 7200.
It is important to note that an employer may not use both the PAYROLL PROTECTION PLAN and the EMPLOYEE RETENTION CREDIT without triggering a repayment . While the PPP might provide a greater dollar amount of benefits, those who apply must be aware of the payback traps that come with it. We are still waiting for clarification from the SBA on how some of the payback provisions will apply.
Daniel Van Schoiack CPA, is a member of the American and Oregon Society of CPA’s. He can be reached at 541-676-9971 or at firstname.lastname@example.org.