The Consolidated Appropriations Act of 2021 offers relief to nonprofits hit hard by the coronavirus pandemic. The new relief efforts clarify elements of the Paycheck Protection Program, offer funding for new loans (PPP2), enhance the employer tax credit, and extend employee benefit modifications.
Paycheck Protection Program Updates
The Paycheck Protection Program offered significant benefits to help organizations retain employees who might otherwise go on unemployment benefits. PPP2, an extension or continuation of the Paycheck Protection Program, allocated $284.45 billion for loans, $43.5 billion in Small Business Administration (SBA) debt relief, and $20 billion for certain live venues and cultural institutions that remain shut down or have significant operational restrictions due to the pandemic.
The new Act not only extends the PPP2 loans into 2021 but provides additional guidance and clarification. Nonprofit managers should now focus on PPP loan forgiveness and whether or not they should access funding under the new PPP2.
PPP2: New Guidelines
PPP2 comes with brand new guidelines for potential borrowers, so it is important for nonprofits to review the guidelines again in light of these changes. It encompasses organizations with 300 or fewer employees and reduces the maximum loan amount from. $10 million to $2 million. If your organization did not previously quality for the Paycheck Protection Program, these changes may qualify it in 2021.
SBA Requires “Loan Necessary” Questionnaire
The new PPP act requires borrowers to complete a new questionnaire from the Small Business Administration attesting to the necessity of the loan. The new version of the questionnaire for nonprofit was finalized on November 30, 2020 and is an entirely separate requirement for the loan application. Nonprofits seeking loans of $2 million or more are required to complete both the questionnaire and the loan application. Note that evidence must accompany the responses, too, such as proof of liquidity and revenues between 2019 and 2020 and other facts to attest to the need for the loan.
Tax Treatment of PPP Loans
The PPP loan clarification also includes confirmation that any amount of PPP loans forgiven will not be taxable.
Employer Tax Credit Enhancements
Two employer tax credits are in the Consolidated Appropriations Act of 2021: Employee Retention Tax Credit and Employer Tax Credit for Family and Medical Leave.
Under the 2021 bill, the Employee Retention Tax Credit (ERTC) has been extended to employers who claim PPP loans. One important item to note: wages used to justify forgiveness of any PPP loan may not be used again to calculate the ERTC. Although this limits the possible benefits for recipients of PPP loans, it also expands the eligibility for the credit to others.
The Employer Tax Credit for Family and Medical Leave refundable payroll tax credits have been extended through March 2021. Note that this extension does not require an employer to provide the leave—it simply extends the credit for employers who voluntarily provide the leave.
The credit is equal to 12.5% of eligible wages if the rate of payment is 50% of such wages. It is increased by 0.25 percentage points (but not above 25%) for each percentage point that the rate of payment exceeds 50%. The maximum amount of family and medical leave that may be taken into account with respect to any qualifying employee is 12 weeks per taxable year.
Seek Professional Advice
As with any new bills, this one may take some time to fully understand its limits and ramifications. If you’re in doubt about the financial or tax implications to your organization, please contact Welter Consulting.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.