On December 27, 2020, a new Covid-19 relief bill called the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (“the new bill”) was signed into law.

While the new bill includes many benefits, a few provisions are especially interesting for nonprofits.

Paycheck Protection Program Round 2

The new bill kicks off a new round of Paycheck Protection Program (PPP) Loans. The Small Business Administration (SBA) is scrambling to issue regulations. Most nonprofit employers may receive a second loan if they meet certain criteria:

• Fewer than 300 employees
• Has or will use the full amount of their first PPP loan
• A 25% drop in gross receipts from one quarter in 2020 as compared to the same quarter in 2019. (For example, 2019 Q2 gross receipts of $100,000 and 2020 Q2 gross receipts of $70,000);
• 501(c)(6) organizations must meet limits on lobbying activities

The loan amount will be 2.5 times the average monthly payroll costs incurred or paid during the one-year period prior to the date of application or calendar year 2019. Loans are capped at $2 million.

New PPP loans cover more employee benefits:

• Group life
• Disability
• Vision and dental insurance

As in the original program, PPP loans are forgivable.

EIDL Advance will not affect PPP Forgiveness

In other good news, if your organization received both an Economic Injury Disaster Loan (EIDL) and a PPP loan, the new bill states that the $10,000 EIDL advance will not reduce PPP forgiveness.

This provision is retroactive to the CARES Act which created the original PPP loan program. If you already applied for PPP forgiveness and had an EIDL advance withheld, check with your lender to see if you can have the advance forgiven.

Employee Retention Credit

The Employee Retention Credit (ERC) is complicated, but grab a cup of coffee and read this section carefully. The ERC could put serious dollars into your organization’s bank account.

Expanded Eligibility and Benefits for the ERC

First of all, the new bill expands ERC eligibility and benefits:

1. PPP loan recipients are now eligible.
2. The ERC now extends through June 30, 2021. Previously it ended 12/31/20.
3. The ERC increases to 70% (up from 50%) of up to $10,000 in wages per employee per quarter. That’s up to $14,000 per employee over the first two quarters of 2021.
4. Furthermore, you may be able to claim the credit retroactively for 2020 wages and healthcare not covered by a PPP loan.

See, we weren’t joking when we said this is worth your while to understand!

Eligibility for the ERC

To qualify for the ERC, organizations must have 500 or fewer employees. In addition:

• The employer must have been fully or partially suspended by the government due to Covid-19 in the calendar quarter requesting the credit, OR
• The employer must show a decline in quarterly gross receipts of 20% (decreased from 50%) as compared to the same quarter in 2019.

The eligibility requirements are complicated. Below is an explanation from an article on JDSupra.com from the law firm of Morgan Lewis:

For 2020, an employer satisfied the gross receipts test only if quarterly gross receipts declined by more than 50% compared to the same calendar quarter in 2019. For 2021, an employer will satisfy the gross receipts test if quarterly gross receipts decline by more than 20% compared to the same calendar quarter in 2019. Using 2019 as the baseline period will be more favorable for employers whose gross receipts declined during 2020. For an employer that was not in business as of the beginning of the same calendar quarter in 2019, the baseline period is the corresponding calendar quarter in 2020.

Alternatively, an employer may elect to apply the gross receipts test for 2021 using gross receipts for the prior calendar quarter, compared to the corresponding calendar quarter in 2019. For example, an employer can satisfy the gross receipts test for the first quarter of 2021 in the following two ways: (a) first-quarter 2021 gross receipts fall by more than 20% compared to first-quarter 2019 gross receipts, or (b) fourth-quarter 2020 gross receipts fell by more than 20% compared to fourth-quarter 2019 gross receipts. It is not clear whether an employer can use this rule to qualify for the ERC in the first two quarters of 2021 based solely on a decline in gross receipts during the first quarter of 2021. We expect IRS guidance will address this question.

It is not clear to us if the retroactive eligibility requirement for quarters in 2020 remains at a 50% decline in gross receipts over the same quarter in 2019 or is reduced to a 20% decline in gross receipts. We will keep our eyes open for further guidance.

Claiming the ERC

Practically speaking, for the first two quarters of 2021 organizations determine eligibility and the amount of the credit immediately after the end of the calendar quarter. The credit is claimed on Form 941 as a reduction of payroll taxes.

Per the IRS web site, “In anticipation of claiming the credit, employers can retain a corresponding amount of the employment taxes that otherwise would have been deposited, including federal income tax withholding, the employees’ share of Social Security and Medicare taxes, and the employer’s share of Social Security and Medicare taxes for all employees, up to the amount of the credit, without penalty, taking into account any reduction for deposits in anticipation of the paid sick and family leave credit provided in the Families First Coronavirus Response Act PDF. “

According to an article on JDSupra from the law firm of Morgan Lewis, if you already submitted Form 941, you can claim the ERC by filing amended quarterly employment tax return Form 941-X.

Advance Payment of the ERC

Employers may apply for an advance payment of the ERC in anticipation of eligibility. Per a summary of the employee retention credit by CliftonLarsenAllen the IRS is expected to draft guidance on advanced payments based on 70% of average quarterly payroll for the same quarter in 2019. You would “true up” the credit based on actual experience after the quarter.

While the Employee Retention Credit is complicated, the amount of money potentially involved makes it worth investigating to see if it can benefit your organization.

We are awaiting further guidance from the IRS to clear up questions on several facets of eligibility, credit amount, and claiming the credit. As of the date this post is published, the IRS website on the ERC has not been updated.

New Form 1099-NEC for Contractors

In what may be the shortest blurb we have ever seen on an IRS website, About Form 1099-NEC, Nonemployee Compensation simply states “Use Form 1099-NEC to report nonemployee compensation.”

Form 1099-NEC replaces Form 1099-MISC for independent contractors.

If you file 1099s using QuickBooks Online, you will need to go through the process again of linking the accounts that include payments to contractors to the appropriate 1099-NEC boxes.

Update on Volunteer Mileage

Thanks to an alert reader, we updated our 8/5/2019 blog post, Managing Travel in Nonprofit Organizations, regarding mileage reimbursement for volunteers. This is a confusing area that is not spelled out well in IRS guidance.  We are taking the conservative approach and recommend reimbursing volunteers at 14 cents per mile. We will continue to stay alert for developments in this area.

New Lease Standard Postponed

For nonprofits with leases, you will be relieved to know that the requirement under Generally Accepted Accounting Principles to capitalize leases with terms greater than one year has been postponed.

ASU 2020-05 extends the deadline for implementation of the new lease accounting standards (ASU 2016-02 and ASU 2018-01, codified in ASC 842) to fiscal years beginning after December 15, 2021.

Thank goodness! We all have enough on our plates this year.