Who Qualifies for First-Draw PPP Money Today?
Two things to know about the Paycheck Protection Program (PPP) first draw enacted on December 27, 2020:
- The first draw is for those who missed getting in on the original PPP, which expired on August 8, 2020.
- Don’t think of a PPP draw as a loan. It’s not a loan. It’s a cash infusion. You have to repay a loan. You don’t have to repay the PPP funds.
Who qualifies for first-draw PPP money today? You, most likely—if you file a business tax return and have not yet received any PPP monies.
But don’t wait. The money is going to run out fast, and once it’s gone, so is the PPP. And the new PPP ends March 31, even if the money is not gone by then.
You qualify for the PPP if any of the following are true:
- You file your taxes on Schedule C of your tax return. Businesses that file on Schedule C include independent contractors (often called 1099 folks), single-member LLCs, proprietorships, and statutory employees such as life insurance salespeople.
- You file your taxes on Schedule F (ranchers and farmers).
- You are a general partner in a partnership, but the partnership asks for and receives the money based on your and your other partners’ combined self-employment incomes, as adjusted.
- You operate as an S corporation.
- You operate as a C corporation.
- You are the only worker in the business—but if you have employees in the business, you qualify on both your ownership worker status and your employees’ W-2 status.
COVID-19 Relief Law Turbocharges Employee Retention Credit
Before the December 27, 2020, enactment of the new COVID-19 relief law, you may have chosen the PPP loan and given no thought to the employee retention credit.
Remember, under the original law, you had to choose between the retention credit and the PPP loan. Millions chose the PPP loan route.
But now the game has changed. You may, as a PPP recipient, qualify to take the employee retention credit retroactively for tax year 2020 and also going forward in tax year 2021.
Here are the key changes you as a PPP player need to know:
- PPP loan recipients can retroactively claim the 2020 employee retention credit for wages not paid with forgiven PPP loan proceeds.
- Wages paid from March 13, 2020, through December 31, 2020, qualify for the retroactive credit.
- Wages paid from January 1, 2021, through June 30, 2021, can qualify for the more significant 2021 credit.
- For 2021 quarters only, you qualify for the credit if your gross receipts for a calendar quarter are less than 80 percent of gross receipts from the same quarter in tax year 2019. Alternatively, you can elect to qualify for a quarter by comparing the gross receipts of the immediately preceding quarter with the corresponding quarter in 2019.
- For 2021 quarters only, the relaxed requirements for qualifying wages apply to businesses with 500 or fewer 2019 full-time employees.
COVID-19 Relief Law Boosts Temporary Tax Deductions and Credits
Embedded in the COVID-19 relief law is $900 billion for financial assistance.
As you would expect in these unusual times, some of the relief is in the form of direct government financial assistance and some is from tax benefits that can impact both tax year 2020 and tax year 2021.
Most of the provisions create extra deductions or credits where Uncle Sam puts cash directly into your wallet.
For corporations, the 10 percent limitation goes up to 25 percent of taxable income.