EIDL and PPP2: 2021 Edition, Part II
Disclaimer: This article does not constitute professional financial, tax, or legal advice, and neither the author nor the American Translators Association (ATA) assumes any warranty, implied or expressed, for the accuracy or applicability of any information contained therein. It should not be relied on to make financial or other decisions affecting your business or personal situation. Before taking any financial, tax, or legal decisions, please always consult a professional adviser, e.g., your lender or CPA, to establish whether any specific program will suit your particular circumstances.
This post is Part II of an edited and updated version of an article that appeared in the ATA Chronicle-Online in January 2021. Click here for Part I.
Second Draw PPP (PPP2)
The application process for a second PPP loan will be familiar to you from your original application for First Draw PPP. Apply using either the online form provided by your lender, or using the new SBA Form 2483-SD-C, which uses your gross income to calculate the loan amount (for details, see Part 1). In either case, you will also have to provide the SBA Loan Number for your First Draw PPP loan. Note that there is no requirement to obtain forgiveness for your First Draw PPP loan before you apply for a Second Draw PPP loan.
A critical eligibility condition for Second Draw PPP is that you suffered a reduction in gross income (gross revenue) of at least 25% in any one quarter of 2020 compared with the same period of 2019. Alternatively, you can compare annual gross income in 2020 with 2019 gross income if you were in business for all of 2019. If your lender only asks you if your full-year 2020 gross income were at least 25% lower than full-year 2019, please contact them to point out that the quarterly comparison takes priority.
Please don’t be deterred from applying for a Second Draw PPP loan just because the documentation requirements outlined in the following appear to be complex. A key point to note is that, if the PPP loan you are applying for is less than $150k, you do not need to provide documentation as evidence of the minimum 25% reduction in gross receipts until you apply for forgiveness, or if requested by the SBA. You can therefore leave that information blank on the Second Draw application form.
The main thing to do right now is to make a quick comparison of your quarterly revenue in 2020 and 2019 to confirm that your quarterly revenue was down at least 25% year-on-year in at least one quarter of 2020. You can leave the formal documentation till later. However, the relevant information about how to document the minimum 25% reduction is provided in the following for the sake of completeness.
If you were not in business in 1Q and 2Q 2019, but you were in business in 3Q and 4Q 2019, you will have to show that your gross receipts in any quarter of 2020 were at least 25% lower than in either 3Q or 4Q 2019. If you only started operating in 4Q 2019, the comparison must relate to the fourth quarters of 2020 and 2019. Finally, if you were not in business in 2019 but you were in business on February 15, 2020, you must prove that your gross receipts in 2Q, 3Q, or 4Q 2020 were at least 25% lower than in 1Q 2020. It may look complicated at first glance, but it’s actually quite straightforward.
According to the new guidance on how to calculate revenue reduction issued by the SBA on January 19, 2021, the following are considered to be adequate documentation of evidence of a 25% reduction in gross receipts:
- Quarterly financial statements. For cash basis filers, however, who do not prepare “financial statements” as such, extracts from your accounts in e.g. Excel or Word should be sufficient. If your accounts do not specifically identify the line item(s) that constitute gross receipts, you must make a note of the line item(s) that constitute gross receipts.
- Quarterly or monthly bank statements showing deposits in the relevant quarters. If it is not clear from the bank statements which deposits listed on the bank statement constitute gross receipts (meaning payments for the services you provide) and which do not, you must make appropriate notes on the bank statements.
- Annual IRS income tax filings. These are required if you use an annual reference period, and your lender may also ask for them even if you are providing other documentation. Schedule C filers who use their annual tax returns to show a reduction in gross receipts must use the sum of lines 4 and 7 on Form 1040 Schedule C, whereas S-Corps must use the sum of lines 2 and 6, minus line 4, on Form 1120-S. If you have not yet filed a tax return for 2020, fill out the relevant form using estimated amounts, based on your 2020 accounts (or ask your CPA to do this), making a note that it is a draft.
Other relevant information for ATA members that is contained in the January 19, 2021, SBA guidance is that PPP loans and EIDL advances are not considered to be “gross receipts” for PPP calculation purposes, so do not include EIDL advances reported as income in your income tax return.
The other main difference compared with the 2020 First Draw relates to the documents you will have to provide (upload). If you file Form 1040 Schedule C (and you have no employees), you will have to have payroll records ready:
- 2019 or 2020 Schedule C (whichever you are using to calculate your loan amount), or
- 2019 or 2020 Form 1099, if applicable, or
- 2019 or 2020 invoice or bank statement showing that you are self-employed if you don’t provide a 1099, and
- 2020 invoice or bank statement showing that you were operating on February 15, 2020.
If you have employees, you will have to provide:
- 2019 or 2020 Form 941,
- state quarterly unemployment insurance tax forms, or
- payroll statements or similar documents for the pay period that covered February 15, 2020.
If you file Form 1120-S (S-Corp) or 1120 (C-Corp), you must provide:
- 2019 or 2020 Form 940, W-2, or W-3, or equivalent payment processor records, or Form 941 and state quarterly unemployment insurance tax forms for each quarter,
- 2019 or 2020 Form 990 or other documentation of retirement and health insurance contributions, if applicable, and
- 2020 1Q Form 941 or similar documentation relating to the pay period that covered February 15, 2020, as evidence that you were in business and had employees on that date.
Regardless of your business form, you will also have to provide:
- 2019 business tax return (in full) or 2019 profit and loss statement (quarterly) or 2019 quarterly 941s, and
- 2020 profit and loss statement (quarterly) or 2020 quarterly 941s.
The PPP2 application period expires on March 31, 2021.
New rules for eligible uses of PPP loan funds
The classes of eligible expenditures have been expanded compared with the 2020 First Draw loans and include (for both First and Second Draw 2021 loans):
- eligible payroll costs
- mortgage interest or rent/lease
- covered operational expenditures
- certain covered supplier costs
- covered worker protection expenditures and certain other costs
In a list of eligible operational expenditures, the SBA’s new Interim Final Rule refers on page 49 to “any business software or cloud computing service that facilitates business operations, product or service delivery, the processing payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses.”
For translators and interpreters, it appears this could include a translation memory, terminology management, or translation management system, or interpreter support software, as well as resources such as electronic dictionaries and other reference resources needed for the translation and/or interpreting “business operations.” Cloud storage/backup, accounting and payroll software, and CRM software would also be covered.
Note that the description of “covered supplier costs” on page 50 of the new Interim Final Rule only refers to goods, rather than services, so it is unlikely, as things stand today, that outsourced translation, interpreting, terminology, or related services will be covered. However, we can expect more detailed guidance to appear on this issue at some point in the future. As before, at least 60% of the loan proceeds must be spent on payroll.
PPP loan forgiveness
The SBA has issued updated PPP loan forgiveness guidance and forms, including a new, one-page simplified forgiveness application form. This new Form 3508S can be used by borrowers who received a PPP loan of $150k or less (see more). You will have to provide information about your loan amount, the disbursement date, how many employees you have, the covered period dates, the amount of the loan spent on payroll, and the amount of the loan for which you are applying for forgiveness. You will not have to submit any supporting documentation with the application, but you will be required to keep payroll, nonpayroll, and other documents that could be requested if the SBA reviews or audits your loan.
About the Author
Robin Bonthrone, CT, MITI, is the owner of Premium Financial-Legal Translations, LLC, in Austin, Texas, and has been a full-time German>English financial-legal translator for more than 30 years, specializing in financial reporting, legislation, regulation, supervision, tax, and financial technology, among other subjects. He is an experienced financial translation trainer at translation conferences and workshops in Europe and the U.S., and also teaches in-house seminars and workshops at corporations and public institutions. He serves as the current president of the Austin Area Translators and Interpreters Association (AATIA), and is co-chair of the ISO Standards Committee at FIT, the International Federation of Translators. An ATA-certified German>English translator, Robin is a member of ATA’s Business Practices Education, Finance and Audit, Honors & Awards, Professional Development, and Standards Committees. Contact: email@example.com
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