The Consolidated Appropriations Act of 2021 ("the act") contains several relief provisions relating to the coronavirus pandemic, including some that are significant to trade associations. The CARES Act, passed in March 2020, also provided relief relative to the pandemic, but one of its most beneficial provisions, the Paycheck Protection Program loan, was available only to organizations designated as exempt under IRC Section 501(c)(3). The most recent legislation provides much-needed relief to trade associations with enhancements to the PPP and the Employee Retention Credit (ERC).
The expanded PPP program allowing 501(c)(6) organizations to participate contains some important restrictions. Eligible trade associations must have fewer than 300 employees, and lobbying activities cannot be significant. The act states that revenue for lobbying cannot be greater than 15 percent of total receipts, and lobbying activities cannot comprise more than 15 percent of total activities. Additionally, no more than $1 million can be spent on lobbying. The amount of the loan will be based on either 2.5 times average monthly payroll for calendar year 2019 or 2020, but total loan proceeds cannot exceed $2 million. To obtain loan forgiveness, 60 percent of the proceeds must be used for payroll costs, and the remaining 40 percent can be used for interest on mortgage debt, operating expenses, rent, utilities, supplier costs or worker-protection costs. No amount of the proceeds can be used for lobbying or political expenditures. All eligible costs must be incurred during the 24-week period beginning with the date the proceeds are received.
Since trade associations were not eligible for PPP loans under the original program, no reduction in revenue is required to qualify under the act. The revenue reduction is only required for second-draw loans; however, it will still be necessary to certify that the loan is necessary due to economic uncertainty resulting from the coronavirus.
The ERC, originally established by the CARES Act, has been extended and improved under the act. The ERC provides a refundable credit against payroll taxes under certain circumstances. The credit has been expanded to allow employers with up to 500 employees to apply, as opposed to the 100-employee limit under the old rules. The credit has been increased from 50 percent of wages up to $10,000 of quarterly wages per employee to 70 percent of wages up to $10,000 per employee per quarter. In order to qualify, a business must show a reduction in revenue for the quarter. For 2020, the revenue reduction must be 50 percent or greater compared to the same quarter of 2019. For the first two quarters of 2021, the reduction is 20 percent. Also, the business can elect to use the fourth quarter of 2020 as compared to the fourth quarter of 2019 for the credit for the first quarter of 2021, and it may use the revenue from the first quarter of 2021 as compared to the first quarter of 2019 for the credit for the second quarter of 2021. Under the CARES Act, the ERTC was not available if a business received a PPP loan.
Under the act, it is possible to take advantage of both programs, but the wages used to obtain forgiveness of the PPP loan cannot be used for the ERC.
If you think you might qualify for a PPP loan and/or the ERC, you should review each program to determine that which is most advantageous for your organization, or if you can take advantage of both. Timing will be critical to making sure wages are not duplicated under both programs, and that loan forgiveness is maximized.
Banks have started accepting applications under the PPP program, and the ERC is available now to qualifying organizations. Contact OSAE Strategic Partner CSCH for assistance.