COBRA Health Care Coverage

Section 9501 – Employees have new COBRA health care coverage continuation options.  Unemployed former employees can obtain premium assistance from April 1, 2021 through September 30, 2021.

Rental Assistance to tenants – Indirect Assistance for Landlords

Section 3201 – Low-income tenants can qualify for emergency rental assistance benefits out of a pool of $1.2B.  The benefits are managed by the state and local governments.   These sums are in addition to the assistance provided in December under the Consolidated Appropriates Act of 2021.

Section 3202 – Emergency housing vouchers.  Low-income tenants, at risk of becoming homeless, can receive vouchers out of a pool of $5B.

Very Small Businesses – New EIDL Advances (SBA – Economic Injury Disaster Loans)

Section 5002 – Businesses, with fewer than 11 employees, that suffered a 50% loss of business can qualify for a $5,000 EIDL advance.  EIDL advances are not taxable.  Section 9672.

Restaurants – Direct Grants and More PPP Loan Assistance to Restaurants

Section 5003 – Restaurants (includes – “restaurant, food stand, food truck, food cart, caterer, saloon, inn, tavern, bar, lounge, brewpub, tasting room, taproom, licensed facility or premise of a beverage alcohol producer where the public may taste, sample, or purchase products, or other similar place of business” including  restaurants in airport terminals) can qualify for PPP loan assistance with a more relaxed definition of “affiliation” for including employees and receipts of related companies.   However, the business can not have more than 20 locations (as of March 13, 2020).

Direct grants (“Restaurant Revitalization Fund”) to restaurants also are available from the SBA to pay for: payroll, mortgage, rent, utilities, maintenance, certain building improvements (outdoor seating, walls, floors, decks, furniture, and equipment), supplies, food and beverage costs, operational expenses, and paid sick leave.  Any sums not used timely have to be returned to the government.  Applicants cannot have applied for other federal pandemic assistance.  These grants are not taxable and associated tax deductions are allowed.  Act. Sec. 9673.

Note – Pennsylvania also is offering state funded grants to restaurants hard hit by the COVID virus.   Applications for Allegheny County restaurants will be available on March 15, 2021.  Information for other Pennsylvania counties can be found here:

Employee Retention Tax Credit – Payroll Tax Credit for the Employer

Section 9651 (26 USC § 3134) –  Congress expands access to the Retention Credit to “recovery startup businesses” (started business after February 15, 2020).  The Retention tax credit is based on the first $10,000 in wages.   This supplements IRS guidance issued in January and March 2021.; Notice 21-20,

For questions regarding this subject, please contact  S. John Kelly at

On December 27th, the President signed the “Consolidated Appropriations Act, 2021” (H.R. 133) (the “Act”).  In the Act, Congress authorized $284B to be used for the second round of the Paycheck Protection Program (“PPP”) loans (called “PPP2”).   Act. Sec. 301.

Requirements if You Already Have a PPP1 Loan

To get a PPP2 loan from an approved SBA Lender, if you already have an existing PPP loan (“PPP1”), you:

How Much Can You Borrow under PPP2?

A multiple of average monthly payroll, as adjusted to the excess compensation for highly compensated employees.

 Other Rules

Loan Forgiveness under PPP2

Generally, the PPP1 loan forgiveness rules also apply to PPP2 loan forgiveness requests.  Sixty percent of the PPP2 loan must be spent on Payroll costs and the remaining 40% must be spent on approved “Other” costs, all spent during the “covered” forgiveness period.  Borrowers can use either an 8-week or a 24-week “covered” forgiveness period.  The “covered” forgiveness period starts when the Lender puts the PPP2 money into your account.   “Payroll costs” includes compensation of up to $100,000 per employee plus certain group benefits: including life, disability, vision and dental benefits.

The “other” category of expenses includes:  rent, mortgage interest and monthly utilities.   However, the following new items were added to the “other” category for the PPP2 program:

Simplified Paperwork for PPP1 and PPP2 Loan Forgiveness

For PPP loans of less than $150,000, PPP Borrowers just have to sign a new, one-page form, certifying the number of employees retained, the amount spent on payroll costs, and the total loan amount.  SBA should have this new form available by the end of January, 2021.  Paper documentation to support the certifications will not have to be supplied to the Lender, but will have to be retained by the Borrower for four years in the event of an SBA audit.

Tax Treatment of PPP2 Loan Forgiveness and Why You Should Consider a PPP2 Loan

See, Tax Treatment of Expenses Paid with PPP Loans and EIDL Advances – Part 3  Because Congress has agreed to fund approved tax deductions with tax-free money under the PPP2 program, any business that needs a PPP2 loan, and meets the tests above, should consider taking out a PPP2 loan.

For questions regarding this subject, please contact Chris Azzara at  or  S. John Kelly at

On December 27th, the President signed the “COVID-related Tax Relief Act of 2020” (the “Act”), which is part of the “Consolidated Appropriations Act, 2021” (H.R. 133).  In the Act, Congress eliminated a major tax uncertainty associated with PPP loan program.   Congress also gave PPP loan borrowers additional tax deductions that can be used to generate significant tax refunds in the future.

Back in May, the IRS issued guidance that PPP loan forgiveness would be treated as a form of tax-exempt income.  Notice 2020-32, 2020-21 IRB 837 (May 18, 2020).  Under the IRS rationale, any approved business expenses paid with a PPP loan proceeds would be disallowed under Code Section 265(a)(1) as expenses associated with tax-exempt income.  That meant, while the PPP loan forgiveness would not generate any taxable income, all the expenses paid with PPP loan monies would not generate any tax deductions either.

In the Act, Congress reversed the IRS position.  Congress provided that PPP loan forgiveness and EIDL advances (which were up to $10,000 to each business that applied for an EIDL loan) would not generate any taxable income AND all the associated expenses paid with the PPP loan and EIDL advances would be fully tax deductible.   In addition, the loan forgiveness will generate additional tax basis for investors in partnerships, S Corporations, and sole proprietorships, so the investors can deduct the additional pass-through expenses.  Act Sec. 276 and Sec. 278.  That Act contains some tax nuances for S Corporation investors (AAA accounts) and partners (special allocations), so you should consult with your tax advisor before filing your tax return.

For questions regarding this subject, please contact S. John Kelly at

On November 18, the IRS,, released supplemental guidance on the tax treatment of approved business expenses (e.g., payroll, rent, mortgage interest, and utilities) paid with monies that a taxpayer borrowed under the SBA’s PPP loan program.  One of the attractive features of the PPP loan program was that if the borrower used the entire PPP loan to pay for approved business expenses, then the entire loan would be forgiven.  CARES Act Sec. 1106(b).

Back in May, the IRS issued guidance that PPP loan forgiveness would be treated as a form of tax-exempt income.  Notice 2020-32, 2020-21 IRB 837 (May 18, 2020).  Under the IRS rationale, any approved business expenses paid with a PPP loan proceeds would be disallowed under Code Section 265(a)(1) as expenses associated with tax-exempt income.

Now that some taxpayers are beginning to seek lender approval of the PPP loan forgiveness, the IRS has issued supplemental guidance how taxpayers should follow Notice 2020-32 if they don’t receive lender approval of full PPP loan forgiveness by the end of the fiscal year (December 31 for calendar year taxpayers).  Under Rev. Rul. 2020-27, taxpayers are supposed to assume that they will receive full PPP loan forgiveness even if they have not submitted a PPP loan forgiveness application to the lender or the lender has not approved the PPP loan forgiveness application by the end of the fiscal year.  Thus, under the Ruling, taxpayers should reduce the normal tax deduction for approved business expenses in fiscal year 2020 by the amount of anticipated PPP loan forgiveness.

However, if the assumption of full forgiveness turns out to be incorrect, the IRS will permit the taxpayer a choice to claim the approved deductions associated with: (a) a portion of the PPP loan that was not forgiven or (b) that portion of the PPP loan that the taxpayer irrevocably determines not to seek forgiveness.  The taxpayer may claim these “lost” tax deductions on an amended income tax return for fiscal year 2020, on an income tax return filed for fiscal year 2021.  Rev. Proc. 2020-51, Sec. 4.   To claim the benefits of Rev. 2020-51, the taxpayer will have to attach a required statement to the return where the otherwise disallowed expenses under Rev. Rul. 2020-27 are claimed.   Rev. Proc. 2020-51, Sec. 4.04.

For questions regarding this subject, please contact S. John Kelly at

Recently, the SBA issued Procedural Notice 5000-20057 (the “Guidelines”) [ ] on the effect of ownership changes of the PPP Loan Borrower.  These Guidelines will change how the buyer and seller handle PPP loans in a change of ownership transaction.  Failure to follow the SBA Guidelines could result in a loss of PPP loan forgiveness or put the PPP loan in default.

Examples of “Change of Ownership” of the Borrower under the PPP rules:

All transactions since the PPP loan was approved are aggregated to determine whether a “Change in Ownership” occurred.

The Guidelines make it clear that any “Change of Ownership” transaction means the Borrower remains liable on the PPP loan and is responsible for any compliance obligations.

If Borrower has a minor “Change of Ownership” – Only Lender Notification Required

The following “Change of Ownership” transactions are considered minor and only require that the Borrower alert the Lender.  The Lender must alert the SBA of the new owners within five business days of the closing:

The SBA will permit a major “Change of Ownership”, without SBA preapproval, if the Borrower does one of the following: 

If Borrower will have a “Change of Control” of more than 50% of the equity or assets, or has a merger, but lacks cash to repay the Entire PPP Loan in Full before Closing

If the Borrower is unable to fund the escrow in fully or repay the entire PPP loan, then the Lender has to seek SBA pre-approval before the closing of the M&A deal.  The Lender must make a formal presentation to the SBA telling why the Borrower is unable to fully fund the escrow or repay the PPP loan before closing.  The SBA can take up to 60 days to review the paperwork received from the Lender.  The Lender must supply a laundry list of documents to the SBA.  The SBA reserves the right to demand additional risk mitigation measures, beyond that shown below.

 Additional M&A Transaction Documentation Requirements

Asset Sales of 50% or More of the Assets – the Buyer must agree to assume the Seller’s PPP loan and compliance obligations in a formal written agreement.

Sales of 20% or More of Equity – SBA must be granted full recourse against the Buyer(s) in the event the PPP are used for unauthorized purposes.  The Lender has five business days after closing to tell the SBA of the Change in Ownership and give the names and tax ID numbers of the new owners holding 20% or more of the equity.

Mergers – The Borrower and the Successor Entity are responsible for segregating PPP loans and expenses between the old Borrower and the Surviving entity, if the Surviving Entity has a PPP loan of its own.      The Lender has five business days after closing to tell the SBA of the Change in Ownership and give the names and tax ID numbers of the new owners holding 20% or more of the equity.

How SMGG Can Help

These SBA Guidelines will affect how Buyers and Sellers and New Owners deal with Changes of Control.  The Guidelines will affect common contract provisions and may delay closing if SBA approvals are required. Our attorneys are available to guide you and answer any questions.

Please contact Attorney S. John Kelly at for questions on this Blog.


On June 30, PA begins offering grants of between $5,000 to $50,000 to small businesses affected by the COVID-19 pandemic.   This is not a first-come, first served program and grants will become available in several separate offerings over the summer.

Who is Eligible?

A small business with 25 or fewer employees and annual revenues of less than $1M.  Minority and women owned businesses have a separate pool of money set aside for their benefit.

Where to Apply

You have to contract Community Development Financial Institutions that serves your county.  For example, The Progress Fund and Bridgeway Capital serve Allegheny County.

Tax Treatment of Grant

Please be aware that the grant may be treated as taxable income even if the borrower is a corporation. Code Section 118(b)(2), as amended by the 2017 Tax Act.  For partnerships see, LMSB 04-1007-069 (10/5/07)).  Please consult your tax advisor for guidance about your specific circumstances.

Please contact Attorney S. John Kelly at for questions on this and other tax law questions.


On Friday, June 5, the President signed into law the Paycheck Protection Program Flexibility Act of 2020 (“PPPF”), H.R. 7010.  The Act makes major modifications to the CARES Act and the Paycheck Protection Program (“PPP”) loan program.

Modification of PPP Loan Terms

While these modified terms are only available for PPP loans signed after June 4, 2020, lenders and borrowers are free to renegotiate the terms on existing PPP loans to match the new terms provided above – Contact your PPP Lender if you want this relief!!  In all events, no new PPP loans will be approved after June 30, 2020.

Revised PPP Loan Forgiveness Rules

The PPPF gives employers 24 weeks after loan disbursement (ending on December 31, 2020) to meet all the tests for loan forgiveness (previously it was eight weeks after loan disbursement.  For PPP loans issued before June 5, the employer can elect to use the old eight-week test.

Under the new PPPF rules, an employer must spend at least 60 percent of the loan forgiveness amount (previously it was 75%) on payroll costs by the end of the new December 31, test period.  If the employer fails to meet this 60% test, it loses all loan forgiveness!  An employer may now spend up 40% of the loan proceeds on loan interest, rent and utilities. (release 06/08/2020)

Employers now have until December 31, 2020 to restore full time headcount (FTE) and wages to February 15 levels.  Previously the deadline was June 30.

Revised Set of Excuses for Failing to Meet Headcount Target

Along with a delaying the Headcount target hire-back date from June 30, to December 31, 2020, the PPPF statute allows employers to use the following excuses for failing to hit the target:

  1. For any employee who was working on February 15, 2020, the worker rejected a written hire-back offer. The SBA regulations require the employer to keep a written copy of the hire-back offer, keep a note of the date the worker rejected the hire-back offer, and inform PA unemployment that the worker rejected the hire-back offer.
  2. The employer tried, but was unable to hire a similarly qualified employee by December 31, 2020; or
  3. For the period ending December 31, 2020, the employer documented that HHS, Centers for Disease Control, or OSHA rules or guidance for social distancing, sanitation, or safety meant that the employer is unable to return level of business activity as was the case before February 15, 2020.

Social Security Tax Deferral – Employer’s Share of FICA

Because of the PPPF, employers now may defer depositing the employer’s share of social security taxes (the 6.2% tax) through December 31, 2020, even if the employer received loan forgiveness under the PPP program.  One half of the deferred tax has to be repaid by the end of 2021, with the remaining balance due by the end of 2022.

Need an Excel Worksheet to help with this?

The AICPA organization has prepared an Excel worksheet to help with the calculations.  It has not been updated yet to reflect the PPPF.

(This is being revised, the version was current as of June 2, 2020)

Text of Statute

Expect more changes to the PPP loan forgiveness in future

House and Senate leaders want to make more changes later on this summer. The SBA and Treasury are expected to update their guidance too to reflect the PPPF law changes.

Please contact Attorney S. John Kelly at for questions on this and other tax law questions.

On May 22, the US Treasury updated the rules governing PPP loan forgiveness.  Some of the updates merely ratify the decisions made on loan forgiveness application form.  However, none of the changes address any of the current proposals in Congress to reform the PPP loan program.

Copy of regulations

What payroll costs are eligible for Loan Forgiveness?

All salary, wages, commissions, cash tips (even if not reported on Form W-2, so long as the employer can reasonably estimate them), employee leave payments (vacation, parental, family, medical, or sick leave), severance or termination pay, employee benefits costs (group health care, including insurance premiums for health care, and employer’s share of retirement plan payments.  Any benefits paid by the employee through a salary reduction do not count), and employer’s payroll costs (e.g. PA unemployment and City of Pittsburgh payroll tax).  All of these payroll costs must be paid within eight weeks of the first loan disbursement from your lender and cannot be paid any later than June 30, 2020.

These costs must be at least of 75% of your total loan forgiveness amounts.

If the employer’s bi-weekly (or more frequent) payroll cycle does not match the eight-week period after the first loan disbursement, then the employer may start the eight-week period on the first day of the bi-weekly (or more frequent) payroll cycle.

What about wages paid as standby pay or for other periods of non-work?

They count for loan forgiveness.

What about wages paid as a short-term bonus or hazard pay?

They count for loan forgiveness.

What interest payments are eligible for Loan Forgiveness?

Mortgage interest on real estate and interest on equipment financing under a loan that was in effect before February 15, 2020.  Interest prepayments and any payments of loan principal do not count.   All of these costs must be paid within eight weeks of the first loan disbursement from your lender and cannot be paid any later than June 30, 2020.

What rent payments are eligible for Loan Forgiveness?

Rent payments on real estate and equipment under a rental agreement that was in effect before February 15, 2020.  All of these costs must be paid within eight weeks of the first loan disbursement from your lender and cannot be paid any later than June 30, 2020.

What “business utility” payments are eligible for Loan Forgiveness?

Utility payments for electricity, gas, water, telephone, internet access, as well as certain “transportation costs” (which appear be gasoline or diesel fuel for business vehicles) for which service began before February 15, 2020.  All of these costs must be paid within eight weeks of the first loan disbursement from your lender and cannot be paid any later than June 30, 2020.

Note – payments in the last three categories are capped at 25% of the PPP loan forgiveness amount.

What happens if an employer misses the head count hire back target because the employee refused the offer to be rehired?

The employer’s failure to reach the hire back target is excused for a particular employee if:

  1. The hire back offer is made in good faith and in writing;
  2. The offer was for the same salary and wages and the same number of hours as earned by the employee for the last pay period prior to the separation or reduction in hours;
  3. The offer was rejected by the employee;
  4. The employer keeps records of the hire back offer and the date of the rejection by the employee.
  5. The employer informs the PA unemployment office within 30 days of the employee’s rejection of the hire back offer. Note – This is a major change.  
    1. Note: notices mailed to PA more than seven days after the rejection of the hire back offer probably will not affect the employee’s unemployment benefits. See,

What happens if an employee is fired for cause, voluntarily resigns or voluntarily requests a schedule reduction?

That employee is exempted from the FTE head count requirement.  The employer must maintain documentation to support this analysis.

Who is a “full time equivalent employee” and how are part time employees counted?

A “full time” employee is an employee works 40 hours or more a week.  For example, a “full time” employee who works 48 hours a week, is treated as if his hours were capped at 40 hours.   A part time employee is aggregated with other part time employees to convert the number of hours worked into a “full time equivalent employee” count.  In the alternative, an employer may treat all part time employees as .50 of a “full time equivalent employee.”

What effect does a reduction in employees’ salary or wage have on loan forgiveness?

So long as the salary or wages are not reduced by more than 25 percent during the eight-week period after the loan disbursement, the reduction has no effect on loan forgiveness.  The employer must use the period of January 1 to March 31 as the reference period to determine if there has been a reduction.  If the employer had both a reduction in head count and a salary reduction, a complex calculation is required to prevent the employer from being doubly penalized.  (see pages 19 -21 of the regulations).

How can an employer “recover” from either a reduction in employees’ wages or a head count reduction?

If the employer restores the employee headcount and employees’ salaries and wages by June 30, 2020, any reductions that occurred during the eight-week period after loan disbursement are ignored.  (Section 5(g) of the regulations).

For questions regarding this subject, please contact S. John Kelly at

If you have applied for a Paycheck Protection Program (“PPP”), the SBA released the application form (SBA Form 3508) and the worksheets you will have to submit to your lender shortly after June 30th  to obtain loan forgiveness.  You will be required to include in your submission package to the lender, documentation substantiating your expenses (for payroll, utilities, mortgage interest, and rent expense) that you paid in the eight weeks after your loan was disbursed to you by your lender.  For example if your loan was disbursed on April 26, the eight week period ends on Saturday, June 20.  In that example, you should have documents showing that you paid in cash or by check (including electronic analogs) dated by June 20 the required expenses.  You are not allowed to prepay expenses for periods after the eight week period ends.

The PPP statute requires that you spend 75% of the loan amount on payroll  and 25% on utilities, mortgage interest and rent expense to claim loan forgiveness.   The instructions give explicit guidance on matters not addressed in pervious SBA pronouncements.  For example, in calculating payroll costs employers will include: (a) gross amounts paid to employees, (b) employer contributions to retirement and health care plans, and (c) employer’s share of state and local payroll expenses paid for state unemployment taxes and Pittsburgh Payroll Tax.  In calculating payroll costs, employers will exclude: (a) federal payroll taxes (wage withholding, FICA, and FUTA); (b) state and local taxes withheld from wages (wage withholding, local earned income taxes, local services taxes); and (c) any pre-tax or after-tax contributions by employees to retirement or health care plans.

Special guidance on loan forgiveness is given to self-employed, owner-employees, and general partners. Weekly payments to those individuals cannot exceed $15,385 (the weekly equivalent of the $100K cap on compensation). That guidance appears to require actual distributions to partners to claim loan forgiveness.

SBA Loan Forgiveness Form

Alert –  Possible Changes

Also on May 15, the House passed the HEROES Act  (H.R. 8600).  That bill would make significant modifications to the PPP Loan forgiveness rules, such as dropping the 75%/25% rule and delaying the final payment period for allowed expenses to December 31, 2020.   None of those changes are shown on the SBA form.  The Senate is unlikely to take up the House bill until June and is certain to make changes of its own to the SBA PPP loan program. Everyone should assume that the loan forgiveness rules will be in flux for some time.

Our advice is to assume that the SBA loan forgiveness form will not change before the end of June.  Before you actually submit the SBA form, please check if the law has changed or if the SBA changed its form and react accordingly.

For questions regarding this subject, please contact S. John Kelly at


If you borrowed less than $2M under the Paycheck Protection Program (“PPP”) through the SBA, you will not have to provide financial information to prove that the PPP loan was “necessary to support ongoing operations.”   The SBA will believe that you acted in “good faith” when you made that certification as part of the PPP loan application process.

If you borrowed $2M or more (including loans to your affiliates), you should expect that the SBA will audit your loan certifications and require that you provide supporting documentation to show that your PPP loan certifications were accurate. (Q/A 46 released on May 13, 2020).

Possible Changes to PPP Loan Forgiveness Rules – Next Round of Stimulus

The House Democrats have released a bill to amend the PPP loan program forgiveness rules to accommodate the expected delays in reopening the country.   HEROES Act, H.R. 6800 (introduced May 12, 2020).  While the Republican controlled Senate is certain to make major changes to the HEROES Act, some House provisions may survive.  Clients should be aware that the law will remain in flux through June.

The House bill (Sec. 90001 and Sec. 90004) provides that the “spend down” date for PPP loan forgiveness will be extended from June 30, 2020 until December 31, 2020.   In addition, instead of having to spend all the PPP loan balance on payroll costs, rent, utilities, and mortgage interest over an eight-week period after the PPP loan is funded to qualify for loan forgiveness, borrowers will have 24 weeks to spend the funds.  The House bill drops the requirement that borrowers use 75% of the PPP loan balance to pay payroll costs and allows the money to be spent on rent, utilities and mortgage interest.  Finally, additional “head count” relief is provided if employees are unable or unwilling to return to work.

The House bill (Sec. 20235) reverses the IRS Notice 2020-32 and will allow taxpayers to exclude the PPP loan forgiveness from income and still deduct all the expenses used to justify loan forgiveness.  However, the House bill (Sec. 20201) restricts the use of any resulting tax losses by limiting the NOL carryback period to 2018 and 2019.

The Senate is not expected to start discussing its version of the next Stimulus bill until after May 25 (Memorial Day).

For questions regarding this subject, please contact S. John Kelly at