By Meg Hampton, CPA, MAcc
With life beginning to return to some semblance of normalcy, small businesses and organizations that received stimulus money through 2020 and early 2021 are entering an important phase for recording and reporting on these federal and state funds.
Recording complexities for stimulus payments—whether in the form of loans, grants or payroll credits (and likely a combination of all)—will impact decisions on how best to report them in internal accounting systems, financial statements and other important compliance documents.
Even businesses that are not required to have CPA-prepared financial statements should be careful when considering how to record and report COVID-19 stimulus-related funds received. Sloppy or incomplete compliance can lead to issues with financial institutions and possibly delay or nullify loan forgiveness. Here is a quick guide on some of the major assistance programs available to businesses and not-for-profits, and your accounting considerations for each.
COVID-19 Stimulus Programs
Reporting and Recognition Considerations
|GRANT, CREDITS, OR LOAN?
|Payroll Protection Program
PPP 1 & PPP 2
For all designated small businesses and certain not-for-profits with employees.
Administered by select commercial lenders.
|Loan(*potentially 100% forgivable)
60% must be spent on payroll.
Accounting Option #1: Treat as a grant and report Other Income as it is spent.
Accounting Option #2: Treat as a liability on balance sheet and carry as debt until forgiven.
Must apply for forgiveness within 10 months of last day of covered period.
Loans before 6/20/20 mature in 2 years. Loans after 6/20/20 mature in 5 years.
|ERTC – Employee Retention Tax Credit
(Part of the CARES Act)Tax credit for businesses that keep workers on payroll through closures or declines in revenue. For both private sector businesses and tax-exempt organizations.
|Payroll Tax Credits
|A retroactive credit of up to 70% of $10K wages per employee, per quarter.Must amend payroll tax returns already filed for 2020. Record credit in the quarter impacted, not when credit is received.
|FFCRA- Families First Coronavirus Response Act: Employee Paid Leave Reimburses payroll for employees who were sent home due to Covid exposure or mandated closings.
|Payroll Tax Credits
|Can apply when completing quarterly employee tax forms or as an advance.For more information, see the IRS website here.
|EIDL (Economic Injury Disaster Loan) and EIDL Advance Grant
|Loan w/grant component, called EIDL Advance.
|30 yr. fixed terms. Low interest. NFP 2.75%. No prepayment penalty. Advance Grant of up to $15,000 forgiven; remainder treated like debt.
Federal & State Grants
|Shuttered Venues Grant
For theaters, museums, producers, talent reps, live venues. Grant is up to 45% of 2019 Gross Revenue up to $10M.
|If venue opened after 1/1/2019, grant terms are different. Grant fund availability was prioritized based on % of 2020 revenue loss. If venue received a PPP loan, grant is reduced by that amount. Fund uses are restricted to rent, payroll, employee expenses, etc.
|Restaurant Revitalization Fund Part of the American Rescue Fund Act
|Grant up to $10 million in sales per business/$5 million per location.
|Funds must be used for eligible expenses by 3/11/2023.Open to all restaurants and bars. See SBA website for guidebook.
|CARES Act Provider Relief Fund Open to hospitals, healthcare providers, dentists and assisted living facilities.
|Essentially expedited reimbursement for certain Medicare (and some Medicaid) expenses.For details, see the HHS website here.
|CARES FL Small Business Grants County-administered small business grants in Orange, Seminole, Lee, Palm Beach, Pinellas & Polk counties in Florida.
|Micro-grants ranging from $1K to $3K
|Rules vary by Florida county. For more details on these micro-grant offerings, see the Florida SBDC website here.
|Revive Plus Grant, Alabama Expressly for small business expenses directly relating from the COVID-19 outbreak.
|Excludes any amounts claimed under PPP or EIDL applications. Only for non-budgeted expenses incurred from 3/30/20 to 12/31/20.For more information, visit the Alabama SBDC here.
Accounting for Payroll Protection Program Loans (PPP1 and PPP2
While the Payroll Protection Program is referred to as a loan program, businesses and not-for-profit organizations that comply may have up to 100% of their loan forgiven by the SBA. However, the devil is in the details, and it may take the SBA months or more to confirm the loan (or a portion of the loan) has been forgiven. For this reason, accounting methods and recordkeeping must be considered carefully.
For example, while both Federal PPP1 and PPP2 loans are accounted for in the same manner, there are two options an organization may choose from to track their PPP funds. Depending on the option selected, timing issues spanning over multiple tax reporting (and financial reporting periods) can impact the way financial ratios appear on a company balance sheet.
One option treats the PPP loan as a federal grant, reporting funds as income as they are spent, similar to a reimbursement. Alternatively, an organization may opt to carry the funds as a liability on their balance sheet until it is forgiven. With this option, which is more common, PPP monies could be carried as debt into 2021 (PPP1) or even 2022 (PPP2).
Note: Since financial ratios reported to lenders may be impacted in a potentially negative manner from PPP debt, businesses should be certain to maintain good communication with lenders about their PPP-related loans in order to avoid issues with loan covenants and other loans and/or lines of credit.
Accounting for FFCRA Funding
The federal government was eager to provide employees with immediate relief for work lost due to Coronavirus-related absences. The FFCRA extended the Family Leave Act to provide three separate periods of absence due to COVID-19 exposure or illness. For financial relief, eligible employers may claim a credit for qualified leave wages—including healthcare expenses and a share of the employer’s Medicare expense—if they can substantiate the expenses. Excellent recordkeeping is imperative. Records regarding these expenses for each employee must be kept. Remember, only companies with fewer than 500 employees are eligible.
Accounting for EIDL Loans
A unique, low interest, 30-year term loan program with a grant component, the EIDL can be tricky when considering how best to treat these funds for recordkeeping purposes. Those who also qualified for the Advance Grant can treat up to $15,000 of the loan as a grant.
Best Practices for Stimulus Funds Accounting Compliance
While federal programs have provided significant financial relief for businesses affected by the pandemic, compliance and recordkeeping is now paramount for every participating business. Issues such as failing to spend all grant funds or poor accounting on PPP loans could ultimately lead to a painfully expensive response by government oversight in the future.
If you are concerned about how best to comply with a COVID-19 related grant or loan, reach out to Meg Hampton and our Solutions Services team.