Small PPP Loan Borrowers Get a Big Break with new 3508S Form
According to a recent release from the Small Business Administration, borrowers can apply for forgiveness of their PPP loan using new SBA Form 3508S if the total PPP loan amount they received from their lender was $50,000 or less. "SBA Form 3508S requires fewer calculations and less documentation. Borrowers that use SBA Form 3508S are exempt from reductions in loan forgiveness amounts based on reductions in full-time equivalent (FTE) employees or in salaries or wages" per the form instructions.
SBA Form 3508S doesn't require borrowers to show the calculations used to determine their loan forgiveness amount. However, the SBA still may request information and documents to review those calculations.
According to an article in Forbes, the new rules "remove the need to show that the borrower did not reduce head count or salaries and, therefore, suffer a reduction in loan forgiveness." The article noted that the SBA has justified the $50,000 threshold by pointing out that companies that borrowed such a small amount often had one employee at most. Therefore, the head count rules were made largely moot.
According to a recent release from the Small Business Administration, borrowers can apply for forgiveness of their PPP loan using new SBA Form 3508S if the total PPP loan amount they received from their lender was $50,000 or less. "SBA Form 3508S requires fewer calculations and less documentation. Borrowers that use SBA Form 3508S are exempt from reductions in loan forgiveness amounts based on reductions in full-time equivalent (FTE) employees or in salaries or wages" per the form instructions.
SBA Form 3508S doesn't require borrowers to show the calculations used to determine their loan forgiveness amount. However, the SBA still may request information and documents to review those calculations.
According to an article in Forbes, the new rules "remove the need to show that the borrower did not reduce head count or salaries and, therefore, suffer a reduction in loan forgiveness." The article noted that the SBA has justified the $50,000 threshold by pointing out that companies that borrowed such a small amount often had one employee at most. Therefore, the head count rules were made largely moot.
Independent Contractor (Self-Employed) or Employee?
It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
Select the Scenario that Applies to You:
Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be -
Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
(From IRS website)
Independent Contractors vs. Employees - Employers Misclassifying Workers Could Be Subject to Large Penalties
From a workshop by by Steve Hodgson, CPP, APA.
Hodgson noted that employers that misclassify employees as nonemployees or independent contractors will face substantial financial penalties as a result of not withholding income tax, failing to withhold and pay employment taxes, and failing to file the correct reports and returns with the IRS, Social Security Administration (SSA), and state government agencies.
The IRS penalty for unintentionally failing to withhold federal income tax is 1.5% of the wages paid. This assessment is doubled to 3% if the employer failed to file an information return (Form 1099-MISC) for the worker with the IRS. The IRS penalty for unintentionally not withholding the employee's share of Social Security and Medicare taxes is 20% of the employee's share of the tax. The penalty is doubled to 40% if the employer failed to file an information return for the worker with the IRS.
Retroactive employment benefits. An employer that misclassified workers as independent contractors may have to retroactively pay employment benefits in addition to employment taxes. In 1996, a federal appeals court held that Microsoft Corporation, which had agreed to reclassify “freelancers” as employees after an IRS employment tax audit, also had to include the misclassified workers in its §401(k) plan and §423 employee stock purchase plan [Vizcaino v. Microsoft Corp., CA9, 78 AFTR 2d 96-6690, 10/3/96].
Increased enforcement efforts. The IRS has increased its enforcement efforts in this area. The 1099 Matching Program targets those individuals who file only one Form 1099-MISC with their personal income tax return. The IRS will look closely at a person reported on Form 1099-MISC who receives payments from only one company, as the person may well be an employee rather than an independent contractor. The IRS may also closely scrutinize a situation where a worker receives a Form 1099 from the same company over multiple years.
Hodgson said that sometimes an employer's worker classification problems begin after someone who has been treated as an independent contractor stops receiving work and files a claim for unemployment benefits.
It is critical that business owners correctly determine whether the individuals providing services are employees or independent contractors.
Generally, you must withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment tax on wages paid to an employee. You do not generally have to withhold or pay any taxes on payments to independent contractors.
Select the Scenario that Applies to You:
- I am an independent contractor or in business for myself
If you are a business owner or contractor who provides services to other businesses, then you are generally considered self-employed. For more information on your tax obligations if you are self-employed (an independent contractor), see our Self-Employed Tax Center. - I hire or contract with individuals to provide services to my business
If you are a business owner hiring or contracting with other individuals to provide services, you must determine whether the individuals providing services are employees or independent contractors. Follow the rest of this page to find out more about this topic and what your responsibilities are.
Before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. The person performing the services may be -
- An independent contractor
- An employee (common-law employee)
- A statutory employee
- A statutory nonemployee
- A government worker
Common Law Rules
Facts that provide evidence of the degree of control and independence fall into three categories:
- Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
- Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
- Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?
The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.
(From IRS website)
Independent Contractors vs. Employees - Employers Misclassifying Workers Could Be Subject to Large Penalties
From a workshop by by Steve Hodgson, CPP, APA.
Hodgson noted that employers that misclassify employees as nonemployees or independent contractors will face substantial financial penalties as a result of not withholding income tax, failing to withhold and pay employment taxes, and failing to file the correct reports and returns with the IRS, Social Security Administration (SSA), and state government agencies.
The IRS penalty for unintentionally failing to withhold federal income tax is 1.5% of the wages paid. This assessment is doubled to 3% if the employer failed to file an information return (Form 1099-MISC) for the worker with the IRS. The IRS penalty for unintentionally not withholding the employee's share of Social Security and Medicare taxes is 20% of the employee's share of the tax. The penalty is doubled to 40% if the employer failed to file an information return for the worker with the IRS.
Retroactive employment benefits. An employer that misclassified workers as independent contractors may have to retroactively pay employment benefits in addition to employment taxes. In 1996, a federal appeals court held that Microsoft Corporation, which had agreed to reclassify “freelancers” as employees after an IRS employment tax audit, also had to include the misclassified workers in its §401(k) plan and §423 employee stock purchase plan [Vizcaino v. Microsoft Corp., CA9, 78 AFTR 2d 96-6690, 10/3/96].
Increased enforcement efforts. The IRS has increased its enforcement efforts in this area. The 1099 Matching Program targets those individuals who file only one Form 1099-MISC with their personal income tax return. The IRS will look closely at a person reported on Form 1099-MISC who receives payments from only one company, as the person may well be an employee rather than an independent contractor. The IRS may also closely scrutinize a situation where a worker receives a Form 1099 from the same company over multiple years.
Hodgson said that sometimes an employer's worker classification problems begin after someone who has been treated as an independent contractor stops receiving work and files a claim for unemployment benefits.