Family Child Care Home Provider Business Support

2020 Tax Returns: Tax Tips for Registered Family Child Care

• IRS Form Schedule C – Profit or Loss from Business (Sole Proprietorship)
• IRS Video – Schedule C: Who need to file this form and how to do it
• IRS Publication, Schedule C Instructions & Additional Information
• IRS Form 8829 – Expenses for Business Use of Your Home
• IRS Publication, Form 8829 Instructions & Additional Information
• All IRS Forms and Publications

6/1/21 Update.

The SBA Paycheck Protection Program (PPP) expired on May 31, 2021. This means that PPP applications submitted on or before May 31 will continue to be processed in June. However, no new applications will be accepted unless Congress extends the program.

Brief Background About PPP loans. Congress created the PPP “forgivable loan” (in other words, a grant) for small businesses in March of 2020. Congress has extended PPP several times. In December 2020, Congress separated PPP into two programs.

• First Draw PPP forgivable loans are for businesses that did not receive a PPP forgivable loan in 2020.
• Second Draw PPP forgivable loans are for businesses that received a PPP forgivable loan, but still have additional need for financial support. The Second Draw PPP loans are restricted to businesses with 300 or fewer employees and must be able to show at least a 25% reduction in revenue between comparable quarters in 2019 and 2020.

As long as borrowers use the funds for eligible expenses, borrowers can apply for “forgiveness”, which is what turns the loan into a grant that does not need to be repaid. Borrowers need to apply for forgiveness within 10 months of spending the money.

How and when to apply for loan forgiveness

Borrowers can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used. Borrowers must apply for forgiveness within 10 months after the last day of the covered period (the 8-24 weeks for which the loan covered). If the borrower does not file for forgiveness within 10 months, then borrowers will need to being making loan payments to their PPP lender to repay the loan.

To apply for forgiveness, contact your lender.

Once you have spent the PPP funds, contact your PPP lender and complete the correct form.

SBA Form 3508S. This form is for borrowers of $150,000 or less. It’s a short one page form. No calculations are required. Borrowers do not need to submit documentation (unless required by your lender). However, the SBA requires retaining all records for Form 3508S for four years. This is required in the event that you are selected for an SBA random audit. This form can be used for either First Draw or Second Draw PPP loans. Each loan must use a separate loan forgiveness application form. Therefore, the form cannot be used to combine both First and Second Draw PPP loans. In the event that borrowers received both a First and Second Draw PPP loan, borrowers must first apply for forgiveness for the First Draw Loan. Once that form has been submitted, borrowers can then apply for forgiveness for the Second Draw PPP loan. You may want to apply for forgiveness as soon as the funds are spent so that you don’t have to worry about bumping up against the 10 month time limit for submitting the forgiveness form.

SBA Form 3508EZ. This form is for borrowers of more than $150,000. It is also a short form (1 page front and back). Borrowers can use this form if they meet certain conditions. Click on the form to see if your business qualifies. This form requires some calculations. Also, loans of more than $150,000 require documentation to be submitted to the lender. The SBA requires retaining all records for form 3508EZ for six years. This is required in the event that you are selected for an SBA random audit. This form can be used for either First Draw or Second Draw PPP loans. Each loan must use a separate loan forgiveness application form. Therefore, the form cannot be used to combine both First and Second Draw PPP loans. In the event that borrowers received both a First and Second Draw PPP loan, borrowers must first apply for forgiveness for the First Draw Loan. Once that form has been submitted, borrowers can then apply for forgiveness for the Second Draw PPP loan. You may want to apply for forgiveness as soon as the funds are spent so that you don’t have to worry about bumping up against the 10 month time limit for submitting the forgiveness form.

SBA Form 3508. This form is for borrowers who do not qualify to use SBA Form 3508S or 3508EZ. It is a four page detailed form with many calculations. Borrowers are required to submit documentation to the lender. As with Forms 3508S and 3508EZ, the form can be used for both First Draw and Second Draw PPP loans, but each loan requires completion of a separate form (loan forgiveness cannot be combined onto one form). In the event that borrowers received both a First and Second Draw PPP loan, borrowers must first apply for forgiveness for the First Draw Loan. Once that form has been submitted, borrowers can then apply for forgiveness for the Second Draw PPP loan. You may want to apply for forgiveness as soon as the funds are spent so that you don’t have to worry about bumping up against the 10 month time limit for submitting the forgiveness form.

Note: It is possible that your lender may have equivalent forms to the SBA forms above. Lender forms may be in a PDF format or an online webform format.

Overview of Eligible Expenses for Forgiveness

In general, in order for forgiveness to be approved, at least 60% of the funds must be used for payroll related costs. This means up to 40% of the loan can be used for fixed costs such as mortgage interest, rent, utilities, software used for your business (e.g., for record-keeping or supporting other business operations), perishable goods (such as food costs), expenses for PPE, cleaning supplies, and other expenses related to social distancing and public health requirements related to COVID. For family child care providers, you are eligible for a PPP forgivable loan whether or not you have employees. (For example, for purposes of the PPP loan, an FCC provider is considered an employee). This means when completing the SBA form, the FCC provider is considered 1 employee. (e.g., In response to: Employees at Time of Loan Application, insert 1. In response to Employees at Time of Forgiveness Application, insert 1).

Allowable Expenses for Non-payroll Uses of PPP Funds. Four additional categories of eligible expenses for fixed costs were added through legislation enacted in December.

• Covered Operations Expenditures. Costs related to business software or cloud computing services that support business operations, billing, accounting, or record-keeping. For example, for child care programs, this means the cost of child care management system software that supports business operations or other business support.
• Covered Property Damage. Property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
• Covered Supplier Costs. Expenses pursuant to a contract, order, or purchase order with respect to perishable goods and other items. For example, for child care programs, this means the purchase of food served to children.
• Covered Worker Protection Equipment. Expenses that support business activities to comply with COVID requirements established by the U.S. Department of Health and Human Services, Centers for Disease Control, Occupational Safety and Health Administration, or any equivalent requirements or guidance by a state or local government during the pandemic. For example, for child care programs, this means expenses for PPE, cleaning supplies, sneeze guards, portable water stations, and other expenses related to social distancing and public health requirements related to COVID.

Note: Although expenses related to fixed costs were expanded in legislation enacted by Congress in December, the requirement for at least 60% of PPP loans to be used for payroll related purposes remains in place. Payroll expenses include cash compensation, employer contributions for group health, life, disability, vision or dental insurance and employer contributions to employee retirement plans (exception: benefits for the self-employed (e.g., family child care providers) are not included because the SBA considers such payments already included in compensation).

Each of the SBA Forms that correspond to PPP loans is accompanied by detailed instructions: 4 pages of instructions to explain SBA Form 3508S, 5 pages of instructions to explain SBA Form 3508EZ, and 8 pages of instructions to explain SBA Form 3508.

For help in completing SBA forms, ask your lender or reach out to your local Small Business Development Center (SBDC).

Targeted EIDL Advance funds of up to $10,000 (which are grants, not loans) will be available to applicants located in low-income communities who previously received an EIDL Advance for less than $10,000, or those who applied but received no funds due to lack of available program funding.  Applicants may qualify if they:

• Are located in a low-income community. The definition of a "low-income community" is defined here or you can use the SBA mapping tool to check to see if your zip code is located in a low income community.
• Have more than a 30% reduction in revenue during an 8-week period beginning on March 2, 2020, or later. Providers will be asked to provide gross monthly revenue (all forms of combined monthly earnings received) to confirm the 30% reduction.

Applicants do not need to take any action at this time. The SBA will reach out to those who qualify.

Employee Retention Tax Credit.  For family child care providers that have an employee, you may also qualify for an employee retention tax credit.  Read this one pager on the Employee Retention Tax Credit and talk to your tax preparer to see if you can claim this tax credit.

• Tom Copeland’s web site
• 2020 Tax Changes Affecting Family Child Care Providers (February 17, 2021)
• What Are the Tax Consequences of a State Grant? (February 8, 2021)
• How to Find, Choose and Work with a Tax Professional (January 16, 2021)
• How to Apply for the Economic Injury Disaster Loan (EIDL) Program (February 4, 2021)
• Top Three Record Keeping Tips for 2021
• How the New Tax Law Affects Family Child Care Providers
• 2021 Standard Mileage Rate Announced
• The Truth About Parent Receipts
• How Can Sponsors and Providers Rebuild in the Midst of a Pandemic (Child and Adult Care Food Program, CACFP)