Earlier in April, the Small Business Administration (SBA) and Department of Treasury addressed whether businesses should include any non-U.S. laborers in their employee count applicable to the Paycheck Protection Program (PPP) by simply excluding any compensation of an employee whose principal place of residence is outside of the United States. There were still many open-ended scenarios and questions regarding eligibility and payroll which needed to be addressed. View additional H-2A and COVID-19 resources from the USDA here.
K·Coe Isom, alongside many others within the agriculture industry, sought and received additional formal guidance on this issue (published April 24, 2020):
Question: Is there existing guidance to help PPP applicants and lenders determine whether an individual employee’s principal place of residence is in the United States?
Answer: PPP applicants and lenders may consider IRS regulations (26 CFR § 1.121- 1(b)(2)) when determining whether an individual employee’s principal place of residence is in the United States.
PPP’s Application of H-2A Employees in Accordance with the IRS Tax Code
The good news: there is finally some clarity around eligibility, and affirmation that an employer can include workers even if the employee is not a United States resident for tax purposes. It does not come without a bit of effort, however.
How exactly should you apply this ruling to your business? “Carefully, on a worker-by-worker basis, and with supporting documentation,” advises Brad Palen, partner and tax advisor at K·Coe Isom.
The interpretation under the tax code states that a worker who meets the facts and circumstances in Treas. Reg. § 1.121-1(b)(2) would be considered to have a “principal residence” in the U.S. for PPP purposes, even if they are not a resident alien for tax purposes.
“This may create some more work for employers to determine which of their H-2A workers have a principal residence in the U.S., but it of course would be well worth the effort,” says Palen.
“I would caution that simply noting which employees are in the U.S. for more than six months may not technically be sufficient under the regulation. Employers are encouraged to document multiple factors listed in the regulation. For H-2A workers, supporting documentation may be readily available, since housing is furnished by the employer, and they will have payroll records that would document if the employee has a bank in the U.S., and other relevant factors” he adds.
An employer should document the following for each employee:
- Whether the employee has lived in the U.S. for more than six months in the last year?
- One or more of the following, if in the U.S.:
- Employee’s place of employment in the U.S.
- Principal place of residence of the employee’s family
- Address listed on the employee’s tax return, driver’s license, or vehicle registration
- Employee’s mailing address for bills and correspondence
- Location of the employee’s banks
- Location of religious organizations and recreational clubs with which the employee is affiliated
While this effort should not be difficult for most employers to establish, this guidance is leaving these PPP determinations up to the applicant’s discretion, and therefore it’s important that employers maintain proper documentation and validation.
Should you have questions about PPP eligibility requirements, or H-2A applicability, contact a K·Coe advisor.