On December 27, 2020, the President signed the highly anticipated COVID-19 relief bill, which includes an additional $900 billion in funds available for businesses and individuals. This funding will consist of a $600 stimulus check to individuals and adds more than $300 billion in aid for small businesses.
Many small business owners have been awaiting a second round of Paycheck Protection Program (PPP) loans to help keep their doors open during the COVID-19 pandemic. This second wave of PPP funding (PPP2) contains important differences that we will walk through below.
Changes to the Original PPP Loans
PPP Tax Deductibility Allowed
- The new COVID-19 relief bill clarifies that “no deduction shall be denied or reduced, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided by paragraph (1)”. This provision applies to loans under both the original PPP and subsequent PPP loans. This change is good news for borrowers as the proposed bill allows for PPP expenses to be deducted and loan forgiveness excluded from income calculations.
- Some states, such as California, have previously determined that such deductions would remain non-deductible at the state level, regardless of any guidance coming from Congress that we now have. Other states may follow suit.
Forgiveness Application Changes
- Borrowers who received less than $150,000 in PPP loans during the first round will now only have to submit a one-page application for forgiveness, but all of the same rules apply.
Rules for PPP2
PPP2 Eligibility – New Loans
Additional funding will be available for both first-time borrowers and businesses that previously received a PPP loan. The proposed bill allows new and old borrowers to obtain a PPP loan if they meet the requirements of an “eligible entity.” The eligibility requirements for applying for PPP2 include:
- 300 or fewer employees
- Used or will use the full amount of their first PPP loan
- Demonstrate a 25 percent gross revenue decline in any 2020 quarter compared with the same quarter in 2019
Certain first-time borrowers may also be eligible for businesses with up to 500 employees
PPP2 Loan Terms
- Maximum loan amounts are $2 million
- At least 60 percent must be spent on payroll
- As with the first round of PPP loan forgiveness, the costs eligible will include payroll, rent, covered mortgage interest, and utilities. However, the new relief package also makes the following expenses potentially forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations
- Covered operating costs such as software and cloud computing services and accounting needs
Both original PPP loans and PPP2 loans will allow for the deductibility of expenses and exempt forgiveness status.
EIDL Program Changes
The new bill repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount for both old and new loans
Additional EIDL funds have been designated for new loans with three restrictions:
- Business is located in a low-income community
- Business has suffered greater than 30 percent economic loss
- Business has no more than 300 employees
Other Items in the Bill
- The IRS will process stimulus checks of $600 per person in early 2021. The checks will start to phase out at $150,000 of AGI on a joint return, $112,500 on head of household, and $75,000 for all others.
- For employers that deferred an employee’s portion of FICA related to the president’s executive order, the timeline for catching up on the FICA payments has been extended through December 31, 2021.
- FFCRA employer credits have been extended from December 31, 2020 to March 31, 2021. These credits are available to employers that have employees that miss work due to certain Coronavirus issues
- Various tax credits are extended, including Work Opportunity Credit (WOTC), 45L Energy-Efficient Home Tax Credit, and New Market Credit (NMTC).
- A temporary 100% deduction for restaurant meals was created for businesses for tax years 2021 and 2022.
If you feel like you were just starting to wrap your head around the PPP before the new relief package was passed, you’re not alone. We understand that there are many provisional changes to comb through. Overall, this bill provides needed relief to small businesses impacted by the pandemic. With that said, there are likely to be changes, corrections, and numerous SBA pronouncements that follow this new bill.
We are Here to Help
Aldrich is here to walk you through these changes every step of the way. We will monitor this closely and provide guidance on the next steps to maximize financial, tax, and business decisions. For more resources to help you navigate the developing impact of coronavirus on your business, please continue to monitor our COVID-19 Resource Center and our PPP Resource Center.