Newburg Staff Writers-December 22, 2020 (5:00PM)
The new $900 billion Covid-19 relief package that passed Congress on Monday aims to support those struggling from the pandemic into the new year. Beyond the stimulus payment, unemployment extensions, and other detailed provisions, the Act provides some significant PPP benefits.
We wanted to highlight some of the key provisions that would impact small businesses:
Tax Deductibility for PPP expenses
- The Act overturns the previous IRS position and now allows business expenses paid with forgiven PPP loans to be tax-deductible in 2020.
- The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act (which has been re-designated as Section 7A of the Small Business Act). This provision applies to loans under both the original PPP and subsequent PPP loans.
- Fiscal year entities that have already filed can amend their returns to allow for the deductions.
- From a year-end planning perspective, this is great news. We can work with you in the coming weeks to ensure your fourth quarter estimates (if applicable) are appropriate (due January 15, 2021)
Changes to forgiveness terms and simplified application
- Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount. It’s best to contact your bank and inquire about this change and the next steps, especially if your PPP loan was already forgiven and you have received notification regarding the remaining PPP loan balance that represented the EIDL grant portion.
- Creates a simplified forgiveness application process for loans of $150,000 or less. More to follow from the SBA on this simplified application. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The SBA must create the simplified application form within 24 days of the bill’s enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Borrowers are required to retain relevant records related to employment for four years and other records for three years, as the SBA may review and audit these loans to check for fraud.
- Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.
New round of PPP funding (or PPP2)
- The new round of PPP, or PPP2 as some are calling it, contains many similarities to the first round of the PPP but also has several important differences.
- The following is a high-level view of the PPP2 provisions.
Who is eligible to apply for the new PPP2?
- PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan of up to $2 million, provided they:
- Have 300 or fewer employees.
- Have used or will use the full amount of their first PPP loan.
- Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
- The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them
PPP2 Loan Parameters
- Similar to PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, utilities, rent and covered mortgage interest. PPP2 also makes the following 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.
- Eligibility requires that PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters as PPP1.
- PPP borrowers may receive a loan amount of up to
- 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum.
- 3.5 times their average monthly payroll costs in the year prior to the loan or the calendar year – for PPP borrowers with NAICS codes starting with 72 (hotels and restaurants) subject to a $2 million maximum.
- In addition, live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding while $12 billion will be set aside to help business in low-income and minority communities.
Some Banks have relayed to their customers that they will be participating in this next round of funding and will be using the same process as PPP Forgiveness which is through an online portal. Some banks relayed that they do not anticipate accepting the new PPP2 applications until after the New Year as final guidance has not yet been released.
Note, this is a high-level overview of only some of the key items in the new stimulus package. Once the final regulations, provisions, new PPP 2 loan applications and instructions are released, we will have more important details to share.
Please contact us should you have any questions.