PPP2 Loans Approved by Congress as Part of Massive Combined Bill

The House and Senate both overwhelmingly passed a $900 billion pandemic relief package on December 21, 2020, which will provide assistance to cash-strapped individuals and businesses.  The bill is coupled with a $1.4 trillion measure to fund the government for the remainder of Fiscal Year 2021.  President Trump is expected to sign the legislation into law no later than December 28, 2020.

Pandemic Relief Summary

More than one-third of the $900 billion stimulus bill has been designated for small business loans, including $284 billion for a second round of Paycheck Protection Program (PPP) loans and $20 billion for Economic Injury Disaster Loan (EIDL) grants for qualified businesses.  If the bill is signed into law, PPP2 Loans would be available for the first time to 501(c)(6) Non-Profits with certain restrictions on size and business activities.  The measure would restore tax deductibility of expenses paid with PPP loan proceeds and some businesses would also benefit from an extension of the Employee Retention Tax Credit (not available to PPP borrowers) and reinstatement of 100% deductibility of certain business meals.

Individuals with income up to $75,000 ($150,000 for married filing joint) will receive stimulus checks of $600 each, plus $600 for each dependent child, possibly as soon as next week.  The bill extends federal unemployment benefits (that were scheduled to expire on December 26), through March 14, 2021, and modifies the calculations of the Earned Income Credit and Child Tax Credit to the benefit of those who saw a decline in income from 2019 to 2020.

In addition, the legislation provides various aid for renters, transportation, colleges and schools, vaccine distribution, and emergency food assistance.

PPP2 Loans

PPP2 loans will be similar to the first round in many ways.  The amount of the loan will be based on 2.5 times average monthly payroll (3.5 times for hotels and restaurants) and the borrower can choose between 2019 payroll or the 12-month period prior to their loan application.  The maximum loan amount will be $2 million, down from $10 million previously.  Also mirroring the first round, loan proceeds must be used for Payroll Costs (including certain benefits), mortgage interest, rents, and utilities.  However, proceeds from PPP2 may also be used for Covid-related Personal Protective Equipment (PPE), facilities modifications, and supplier costs considered essential to the company’s operations.  Borrowers once again may choose an 8-week or 24-week covered period to use their loan proceeds.

PPP2 will be available to businesses with 300 or fewer employees, whose gross receipts declined by 25% or more in at least one calendar quarter in 2020 compared to the same quarter in 2019.

The new rules also allow for a simplified forgiveness application for all loans up to $150,000.  The borrower would complete a one-page form which includes the amounts spent on payroll and non-payroll costs during the covered period and a good-faith certification that they complied with the rules of the program.  Borrowers would have to retain PPP-related employment records for four years and other relevant records for three years (down from six years previously) in case they are selected for an SBA review.  Finally, the new rules eliminate the requirement to reduce loan forgiveness by any EIDL grants received.

Tax Deductibility of Expenses

The bill also restores the tax deductibility of expenses paid with PPP loan proceeds.  Last April, IRS issued guidance stating that while forgiven PPP loans would not constitute taxable income, the expenses paid with forgiven PPP funds would not be tax deductible.  The new law would ensure the deductibility of such expenses for loans made in both rounds of the Paycheck Protection Program.

How KatzAbosch Can Help

Each organization has its own peculiarities, and how your company may use this opportunity may vary from another entity. If you have questions on how this may impact your tax situation, please contact your KatzAbosch representative to learn more about our PPP consulting services.

Have more questions about the impact of the coronavirus on your business? Visit KatzAbosch’s COVID-19 Resource Center for up-to-date information.

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