Just days before Christmas, Congress delivered on a second COVID-19 relief package tied to a $1.4 trillion Omnibus spending bill that funds the government through September 2021. Here are highlights of what is contained in the bill that is still awaiting President Trump’s signature, although the President may veto it. Also outlined below is an expanded summary of the second round of the Paycheck Protection Program (PPP2).
Highlights of the Consolidated Appropriations Act of 2021
- Deductibility for business expenses paid with forgiven Paycheck Protection Program (PPP) loan proceeds
- Additional $284 billion in PPP loan funding for businesses that did not receive loans in the first round as well as second loans for businesses that have experienced a severe decline in revenue due to COVID shutdowns
- $20 billion in Economic Injury Disaster Loan (EIDL) grants to struggling businesses in low-income communities
- $15 billion in funding for live venues, independent movie theaters, and cultural institutions
- $12 billion in funding for businesses in low-income and minority communities
- $45 billion in transportation funding for airlines, certain other transportations companies, and public transit systems
- $600 stimulus checks for individuals making up to $75,000 or $1,200 for married couples making up to $150,000, plus $600 for each dependent child
- $300 additional weekly unemployment benefits, which run from December 26, 2020, to March 14, 2021
- Extended unemployment assistance for self-employed and gig workers
- Emergency rent assistance and an extension of the national eviction moratorium through January 31, 2021
- Funding for emergency food assistance
What’s Included in the New Paycheck Protection Program (PPP2) Provisions
Round 2 is similar to round 1, but with a few key differences. First-time qualified borrowers and previous borrowers may apply for up to $2 million in additional loans. To qualify, businesses must:
- have 300 or fewer employees,
- have used or will use all of their first PPP loan, and
- prove that they have experienced a 25% decrease in revenues in any 2020 quarter compared with that same quarter in 2019.
PPP2 provides expanded opportunities for first-time borrowers in the following groups to apply:
- Business with 500 or fewer employees that are eligible for SBA 7(a) loans
- Self-employed individuals, sole proprietors, and independent contractors
- Not-for-profits, including churches
- Restaurant and hotel businesses with fewer than 300 employees per location
Borrowers may receive loans of:
- Up to 2.5 times their average monthly payroll costs in the year before the loan or the calendar year with a $2 million maximum
- Up to 3.5 times average monthly payroll costs for hotels and restaurants, also with a $2 million maximum
As with PPP1, borrowers must still spend at least 60% of the funds on payroll over a covered period of either 8 or 24 weeks. Additional costs eligible for loan forgiveness include payroll, rent, certain mortgage interest, and utilities. However, PPP2 adds the following to the list of forgivable expenses:
- Facility modification expenditures and the cost of personal protective equipment used to comply with federal health and safety guidelines.
- Expenditures to suppliers for goods essential at the time of purchase to the recipient’s current operations and made according to a contract, order, or purchase order that was in effect before the covered period, or concerning perishable goods in effect before or during the covered period.
- Certain operating costs such as accounting, software, and cloud computing services
Other important items:
- PPP loan forgiveness will continue to be excluded from taxable income.
- Business expenses paid with PPP1 and PPP2 loan proceeds that are forgiven will now be tax-deductible.
- There will be a simplified forgiveness application process for loans of $150,000 or less.
- EIDL grant recipients no longer must deduct their advance from their PPP loan forgiveness amount.
- Special support will be available to first and second-time borrowers with 10 or fewer employees, recently eligible first-time borrowers, and loans made by community lenders.
The new Act gives many businesses and individuals much to celebrate as we head toward the holidays and close out 2020. However, it may also generate a to-do list longer than Santa’s. Your ATKG advisors are here to answer your questions and assist you with analysis, applications, and projections.
Annette Goodson is a Tax Director for ATKG. She serves as the lead of the firm’s State and Local Tax practice. She brings more than 25 years of public accounting experience to the team in federal tax, state tax, and recruiting. Annette is a Certified Public Accountant and received her bachelor’s degree in accounting from The University of Texas at San Antonio.
For further information on this topic or other tax questions, please contact Annette Goodson or a member of our Tax practice at 210.733.6611 or firstname.lastname@example.org.