President Trump signed off on a $900 billion COVID relief bill on December 27, 2020, offering economic aid as the pandemic worsens. His approval came just in time to avert a government shutdown, and shortly after unemployment benefits expired for millions of people on Saturday.
The bill, called the Consolidated Appropriations Act 2021, adds $300 per week to unemployment benefits and dedicates over $300 billion to help small businesses. The new law also ensures tax deductibility for business expenses paid with forgiven Paycheck Protection Program (PPP) loans. The bill provides additional PPP funding, makes Sec. 501(c)(6) not-for-profit organizations eligible for loans for the first time, and offers businesses the opportunity to apply for a second PPP loan if necessary.
Outline of Key Provisions
Key provisions of the new law include the following:
- $325 billion in aid for small businesses struggling from economic hardships due to the pandemic, including:
- The U.S. Small Business Association (SBA) has been allocated more than $284 billion for Paycheck Protection Program (PPP) forgivable loans for distressed small businesses.
- $20 billion for Economic Injury Disaster Loan (EIDL) grants to businesses in low-income communities.
- $15 billion reserved for live venues, independent movie theaters, and cultural institutions.
- $12 billion allocated to low-income and minority businesses.
- $166 billion in economic impact payments of $600 for adults, $1,200 for married couples, and $600 per child.
- $120 billion to provide individuals receiving unemployment benefits a $300 per week supplement from December 26 until March 14, 2021.
- Two expiring CARES Act programs were extended for 11 weeks, the Pandemic Unemployment Assistance program, expanding coverage to the self-employed and gig workers, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional unemployment benefits.
- In addition, $25 billion is dedicated to emergency rental aid and extending the national eviction moratorium through January 31, 2021.
- $13 billion will go towards emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.
The new round of PPP loans has several important differences from the first round.
New loans will be available to new borrowers as well as businesses that previously received a PPP loan. Previous PPP loan recipients may apply for another loan up to $2 million, provided they meet the following conditions:
- Have 300 or fewer employees.
- Have used the full amount of their first PPP loan.
- Show a 25% gross revenue decline in a 2020 quarter compared with the same quarter in 2019.
PPP loans are now available to Sec. 501(c)(6) business leagues, such as chambers of commerce and visitors’ bureaus, provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying.
First-time borrowers from the following groups are permitted to apply:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations with less than 300 employees per physical location.
The bill also allows borrowers that returned a portion or all of a previous PPP loan to reapply for the maximum amount available.
PPP2 Loan Terms
The costs eligible for PPP loan forgiveness still include payroll, rent, mortgage interest, and utilities. Now, the following are also potentially forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment.
- Expenditures to suppliers that are essential to the recipient’s current operations.
- Operating costs such as software, cloud computing, and accounting services.
To be eligible for full loan forgiveness, borrowers still must spend at least 60% of the funds on payroll over a period of eight or 24 weeks.
The maximum loan amount has been reduced from $10 million to $2 million.
The $10,000 EIDL advance will no longer be deducted from the amount of PPP loan forgiveness.
Simplified Application Process
The new COVID-19 relief bill created a simplified forgiveness application process for loans of $150,000 or less. The borrower must submit a one-page certification that includes the number of employees they retained because of the loan, the estimated amount spent on payroll costs, and the total loan amount.
Borrowers are required to retain records related to employment for four years and other records for three years. The SBA may audit these loans to check for fraud.
PPP Expenses are Tax Deductible
The bill specifies that business expenses paid with forgiven PPP loans are tax-deductible, replacing previous IRS guidance.
RJI CPAs Can Help
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