On December 27, 2020, the President signed the Consolidated Appropriations Act, 2021. While the media has focused on the impact to individuals in terms of stimulus payments and unemployment assistance, there are many critical provisions for small businesses which continues the Paycheck Protection Program (PPP) and provides additional small business support.
Some of the provisions of this new law incorporate changes we have been anticipating in terms of PPP forgiveness provisions and guidance. While we still need to wait approximately 30 days for the Small Business Administration to issue final implementation forms, we now have clear guidance as to what to expect moving forward.
Clarifies tax deductibility, simplifies the forgiveness process, and reopens the Paycheck Protection Program:
- All eligible expenses paid with PPP loan funds are 100% tax deductible. This has been a major concern as there has been ongoing contradictory guidance.
- Simplified forgiveness loan application for PPP loans under $150,000. As predicted, this provision will reduce the application form to a one-page document for all loans under $150,000 with reduced information required such as the loan amount, the number of employees retained, and the estimated amount spent on payroll. This will also streamline the bank and SBA’s approval which should expedite the approval process.
- Repeals the requirement that PPP borrowers deduct the amount of their EIDL advance from their PPP forgiveness amount. SBA will issue rules that ensure borrowers are made whole if they received forgiveness and their EIDL was deducted from that amount.
- A new round of PPP Loans of up to $2 million will be opening and available until March 31, 2021. Eligibility requirements include:
- Must have received and fully utilized a round 1 PPP loan*, and
- Businesses with not more than 300 employees, and
- Reduction in gross receipts of 25% or more in any quarter in 2020, relative to the same quarter in 2019
- Funding is based on 2.5 months of average annual payroll which is consistent with round 1. However, businesses in the hospitality industry (food service and hotels) will be eligible for loans up to 3.5 months of average annual payroll.
- For all loans under round 1 and round 2 (so long as you have not already applied for loan forgiveness) there is expanded coverage of allowable, and forgivable uses for funds. Payroll costs must still remain a minimum of 60% expenses incurred, but non-payroll costs not include:
- Covered operations expenditures now include software, human resources expenses, and accounting fees
- Covered property damage costs related to social unrest not covered by insurance programs
- Covered worker protection expenditure such as PPE and safety equipment
- Covered supplier costs now includes expenditures paid to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan.
- For organizations who did not apply for a round 1 PPP loan but remain eligible, can now apply under the re-opened application window through March 31, 2021.
Additional opportunities beyond PPP:
- The Economic Impact Disaster Loan (EIDL) Program has been extended for new applications through December 31, 2021 and Advance payments are no longer considered taxable income.
- Establishes a new Grant program for venue operators, theatres, museum operators and other eligible organizations that experience at least a 25% decline in revenue during some quarter of 2020 vs 2019.
- Extension of the FFCRA law which provides mandatory sick and paid family leave for certain reasons related to Covid-19.
- Extends availability of Employee Retention Credit to organizations who received PPP loans. Under the original CARES Act, organizations with PPP loans had previously not qualified for this credit.
- As an attempt to stimulate additional restaurant volume, business meals will be 100% deductible in 2021 and 2022. Business meals are currently deductible up to 50% of the amount spent.
- For individuals who do not itemize their deductions on their personal tax return, charitable donations of $300 can be added to the standard deduction for 2021 ($600 for married filers).