On Sunday, December 27, 2020, President Donald Trump signed into law the “Consolidated Appropriations Act, 2021” passed by Congress on December 21, 2020 (“the Act”). The Act includes several provisions relating to Paycheck Protection Program (PPP) loans.
- Provides more than $284 billion to the U.S. Small Business Administration for first and second PPP loans;
- Makes available PPP loans to first-time borrowers and to businesses that previously received a PPP loan;
- Expands costs eligible for loan forgiveness;
- Simplifies the forgiveness application for loans of $150,000 or less;
- Repeals the requirement that PPP borrowers deduct the amount of any EIDL advances from their PPP forgiveness amount; and
- Confirms that business expenses paid with forgiven PPP loans are tax-deductible.
- The second round of PPP loans (“PPP2”) will be available to first-time borrowers and to businesses that previously received a PPP loan. The maximum PPP2 loan is $2 million.
- In order to apply for PPP2 loans, previous recipients of PPP must have 300 or fewer employees; have used, or will use, the full amount of their first PPP loan; and can show a 25% gross revenue decline in any 2020 quarter compared to the same quarter in 2019.
- First-time PPP borrowers must be businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans; sole proprietors, independent contractors, and eligible self-employed individuals; or not-for-profits, including churches.
- Accommodation and food service operations (those with an NAICS code starting with 72) must have fewer than 300 employees per physical location.
- Section 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc. are now eligible provided they have 300 or fewer employees and do not receive more than 15% of receipts from lobbying. The lobbying activities must comprise of no more than 15% of the organizations’ total activities and have cost no more than $1 million during the most recent tax year that ended prior to February 15, 2020.
- Those receiving a Shuttered Venue Operator Grant are not eligible for PPP.
- Borrowers that returned all or part of a previous PPP loan, can reapply for the maximum amount available to them.
Costs Eligible for Loan Forgiveness
- Costs eligible for forgiveness still include payroll, rent, covered mortgage interest, and utilities.
- PPP2 expands the costs eligible for forgiveness. The bill provides more detailed definitions of these costs, but at a high-level, additional costs include the following:
- Covered operating costs such as software and cloud computing services and accounting needs.
- Covered property damage costs such as property damage, vandalism, or looting due to public disturbances that occurred during 2020.
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Covered supplier costs that are essential at time of purchase to the recipient’s current operations.
- All PPP borrowers will still need to spend no less than 60% of funds on payroll over a covered period of either eight or 24 weeks.
- PPP borrowers may receive a loan amount up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year.
- PPP borrowers with NAICS codes starting with 72 (i.e., hotels and restaurants) can receive a loan amount up to 3.5 times their average monthly payroll costs.
- PPP2 loans will be capped at $2 million.
Tax Deductibility for PPP Expenses
The Act specifies that business expenses paid with forgiven PPP loans are tax-deductible, as was Congress’ intent when it created the original PPP.
Other items to note
- Creates a simplified forgiveness application process for loans of $150,000 or less. The SBA is in the process of creating this application intended to be less than one page in length.
- Repeals the requirement that PPP borrowers deduct the amount of any EIDL advances from their PPP forgiveness amount.
- 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.
As the aforementioned is only a summary of certain sections of the Act, we encourage you to reference the Act itself for details on the PPP and other provisions. Click here for a copy.