Congress approved a long-awaited and far-reaching $900 billion pandemic rescue package. The bill will include direct payments of up to $600 per adult and dependents (for those making less than $75,000 a year filing single or $150,000 married filing jointly), although there is the possibility this amount will be increased to $2,000; enhanced jobless benefits of $300 per week; roughly $284 billion in Paycheck Protection Program loans; and $25 billion in rental assistance and an extension of the eviction moratorium; and $82 billion for schools and colleges. The bill also extends the deferral period for unpaid taxes to 12/31/21.
Details in the 5,593-page bill, the longest bill ever, provide some new clarifications to the Paycheck Protection Program, which was created by the CARES Act, passed in March 2020. We now know that as it relates to Original PPP Loans (PPP1):
- Costs are fully deductible
- Forgiveness amount is NOT reduced by the EIDL grant received
- There will be a simple forgiveness process for loans of $150,000 or less: just sign and submit certification that identifies the following (presuming the banks will have a form):
- number of employees borrower was able to retain because of the loan
- estimated amount of the PPP loan spent on payroll costs
- the total loan amount
- New borrowers can use 2019 or 2020 data to calculate the maximum loan amount.
For new PPP Loans (PPP2), prior PPP1 borrowers (and first-time borrowers) will be able to apply for a PPP2 loan provided that the PPP1 borrower is a business with 300 or fewer employees, who has used or will use the full amount of their 1st PPP loan, and can show a 25% revenue decline in 2019 versus 2020 revenues, or a 25% decline in revenue in any 2020 quarter compared to the same quarter in 2019. The employee requirement raises to 500 or less for first-time PPP borrowers who are eligible for other SBA 7(a) loans. In that case, the quarter revenue comparison does not apply.
Eligible forgivable expenses for both PPP1 and PPP2 have been expended to include:
- Expenditures to suppliers that are essential at the time of purchase to the borrower’s operations
- Covered operating costs such as software, cloud computing services, and accounting needs
- Covered worker protection and facility modification expenditures, including PPP equipment to comply with Covid-19 federal health and safety guidelines.
The PPP2 loan amount can be up to 2.5x average monthly payroll costs in the year prior to the loan or the 2019 calendar year (first-time borrowers that are hotels, restaurants, and other businesses with NAICS codes beginning with 72 can get up to 3.5x). The maximum PPP2 loan is $2 million and at least 60% of the forgiven portion has to be for payroll costs over a covered period of between 8 weeks to 24 weeks.
Applications for both PPP1 and PPP2 lending expires on March 31, 2021.
Other provisions in the bill related to businesses:
- Expenditures for business meals in 2021 and 2022 that are provided by a restaurant are 100% deductible versus the current 50% limitation.
- The Paid Sick and Family Leave credits are extended for wages paid through 3/31/21.
- The Employee Retention Tax Credit in the CARES Act is amended as follows to:
- Extended for wages paid through 7/1/21
- Credit has been increased to 70% of the qualified wages
- Can now also be used if the taxpayer obtained a PPP Loan, but only for wages that were not paid with PPP funds
- Annual $10k per employee limit is now a quarterly limit
- Gross receipts test is changed to 80% of receipts for the same calendar quarter in 2019
- Wages that qualified for previously filed payroll reports, can be added to the 4th quarter 2020 report
If you need assistance navigating the changes brought by the new stimulus bill, or help navigating the application and forgiveness process of the Paycheck Protection Program, please contact your ShindelRock tax professional .