PPP Updates from the Stimulus Package12/28/2020
Back in mid-November, we wrote this article stating that expenses paid with Paycheck Protection Program (PPP) loan proceeds are not deductible. And it was true at the time. We also stated that Congress may act on this, since it was their intent to allow expenses to be deductible, but it was not clearly written into the CARES act and the IRS ruled otherwise.
Well, that is exactly what happened in the new COVID-19 relief bill passed by Congress on December 21, 2020 and signed into law by President Trump on the evening of December 27. The new bill ensures tax deductibility for expenses paid by a business with forgiven PPP funding, great news for any company that received PPP loan funds that they expect to be forgiven.
Additionally, the new relief bill includes expansion and some different provisions for the PPP program, or PPP2 as most are referring to it. Those include:
- Loans are available to first-time borrowers who did not receive loans in the first round.
- They are also available to businesses that previous received a PPP loan, as long as they:
- Have fewer than 300 employees
- Have exhausted (or will use) the full amount of their first PPP loan
- Show a 25% gross revenue decline in any quarter in 2020 as compared to the same quarter in 2019.
Others that can apply for these new funds (some of which could before too) include:
- Businesses with 500 or fewer employees eligible for SBA 7(a) loans.
- Independent contractors, sole proprietors and eligible sell-employed people.
- Businesses that provide lodging and food services with fewer than 300 employees per physical location. (Applies to businesses who are classified with NAICS codes that begin with 72.)
- Non-profits, including churches.
The loan terms for PPP2 are similar to those of PPP1 and include loan forgiveness for payroll, rent, mortgage interest and utilities. New areas that are potentially forgivable include:
- Operating costs such as cloud computing services, software and accounting needs.
- Purchases from suppliers that are necessary to keep the business operating at the time of acquisition.
- Worker protection, such as personal protective equipment and physical modifications to your business to comply with COVID-19 health and safety guidelines.
Most loan applicants can receive up to 2.5 times their average monthly payroll costs in the year prior to the loan, which is the same as with PPP1. Borrowers in the hospitality or food serve industries are eligible for loans up to 3.5 times average monthly payroll costs. However, the maximum amount for PPP2 is reduced from $10 million to $2 million. Recipients are required to spend at least 60% of the funds over a covered period of either 8 or 24 weeks, same as with PPP1.
Finally, the new bill simplified the forgiveness application procedures for loans of $150,000 or less. In essence, borrowers will receive forgiveness if they sign and submit a form (that the SBA must produce within 24 days of the bill’s enactment) that is no more than one page, includes a section for the borrower to describe the number of employees they were able to retain because of the loan, the estimated total amount of the loan spent on payroll and then the total loan amount. It also eliminated the requirement that PPP borrowers deduct EIDL advances and set aside money specifically for first- and second-time borrowers with fewer than 10 or fewer employees.
Again, there are a lot of moving parts to this bill, so definitely reach out to us with any questions at all.