PPP and Stimulus Update – Consolidated Appropriations Act, 2021
The U.S. Congress has finally negotiated the latest round of stimulus to help American businesses and individuals (which must still be signed by President Trump). This is the result of months of negotiations, which gained a foothold over the last several weeks as the Covid-19 pandemic continues unabated. While vaccines and reinstituted social restrictions will help us manage Covid-19 in the months ahead, our economy is in great need of additional stimulus – particularly for directly impacted businesses in industries such as hospitality, tourism, entertainment, and restaurants.
The stimulus measures have been included in an all-encompassing bill that is a mere 5,593 pages (for your reference, here is a link – grab a cup of coffee before reading!). While the Act includes Federal appropriations to keep the government running into next year, for our clients’ purposes we want to highlight several important provisions of the $900B stimulus bill related to the Paycheck Protection Program and related benefits:
Expense Deducibility – As you may recall, the IRS took a position earlier this year that expenses paid for using PPP loan funds should be excluded for purposes of calculating a business’ federal income tax. Since forgiven PPP loan funds were also excluded from income, this had the net effect of taxing forgiven PPP loans. This was not the intent of Congress and would have resulted in additional harm to small businesses who used these funds to retain American jobs.
The Act overturns the IRS’ position, therefore forgiven PPP loans will not be taxable. This is a big deal and we are excited for the benefit it will provide our clients and the economy. We have been working with clients to understand their tax position as the status of expense deductibility remained unclear, but the Act has produced a favorable outcome from a tax perspective.
PPP2 – Of $325B that was approved for small business aid, $284B has been allocated for the Paycheck Protection Program. While most businesses who wished to take advantage of PPP did so during the first round of stimulus, borrowers who did not originally receive a loan may apply to do so once again. Importantly, the Act contains provisions for PPP2 – which includes the opportunity for certain businesses who already obtained a PPP loan to apply for a second loan. Such borrowers may apply for loans up to $2M if they meet the following criteria:
- 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 with the same quarter in 2019.
Another enhancement for PPP2 includes expansion of eligible expenses that may be forgiven, which now include (in addition to payroll, rent, covered mortgage interest, and utilities):
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
PPP borrowers in the hotel or restaurant industries may apply for loan funds up to 3.5 times their average payroll cost in calculating PPP loans (subject to the $2M cap) whereas all other eligible businesses may only apply for up to 2.5 times their average payroll costs (which is unchanged from the initial PPP program).
Loan Forgiveness – There has been much discussion between industry and the Small Business Administration regarding loan forgiveness, particularly streamlined processes for certain borrowers. The Act creates a simplified forgiveness application process for loans of $150,000 or less. Specifically, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. Please note that all borrowers regardless of loan size shall maintain relevant records substantiating the expenses paid for with PPP loans, as the SBA reserves the right to audit and review loans for potential fraud.
Individual Stimulus – The Act provides $166B for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent. Additionally, $120 billion has been included in the Act to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26 until March 14, 2021. While this stimulus will not affect all taxpayers, it will be helpful to support many of our clients’ customers.
Our team will be further reviewing the Act in the coming days and keep our clients apprised as necessary. Additionally, RS&F continues to work with clients regarding PPP loan forgiveness and tax planning as well as other provisions of federal stimulus measures and the CARES Act.
Please contact your RS&F Client Advisor for assistance with any PPP, stimulus, or planning matters as we near the end of 2020.