Covid Relief Bill
December 22, 2020 |
On Monday, December 21, 2020, Congress passed a $900+ billion pandemic relief bill. This bill covers a number of areas, including enhanced federal unemployment benefits, individual stimulus payments, rental assistance, and vaccine funding among other items. However, the focus of this communication is on provisions related to the Payroll Protection Program (PPP) and PPP2.
As you read this outline, please be aware that this is based on the congressional bill. Detailed guidance will surely be issued by the Department of Treasury (Treasury) and/or the Small Business Administration (SBA). As we have experienced over the last 9 months, this guidance can make significant changes to the original wording of the bill. Please review this information with the understanding that there will be changes as the Treasury and SBA issue definitive guidance.
PAYROLL PROTECTION PROGRAM 1 (PPP1)
There has been significant confusion regarding the tax treatment of PPP forgiveness. The IRS previously issued guidance stating that the PPP was effectively taxable by disallowing deductions that were paid with PPP funds. This was clearly against the original intent of the CARES Act, and Congress pulled through and corrected this. The new bill clearly states that the loan forgiveness income from PPP andPPP2 loans are not taxable and that the expenses may still be deducted on a borrower’s tax return.
For those who have not yet received forgiveness determinations and may not be expecting full forgiveness — there is good news for you too. Congress has expanded the listing of eligible expenses to include the following expenditures:
- Business software and cloud computing services that facilitate operations, product or service delivery, HR, payroll, billing, sales, accounting, and tracking of supplies, inventory, records, and expenses
- Repairs of property damage from recent civil unrest not covered by insurance or other reimbursement
- Payments for goods pursuant to contracts, orders, or purchase orders that existed prior to the start of the covered period
- Payments for perishable goods pursuant to contracts, orders, or purchase orders made any time during the covered period
- Certain costs related to implementing HHS, OSHA, CDC, or state/local guidelines related to employee/customer safety, including physical barriers, certain virus-related HVAC upgrades, health screening, physical workspace changes, and certain personal protective equipment for employees
- Group life insurance, disability, vision, and dental insurance
Simplified forgiveness, which was previously for $50,000 loans and smaller, has been expanded to $150,000. This allows borrowers to submit a one-page certification attesting to compliance with the program’s rules. The SBA is required by the bill to issue this new certification within 24 days of the bill becoming law.
PAYROLL PROTECTION PROGRAM 2 (PPP2)
As expected, Congress is reviving the PPP program for a second round. This round of funding is more targeted and is intended to provide funds to those who have seen significant reductions in revenue in 2020. The loans will generally function similarly to the first round of PPP funding, including the changes noted above. The following are the highlights of the PPP2 program:
Who Qualifies for PPP2?
- Entities with 300 or fewer employees
- Entities who saw a reduction of 25% or more in revenue in any calendar quarter when comparing 2020 to 2019
- Same entity types as PPP1 with addition of 501(c)(6) entities that meet certain lobbying thresholds
How Is the Loan Amount Determined?
- Maximum loan sizes will be $2,000,000.
- Loans will be based on either of the following payroll calculations:
- 2.5 months of average 2019 monthly payroll
- 2.5 months of average payroll for the 1-year period immediately preceding the loan
- It appears that guidance for sole proprietors and self-employed individuals is limited, though the bill confirms their eligibility. We are awaiting additional guidance, but are expecting the loan will be calculated similar to PPP1.
- Special rules apply to farmers — contact us for more details.
Special Rules for Food Service & Accommodations Industry
- Entities can qualify with up to 500 employees.
- Loan amounts are calculated per above, except using 3.5 months instead of 2.5 months.
How Is Forgiveness Calculated?
- Allowable expenses for PPP2 are the same as PPP1, as amended above.
- Allowable expenses can be spent over an 8- or 24-week covered period.
- 60% or more of the forgiveness amount must be spent on payroll costs.
As of now it appears that the Treasury and/or SBA will need to issue detailed guidance on what documentation must be submitted to support the revenue reduction required for eligibility. Additionally, we expect guidance regarding methods of accounting and other details will be issued. As with PPP1, there will likely be additional guidance issued as the program progresses. We will stay on top of those changes and communicate significant items to you as soon as possible. We will be reviewing the bill in greater detail and will provide targeted communications on applicable provisions as needed. If you have any questions, please do not hesitate to reach out to your client service representatives.
Happy holidays and best wishes for a prosperous New Year!