Late on Monday, December 21st, 2020 Congress passed the Consolidated Appropriations Act, 2021 which included a $900 billion pandemic relief package. If signed by President Trump, this new package updates and extends some existing stimulus measures, and makes $280 billion in funds available for a second round of the Paycheck Protection Program. Below are some of the key highlights from the stimulus bill:
Changes to the existing PPP loan program:
- Allows tax deductibility for expenses attributable to PPP loan forgiveness. This means the amount of loan forgiveness is not taxable and the business expenses funded by the PPP loan are tax deductible meeting the original intent of Congress.
- Adds additional expense types to those which are eligible for loan forgiveness. These new expenses include operations expenditures, property damage costs, supplier costs and worker protection expenditures.
- Creates simplified loan forgiveness application processes. Forgiveness of loans up to $150,000 will only require a one-page form with borrower certifications. Loans of between $150,000 and $2 million may also have simplified requirements, as determined by the Small Business Administration.
- Repeals section 1110(e)(6) of the CARES Act, which requires PPP borrowers to deduct the amount of their EIDL advance from their PPP forgiveness amount. The bill ensures this change will apply to those borrowers who have already completed the forgiveness process.
Second round of PPP for “Hard-Hit” Businesses:
- New eligibility requirements apply to the second round PPP loans. A business now must have 300 employees or fewer, down from a limit of 500 employees in the first round of PPP loans. The business must have experienced a decline in gross receipts of at least 25% for at least one quarter in 2020 compared with the same quarter in 2019. For entities that were not in business for all of 2019, there are specific rules regarding this gross receipts reduction test.
- The loan amount will be based on 2.5 months of payroll costs, as in the first round of funding. For many borrowers, their loan amount will be the same as the first round of PPP, as the calculation is either the one-year period before the loan application date or calendar year 2019. However, in round two, the maximum loan amount is $2 million versus $10 million in round one.
- In addition, under the legislation, certain 501(c)(6) organizations are eligible to participate in PPP round two. PPP loans are limited to 501(c)(6) organizations that have 300 or fewer employees, receive less than 15% of their gross receipts from lobbying, and for which lobbying activities represent no more than 15% of their total activities. The legislation also prohibits using any of the loan proceeds for lobbying activities.