COVID-19 Relief Included in the Consolidated Appropriations Act of 2021
A new stimulus package has been released under the Consolidated Appropriations Act of 2021 (the “Act”). This second round of relief will provide much-needed aid for small businesses and unemployed Americans. The primary changes between the Act and the first relief package, the CARES Act, are detailed below. Regulations to carry out several provisions in this Act will be released within ten days after the enactment of this Act.
Deductibility of PPP Loans
The Internal Revenue Service has released several Revenue Procedures and notices over the past few months stating that expenses paid for with forgiven Paycheck Protection Program (“PPP”) loans were not deductible. However, this was not Congress’s intent. The new Act provides clarity on their position. Under the Act, taxpayers will not lose the income tax deduction that was expected to be available for expenses paid from PPP loans. Expenses paid with a PPP loan will be deductible using the normal rules associated with the expenses. This change is retroactive to date of enactment of the CARES Act (March 27, 2020). If you have any questions about the deductibility of business expenses that were covered by a PPP loan, please do not hesitate to reach out to our office.
Additional PPP Loans
Under the new Act, eligible entities will have a second chance to receive a PPP loan. This will apply to new borrowers and entities that had previously received a PPP loan. The second loan, called a “PPP Second Draw” loan, is targeted towards smaller and harder-hit businesses. Eligible entities are businesses with 300 or fewer employees who have used or will use the full amount of their first PPP loan. Also, they must be able to demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. If you believe that your entity might be eligible for PPP Second Draw, our office can help you confirm that the 25% reduction in gross receipts requirement, has in fact been met by your entity.
Generally, businesses can borrow up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year. The maximum loan amount for this round of PPP loans is $2 million dollars, instead of the $10 million maximum allowed during the first round.
Unlike in the CARES Act, this bill carves out $15 billion for live venues, independent movie theaters and cultural institutions. It also expands eligibility to more nonprofits as well as local newspapers, TV and radio broadcasters. The Act also sets aside $15 billion to support first-time and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders
Maximum Amount for New Entities and Entities with More Than One Physical Location
For new entities that were formed within 1 year prior to February 15, 2020, the maximum amount of new PPP loans is based upon the average monthly payroll costs up through the date when the entity applies, multiplied by 2.5, but not exceeding $2 million. However, a business or organization that was not in operation on February 15, 2020 is not eligible to receive a PPP loan. For businesses with more than one physical location, the maximum amount of new PPP loans cannot be not more than $2 million.
Additional Eligible Expenses
The Act also added new eligible expenses for purposes of loan forgiveness including the following:
- Operating costs such as software, cloud computing services and accounting needs;
- Expenses due to property damage and vandalism or looting due to public disturbances which occurred during 2020 that were not covered by insurance or other compensation;
- Expenditures to suppliers which were essential at the time of purchase to the recipient’s current operations; and
- Worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
Just like under the CARES Act, PPP borrowers will have to spend at least 60% of the funds on payroll expenses over a covered period of either 8 or 24 weeks. Loans made under the first round of PPP are also eligible to use the expanded eligible expenses, as long as they have not already had their loans forgiven.
Deduction for Business Meals
The Act also includes a provision to increase the business meals deduction to 100% for 2021 and 2022.
Unemployment Related Provisions
The Act will extend Pandemic Unemployment Assistance (PUA) benefits and the Pandemic Emergency Unemployment Compensation (PEUC) benefits created under the CARES Act through March 14, 2021. The Act also addresses the concern about paying benefits when individuals refuse to go back to work. Under the Act, states must provide a suitable method (including phone line, email, or online portal) for employers to notify the state when an individual refuses to work or accept an offer of work when they do not have good cause.
If you have any questions about the provisions of the Act discussed above or about applying for PPP Second Draw loan, please give us a call at (404) 365-5682.