New Congressional COVID Relief Bill

Late on Monday, December 21st, Congress passed the “Consolidated Appropriations Act, 2021” which included many additional Coronavirus Response and Relief provisions. The bill has been sent to the President and is awaiting his signature. This proposed legislation is the second largest bill (by page count [5,593]) to be considered by Congress.

Two of the most impactful provisions include the deductibility of PPP loan expenses and the creation of a new round of PPP loans, also referred to as PPP2.

PPP1 and PPP2 Tax Impacts

• Business expenses paid with forgiven PPP loans will now be tax-deductible
–  This applies to both the PPP1 and PPP2 loans

• For partnerships and S corporations, the forgiven loan amount will be treated as tax exempt income and will therefore increase tax basis

• EIDL grants are not taxable income and expenses paid with grant funds are fully deductible

• The Act repeals the requirement that PPP borrowers reduce their loan forgiveness amount by the amount of any EIDL grants

PPP2 Information Highlights
• The loan is available to first-time qualified borrowers, with 500 or fewer employees, and certain businesses that previously received a PPP loan

• For previous PPP recipients to receive another loan, they must:
–  Have 300 or fewer employees
–  Have used or will use the full amount of their first PPP loan
–  Show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019

• PPP2 also makes forgivable loans available to certain 501(c)(6) business leagues, sole proprietors, independent contractors, self-employed individuals, and not-for-profit entities

• Borrowers may receive a loan amount 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 PPP2 has been cut to $2 million from the $10 million in PPP1

• The costs eligible for loan forgiveness include the same costs covered under PPP1 (payroll, rent, mortgage interest, and utilities) along with the following new expenses:
–  Worker protection and facility modification expenditures to comply with COVID-19 safety guidelines
–  Covered operating costs such as software and cloud computing services and accounting needs
–  Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations

• Similar to PPP1, borrowers must spend no less than 60% of the funds on payroll over either 8 or 24 weeks to be eligible for full loan forgiveness

• A simplified forgiveness application will be created for loans of $150,000 or less
–  This application will be one page and include the number of employees, estimated total amount spent on payroll costs, and total loan   amount
–  The SBA must create this simplified application form within 24 days of the bill’s enactment

Other Items Covered in the Bill

• The payroll tax deferral period has been extended until December 31, 2021

• The employee credit for paid sick and family leave has been extended until March 31, 2021

• The employee retention tax credit wage period has been extended through June 30, 2021

• Business meals will be 100% deductible for tax years 2021 and 2022

o This deduction is currently limited to 50%

• Direct stimulus payments of $600 will be sent to individuals with 2019 adjusted gross income of less than $75,000 ($150,000 for joint filers)
–  These payments are similar to the payments sent under the CARES Act
–  Treasury Secretary Mnuchin said payments would begin being disbursed next week

If you have additional questions, please reach out to your Wilkins Miller contact.

Updated 12/23/2020 at 1:45 PM