PPP UPDATE: Consolidated Appropriations Act of 2021
Consolidated Appropriations Act of 2021 signed into law, includes second Coronavirus relief bill, new funding, and updates to PPP
On Sunday, December 27th, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021. The bill contains a $900 billion coronavirus relief portion and includes another round of Paycheck Protection Program (PPP) funding, extends unemployment benefits, and includes direct payments to taxpayers. Here is an overview of the key provisions in the bill. Please note this list is not all-inclusive and merely a synopsis of key items.
Updates to the PPP and changes for second round funding
The Act designates $267.5 billion for this round of PPP funding, and the program specifically sets aside $25 billion for businesses with 10 employees or less as of Feb. 15, 2020. Regulations for this round of PPP funding are required to be released within 10 days of enactment.
Borrowers who received PPP funding in the first round following the CARES Act could receive additional funds to their existing PPP loans. Borrowers who would like to increase their requested loan amount based on the updated regulations may do so, provided they have not yet received forgiveness. Here are the key updates:
- More expenses are eligible – Covered operations expenditures (including business software and cloud computing services), property damage costs (costs incurred during public disturbances in 2020 not covered by insurance), supplier costs (that are essential to operations), and worker protection expenditures (to comply with HHS, CDC, or OSHA requirements) would be eligible for forgiveness. These amendments would not apply to loans that have already been forgiven.
- Tax deductions on related expenses are allowed – The bill reverses an earlier ruling and makes expenses utilized for forgiveness deductible. It also confirms forgiveness is non-taxable.
- Loans up to $150,000 get a simplified forgiveness application process – Borrowers with loans up to $150,000 will get a one-page online or paper form with borrower certifications of the number of employees covered by the loan, the estimated amount spent on payroll, and the total amount of the loan. Borrowers must still maintain appropriate documentation.
- Borrowers do not have to deduct the EIDL advance – Previously, EIDL advances were to be deducted from the PPP forgiveness amount, but that was repealed.
- PPP borrowers can also get an Employee Retention Credit (ERC) – Wages used for PPP forgiveness will not be eligible for the ERC.
The second round of funding provided by this Act has a few key differences from the first round in the CARES Act. Borrowers may apply for a second PPP loan through this program if they have fully used their first PPP loan and meet the employer size and gross revenue criteria listed below. PPP loans in this round are capped at $2 million. Here are the key differences:
- Changes to employer size and gross revenue qualifications – Only businesses with up to 300 employees (down from 500 employees) and a gross revenue decline by at least 25% for any quarter of 2020 compared to the same quarter in 2019 will qualify for this round.
- Changes to loan limits – The loan amount is limited to 2.5 times of the average payroll for the last 12 months through date of application or 2019 and is limited to $2 million. Businesses with a NAICS code beginning with 72 – Accommodation and Food Services – are limited to 3.5 times payroll for the 1-year period or 2019 and limited to $2 million.
- Changes to eligible nonprofits – 501(c)(6)s now qualify – These organizations must have 150 employees or fewer, gross receipts from lobbying activities must total less than 15% or $1 million, and lobbying activities cannot comprise more than 15% of total activities.
- More groups can apply for first-time assistance – Other groups that can apply for first-time assistance through this round of PPP funding include businesses eligible for other SBA 7(a) loans with fewer than 300 employees, sole proprietors, independent contractors, self-employed individuals, and nonprofits (including churches).
As with the first round of PPP loans, 60% of the funds must be spent on payroll over the covered period (8 or 24 weeks).
Other provisions affecting businesses
- $13.5 billion for Economic Injury Disaster Loans (EIDLs)
- Business meals are now 100% deductible beginning after December 31, 2020 and prior to January 1, 2023.
- Employer tax credits for those offering paid sick leave have been extended to Mar. 31, 2021, for employers who voluntarily choose to expand paid emergency leave. Otherwise, the requirements set forth by the Families First Coronavirus Response Act (FFCRA) expire Dec. 31, 2020.
- $10 billion for childcare assistance – This includes supplemental assistance for childcare providers to assist with fixed costs and operating expenses.
Provisions affecting individuals
- Direct stimulus payment of $600 per adult and qualifying child with the same phase out thresholds as the CARES Act ($150,000 if married filing a joint return, $112,500 if filing as head of household, or $75,000 for individuals). Payments are expected to start arriving any day.
- Changes and extensions to unemployment including:
- $300 in enhanced unemployment benefits for unemployment beginning after Dec. 26, 2020, through Mar. 14, 2021, fully financed by the federal government, instead of split between the states and federal government.
Further guidance and regulations are expected in various components of the bill and are due in periods of 10 to 45 days depending on the issue and reporting agency. Not included in the bill was aid for state and local governments, an agreement on liability protections for businesses, nor a continued freeze on payments and interest for federal student loans set to expire for many in February. Lawmakers have indicated they expect to pass another stimulus bill addressing some of these issues in early 2021.
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