The House of Representatives and the U.S. Senate passed a $900 billion COVID-19 relief bill on Monday night which is expected to be signed in to law by President Trump at some point very soon. We discussed our early impressions of this news in a previous newsletter, HERE. There have been some important updates since then.
This new relief bill includes different elements that are impactful to our clients: Tax law changes as well as a new PPP Loan (PPP2). Once this bill is signed and becomes law, BiggsKofford will be sending separate detailed articles to describe the PPP2 Loan details and highlighting Tax Law changes.
The bill has several important provisions initiated in an attempt to stimulate the economy. As summarized in an article by Jeff Drew in the Journal of Accountancy HERE, some of the key points to be aware of:
- $325 billion designated for struggling small businesses to include: $284 billion to fund another round of PPP loans; $20 billion to provide EIDL Grants to businesses in low income communities; $15 billion to live venues, independent movie theatres, and cultural centers.
- $166 billion in economic stimulus payments to individuals. $600 to each qualifying adult and dependent child of households who make up to $75,000 a year for single adults or $150,000 a year for married couples.
- $120 billion to bolster and extend unemployment benefits.
- $25 billion in emergency rental aid and to extend the national eviction moratorium through January 31, 2021.
- $45 billion to support the transportation industry to include airlines, highway, trains, and buses.
- $82 billion to colleges and schools.
- $22 billion to state and local governments for health-related expenses.
- $13 billion for food assistance and an increase in Supplemental Nutrition Assistance Program (SNAP) benefits.
- $7 billion for expanded digital infrastructure.
- 100% Business Meal tax deduction from January 1, 2021 through December 31, 2022 (currently only 50% deductible)! The only caveat is that the food and drink must be provided by a restaurant.
Original PPP Loan Forgiveness:
The new COVID-19 relief bill will create a simplified forgiveness application for loans up to $150,000. Borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length. The SBA has been instructed to create a form which will comply with the guidance. Borrowers are still required to retain relevant records related to employment for four years and other records for three years.
Borrowers will no longer be required to deduct the amount of any EIDL advance from their forgiveness amount.
Lastly, and among the most significant provisions, the bill specifies that business expenses paid with forgiven PPP loans are tax-deductible. This provision applies to loans under both the original PPP and subsequent PPP loans.
First time applicants and those who previously received PPP funds may apply for up to $2 million as long as they have 300 or less employees, have or will have used all previous PPP funds, and can show a 25% gross revenue decline in any 2020 quarter vs the same quarter in 2019.
PPP2 funds will now also be available to the following organizations provided that they have no more than 300 employees, they do not receive more than 15% of receipts from lobbying, and have cost no more than $1 million in the most recent tax year:
- Sec. 501(c)(6) business leagues, such as chambers of commerce, visitors’ bureaus, etc.
- Destination marketing organizations
Also, now available to first-time borrowers from the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.
The same eligible costs from the first round of PPP funds still apply which includes payroll, rent, covered mortgage interest, and utilities. To be fully forgiven, the borrower must spend at least 60% of the funds on payroll during the 8 or 24-week covered period. Some additional expenses that are now qualified expenses under PPP2:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
The amount available to be borrowed will be calculated by the same formula, 2.5 times average monthly payroll costs in the year prior to loan up to $2 million. However, now borrowers in the hotel and restaurant industries can get up to 3.5 times monthly average payroll, also up to $2 million.
We continue to expect updates and clarifications will be announced frequently over the next few weeks as the details are hammered out. We will continue to update you as the situation develops. If you have questions about your specific circumstance, reach out to our PPP team!