Monday night, the U.S. Senate and House of Representatives passed Consolidated Appropriations Act, 2021 (the “Bill”). This $900 billion COVID-19 relief bill provides, among other things, second round of Paycheck Protection Program (“PPP”) loans and clarifies tax deductibility for PPP expenses. The Bill is on its way to President Trump, who is expected to sign it into law.
Second round of PPP Loans
The Bill provides second round of PPP(“PPP2”). PPP2 loans are available to first-time qualified borrowers and to businesses that previously received a PPP loan. Previous PPP recipients may apply for another loan of up to $2 million, provided they have 300 or fewer employees, have used or will use the full amount of their first PPP loan, and can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
Second round of PPP loans are available to following 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 NAICS codes starting with 72) with fewer than 300 employees per physical location.
As with PPP1, 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, but the maximum loan amount has been limited to $2 million.
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August. The costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:
- 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.
Tax Deductibility of PPP Expenses
The bill also specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance released earlier in 2020 that such expenses could not be deducted.
Simplified Application and Other Terms of Note
The Bill creates a simplified forgiveness application process for loans of $150,000 or less. These borrowers will receive forgiveness upon submission of one-page certification form to be developed by the SBA.
The Bill also repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.