January 5, 2021
New COVID-19 Stimulus Bill Provides Continued Relief for Taxpayers
President Donald Trump signed The Consolidated Appropriations Act, 2021 on Sunday, December 27, 2020. The Act provides a variety of new provisions and extends existing ones amid the ongoing COVID-19 pandemic. The bill also clarifies many aspects of the Small Business Administration’s Paycheck Protection Program (PPP) and details a second round of direct payments for individuals. The bill also provides an extension of unemployment benefits and many other provisions intended to provide stimulus as the pandemic extends into the new year.
Relief for Businesses
The Consolidated Appropriations Act, 2021 enhanced the PPP established by the CARES act and introduced a second round of loans. The second round of loans can be received for up to 2.5 times the average monthly payroll expenses, limited to a maximum of two million dollars.
Not only are these loans available to first time qualifying borrowers, but also to certain borrowers that already received a PPP loan. In addition, the bill allows borrowers that returned all or a portion of the previous PPP loan to reapply for the maximum amount available to them.
The stipulations for the second round of qualifying borrowers who received a loan in the first round are as follows:
- Have less than 300 employees
- Have used or will use the first PPP loan in its entirety, and
- Show proof of 25% gross revenue decline in any quarter during 2020 with the comparable quarter in 2019
The Paycheck Protection Program Round Two (PPP Round 2) loans also extend availability to first time borrowers including certain qualifying Sec. 501(c)(6) business leagues, businesses with 500 or fewer employees who are otherwise eligible for other SBA 7(a) loans, sole proprietors, independent contractors, eligible self-employed individuals, nonprofits (including churches), and accommodation and food service operations.
PPP Round 2 Covered Costs
Previously, the PPP loan only covered costs related to payroll, rent, covered mortgage interest, and utilities. However, PPP Round 2 also makes the following potentially forgivable:
- Covered worker protection and facility modification expenditures, such as personal protective equipment (PPE) and other expenses necessary to comply with the COVID-19 safety guidelines
- Covered operating costs: such as software, cloud computing services, and other human resources and accounting needs
- Covered supplier costs and potential damage due to public disturbances
It is important to note that borrowers must still spend at least 60% of loaned funds on payroll costs over the covered period of eight to twenty-four weeks in order to be eligible for full loan forgiveness.
Simplified PPP Round 2 Application
For loans of $150,000 or smaller, the forgiveness application has been simplified. The borrower must submit a one-page form with the loan amount, number of employees, and amount spent on payroll costs. Borrowers should maintain records related to employment for four years and any other records for three years in the event that the SBA may review and audit these loans. Once the bill has been enacted, the SBA should release the form within seven days.
Tax Deductibility for PPP expenses
As anticipated, the bill clarifies that business expenses paid with the forgiven PPP loans are in-fact tax deductible. Contradicting Treasury’s Revenue Ruling 2020-27 that such expenses could not be deducted, this new provision brings the policy in line with Congress’ initial intent when the PPP loan program debuted and eliminates the uncertainty regarding deductions taken with loans from the first round of the PPP loan program.
Currently, taxpayers are allowed a 50% deduction of business meals if certain requirements are met. The new bill will provide a temporary 100% deduction for tax years 2021 and 2022 for costs related to food and beverage purchased from a restaurant. It is important to note that this provision is not retroactive to the 2020 tax year.
The new relief bill clarifies that businesses will be able to take the Employee Retention Credit, which has been extended through July 1, 2021, as well as participate in the PPP. The new relief bill would modify the credit rate to 70% of qualified wages (previously 50%) and increase the limit on per employee wages to $10,000 each quarter (previously $10,000 for the year). In addition, for the 2021 year an employer qualifies when gross receipts are less than 80% (previously 50%) of the same calendar quarter of 2019 and until gross receipts exceed 80% of the same calendar quarter of 2019.
The Families First Coronavirus Response Act (FFCRA) employer paid sick leave and expanded FMLA are no longer mandated, but if an employer chooses to continue, they will be able to receive a payroll tax credit extended through 2025. Additionally, the workers opportunity tax credit and the provision for employer repayment of student loan debt remaining tax free were extended.
Deferred Payroll Taxes
Previously, employers were allowed to defer their employee’s share of payroll taxes from the period beginning September 1, 2020 through December 31, 2020; however, the new relief bill will extend the “payback period” from April 31, 2021 to December 31, 2021. Interest and penalties will not begin to accrue on unpaid taxes until January 1, 2022.
The CARES Act increased the charitable contributions limitation percentage from 10% to 25% of modified taxable income for any qualified contributions made in tax year 2020. The new relief bill extends this provision to the 2021 tax year as well. In addition, a corporation may carry forward any excess of the 25% limitation for the next five years.
This relief bill is what we have all been waiting for – clarification and assistance that will benefit many businesses. As we continue to digest the 5,500 page bill, we will alert you with any of the other key provisions that will affect businesses.
If you have any questions about this please contact our team.
This communication is intended to provide general information on COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.