On Dec. 21, 2020, Congress passed the latest COVID-19 relief bill which was subsequently signed into law by President Trump on Dec. 27, 2020. There are several components of the bill including economic impact payments of $600 for eligible individuals (barring an increase to $2,000 per individual as requested by President Trump) and an extension of the Pandemic Unemployment Assistance (PUA) supplement in the amount of $300 per week. However, many business leaders have been eagerly awaiting the clarification surrounding PPP loan forgiveness and news of an additional round of PPP funding available to some businesses.
First, for existing PPP borrowers, the new bill creates a simplified loan forgiveness application process for loans of $150,000 or less. The application will be one page in length and will request:
- The number of employees the borrower was able to retain as a result of the loan
- The amount of the loan spent on payroll costs
- The total amount of the loan
No additional schedules will be required to be submitted (although borrowers must retain records for four years in the event of a Small Business Administration (SBA) audit).
Another big gift that the new bill bears is the tax deductibility of business expenses paid with forgiven PPP loans. This reverses the IRS’ position (Rev. Rul 2020-27, November 2020) that a taxpayer could not deduct eligible expenses in its 2020 tax year if, at the end of the tax year, the taxpayer had reasonable expectations of loan forgiveness.
Secondly, a new round of PPP loans (creatively called PPP2) will be funded with the new bill. PPP2 funds are available to the following first-time qualified borrowers:
- Businesses with 500 or fewer employees
- Sole proprietors, independent contractors, self-employed and not for profits — including churches and some 501(c)(6) business leagues
PPP2 funds are also available to borrowers who have previously received PPP loans provided they:
- Have 300 or fewer employees, and
- Have already or will use the full amount of their first PPP loan, and
- Can demonstrate a 25-percent decline in gross revenue in any 2020 quarter compared with the same quarter in 2019
The PPP2 loan amounts will be 2.5 times average monthly payroll costs, to a maximum of $2 million. Certain hotels and restaurants can apply for up to 3.5 times their average monthly payroll costs. The costs eligible for loan forgiveness with the PPP2 are the same as before — payroll, rent, covered mortgage interest and utilities — but this time add:
- Personal protective equipment (PPE)
- Expenditures to suppliers that are essential to the business’ ongoing operations
- Software and cloud computing services
- Accounting services