The Stimulus Package Tax Provisions Round 2

The Stimulus Package Tax Provisions Round 2

January 5, 2021 - The $900 billion stimulus package created by Congress last week and signed by the president on Sunday 12/27/20 includes a host of tax provisions from individual stimulus checks to extensions of many of the 2020 expiring tax breaks. The document explaining these changes is over 5,000 pages long.

One of the anticipated provisions is that of a second round of "PPP" loans. These loans will be available through March 31, 2021. The applications will again be through lending institutions. The SBA must issue guidelines within 10 days of the Act (by 1/6/21).

One major question surrounding the PPP loan program was the expense deductibility related to forgiven loans. The "Act" has provided a definitive answer to this question. The stimulus bill reverses the IRS position that expenses using PPP funds are not deductible, therefore allowing businesses to deduct expenses covered by PPP loan proceeds.

The funding for additional PPP loans contain some familiar guidelines and some new ones:

  • Both first time and second time businesses (ones who received PPP loans during 2020) are eligible. Businesses that were not in operation as of February 15, 2020 are not eligible for first time nor second time PPP loans.  
  • Businesses applying for the second time must have 300 or less employees (down from 500 in round 1) - first time borrowers can still use the original 500 employee cap.
  • The business revenue in 2020 must have fallen by at least 25% in a quarter-to-quarter comparison with 2019.
  • For second time borrowers, they must have used or will use the entire amount of the first loan when applying for the round 2 loan.
  • Publically traded companies are no longer eligible. Alternatively news organizations, housing cooperatives and nonprofit organizations (501(c)(6) memberships) are now eligible for loans.
  • The second round of loan money will be calculated the same way as the first round application (2.5 times average monthly payroll). Hotels and food service facilities will be allowed to use a 3.5 times average monthly payroll factor. All new loans will be capped at $2 million per applicant.
  • Borrowers can elect a covered period of between 8 and 24 weeks.
  • In the second round, payroll costs will include group life insurance, disability, vision, and dental.
  • Along with the additional covered payroll costs, the second round loans will allow the funds to be spent on business software/cloud services, certain property damage caused by the public that was not covered by insurance, certain operating supplies and costs related to personal protective equipment.
  • Like the first PPP loan, the second draw loan may be forgiven for payroll costs of up to 60% (with some exceptions) and non-payroll costs such as such as rent, mortgage interest and utilities of 40%.  In addition, the full time employee equivalent requirement remains the same for "round 2".
  • Both first and second round loans of $150,000 or less are eligible for automatic forgiveness using a shortened application.
  • Under the first PPP loan regulations, borrowers who originally received EIDL advances were required to deduct that amount from the PPP forgiveness amount, this provision has been repealed. 
  • There is a new grant program for in-person industries such as movie theaters, museums and live venues. There are varying levels of grants based on lack of revenue and will be capped at $10 million.
  • Retroactive to the initial CARES Act is that employers may still qualify for the employee retention credit with qualifying wages that are not paid for with forgiven "PPP" loan proceeds.

This is a general outline of the more detailed legislation enacted. Please contact your tax professional at Dermody, Burke & Brown, CPAs for assistance in navigating these rules.

 

The information reflected in this article was current at the time of publication.  This information will not be modified or updated for any subsequent tax law changes, if any.