Last night, President Trump signed the Consolidated Appropriations Act of 2021. Included in this bill is a new round of Payroll Protection Program Loans (PPP-2) as well as clarification to the taxable impact of the first round of PPP loans. The following highlights some of the important provisions to businesses relating to the Payroll Protection Program Loans under this bill.
Tax Deductibility for Expenses Associated with PPP Loans – For those that had received a loan under the first PPP loan program, the IRS had previously ruled that expenses related to these loans were not deductible. The new bill clarifies that deductions are allowed for expenses paid with proceeds of a forgiven PPP loan (PPP-1 or PPP-2). Furthermore, the bill specifies that forgiven PPP loans will not be included in taxable income.
PPP-2 Loans – Additional PPP loans are being made available to business entities if the following conditions are met:
- The entity has 300 or fewer employees;
- The entity has or will use all proceeds from the first PPP loan;
- The entity had a 25% or greater reduction of “gross receipts” when comparing any quarter in 2020 to the same quarter in 2019. Gross receipts is not currently defined but clarity will be provided in the future by the SBA.
The following stipulations apply to PPP-2 loans:
- PPP-2 loan cannot exceed $2 million;
- The loan is based on 2.5X average monthly payroll costs in the one year prior to the loan or to calendar year 2019;
- For borrowers with NAICs codes starting with 72 (i.e. hotels and restaurants), the loan is based on 3.5X average monthly payroll costs;
- Similar to the first round of PPP loans, eligible spending must be compromised of at least 60% of payroll costs (compensation, health, retirement and state and local payroll taxes) over the “covered period” of 8 or 24 weeks;
- PPP-2 loans will be available through March 31, 2021.
Other notes on PPP-2 loans:
- The SBA has 17 days after the enactment of the bill to issue regulatory guidance.
- The Relief Act repealed the requirement that borrowers reduce the amounts of PPP loan forgiveness by the amount of EIDL grants.
Simplification of Forgiveness of PPP Loans of Not More Than $150,000 – The SBA is instructed to create a one-page loan forgiveness certification form for loans of $150,000 or less that require the eligible borrower to:
- Provide a description of the number of employees the borrower was able to retain because of the PPP loan;
- Provide an estimated amount of loan spent by the borrower on payroll costs;
- Provide the amount of the total PPP loan;
- Retain employment records for 4 years following submission;
- Retain other records for a 3-year period.
If you have questions regarding this article, please contact Jamie Downey at JMDowney@DowneyCoCPA.com or at 781-849-3100.
