COVID-19 Relief Bill Offers Welcome PPP Changes

On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021 (H.R. 133), which includes providing the second COVID-19-related relief to help individuals and businesses through the pandemic. While it is comprehensive, providing several relief and assistance programs, one of the most anticipated updates focus on the popular Paycheck Protection Program (PPP). The Act outlines several significant changes, including a simplified forgiveness application, expanded forgiveness expense categories, and more. To help clients, prospects, and others, Klatzkin has provided a summary of the key insights below.

Second PPP Loan Draws

The Act creates the opportunity for certain businesses to receive a second draw loan. To be eligible, a business must have less than 300 employees and demonstrate a 25% or more decrease in gross receipts for any 2020 quarter compared against the same 2019 quarter and have exhausted the first loan proceeds.

Most businesses’ maximum loan amount is 2.5 times average monthly payroll costs with a maximum of $2M. For businesses in the foodservice and accommodation industries, the maximum is 3.5 times average monthly payroll costs, or $2M, to help counteract state and local government restrictions. For businesses that did not exist in the one year before February 15, 2020, the maximum loan amount is the total of monthly payroll costs incurred as the date of application divided by the number of months payment occurred, multiplied by 2.5. If the amount exceeds $2M, then the applicant is subject to the $2M maximum.

It is important to note that borrowers can receive full forgiveness if they spend at least 60% of the second loan on payroll costs over the selected 8 or 24 week covered period.

Covered Forgiveness Expense Updates

There were also changes made to the expenses eligible for loan forgiveness. The initial requirement that only qualifying payroll, mortgage interest, utilities, and rent remain, but the Act now allows group insurance payments to be forgiven. This includes premiums for vision, dental, disability, and life insurance plans offered to employees.

Also, four new covered expense categories have been added, including:

• Covered Operations Expenses – This includes payment for any business software or cloud computing service that facilitates operations, product or service delivery, processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting and tracking of supplies, inventory, records, and expenses.
• Covered Property Damage Costs – These include costs related to property damage due to vandalism or looting from public disturbances that occurred during 2020 and are not covered by insurance.
• Covered Supplier Costs – Any expense essential to operations at the time incurred includes perishable goods made under a contract or purchase order.
• Covered Worker Protections – This includes expenses incurred to adapt business activities to comply with federal, state, or local government such as:
  • Drive-thru window facilities.
  • Indoor/Outdoor air pressure filtration or ventilation systems.
  • Physical barriers, such as sneeze guards.
  • Onsite health screening capabilities.
  • Other assets as determined by the SBA Administrator.

There was also a change to the requirement that required borrowers to subtract Economic Injury Disaster Loan (EIDL) from loan forgiveness. This provision is retroactive, so those who have already received loan forgiveness will need to take additional steps to recover any lost forgiveness amounts.

Loans for Very Small Businesses

The Act also guarantees funds are set aside for very small businesses, including those with ten employees or less. The loan amount is limited to $250,000 and targeted to those located in low to moderate-income neighborhoods.

Simplified Forgiveness Loans Less than $150,000

The Act also calls for implementing a simplified forgiveness application for loans of $150,000 or less. A one-page certification requires the borrower to describe the number of employees the business could retain because of the loan, the estimated amount spent on payroll, and the total amount of the loan. There will also be a section where demographic information can be provided, if elected, by the borrower. Borrowers must also retain relevant employment records for four years and other documents (proof of expenses incurred) for three years. Finally, the Small Business Administration has been directed to create the new application and related instructions within 24 days after the date of enactment.

Deductibility of Forgiven PPP Expenses

The Act also confirms PPP expenses are deductible, which overrides the recent IRS Revenue Ruling on the matter.  It reiterates that no amount will be included in the gross income of eligible recipients by reason of forgiveness of indebtedness, and clarifies that in addition to no deductions being denied, no tax attributes will be reduced and no basis increase shall be denied as a result of the exclusion from gross income.

Contact Us

The COVID-19 economic relief package is a shot in the arm that many Mercer and Bucks County-area businesses need to navigate another year full of the unknown and unexpected. For now, both borrowers and potential applicants need to wait for the SBA to implement the outlined changes. If you have questions about the information outlined above or need assistance with an accounting or tax-related issue, Klatzkin can help. For additional information, click here to contact us. We look forward to speaking with you soon.

©2020 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.