Sources: Wolters-Kluwer, The Journal of Accountancy
As the massive Covid-19 relief package was signed by President Trump yesterday, we wanted to share the tax provisions and updated PPP guidance with you. More details will be published in January.
The most talked about part of the Consolidated Appropriations Act, 2021, H.R. 133 is the $600 Covid-19 stimulus check for (almost) every American, but the bill includes much more than that.
But the $900 billion stimulus package also includes many tax provisions. These are the most important ones:
- Business expenses paid for with forgiven Paycheck Protection are tax deductible
- Special charitable contribution provision are extended through 2021
- Many of the tax breaks that had been scheduled to expire at the end of 2021 are extended, some even permanently
- Expenses related to COVID-19 qualify for the above-the-line education expense deduction
- Clarification about forgiveness of Economic Injury Disaster Loans to small businesses and certain financial aid received by college students being excluded from income.
- Extension of the credit for paid sick and family leave through March 31, 2021
- Extension of the employee retention credit through June 30th, 2021
- Extension of the time allotted for repayment of employee Social Security taxes deferred under a presidential memorandum through the end of 2021
Besides the tax side of the bill, there are other stimulus provisions that include extended unemployment benefits, aid for schools, aid for airlines and funding for vaccine distribution and COVID-19 testing, and additional funding for the PPP for small businesses. The new round of PPP (PPP2) contains many similarities to the first round there are several important differences as well.
Who is eligible to apply?
PPP2 loans will be available to both first-time qualified borrowers and (for the first time) and businesses that previously received a PPP loan. Business who were previously approved for a PPP loan may apply again for a loan of up to $2 million when they:
- Have used or will use the full amount of their first PPP loan.
- Have 300 of fewer employees
- Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
PPP2 will also permit first-time borrowers from the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.
The bill allows borrowers that returned all or part of a previous PPP loan to reapply for the maximum amount available to them.
As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities. PPP2 also makes the following potentially forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks (same as in the first round).
PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year, the same as with PPP1, but the maximum loan amount has been cut from $10 million in the first round to the previously mentioned $2 million maximum. Hotels and restaurants can get up to 3.5 times their average monthly payroll costs, again subject to a $2 million maximum.