The Consolidated Appropriations Act, 2021 (Act) was signed into law by President Trump on December 27, 2020. The Act reopened the Paycheck Protection Program (PPP) and clarified some key points on the forgiveness process.
Paycheck Protection Program
The second round of PPP is available to both first time borrowers (first draw) and those who have previously received a PPP loan (second draw). Current copies of the new loan application forms are now available on the SBA website. The PPP loan portal system opened Monday, January 11, 2021 at 9 am ET for first draw borrowers submitting applications using participating community financial institutions. Second draw PPP loan applicants using a community financial institution are expected to have access on January 13, 2021. Shortly after that, the PPP loan portal system will be open to all PPP loan applicants.
First draw and second draw PPP loan applicants have until March 31, 2021 to submit applications.
First Draw Borrower Overview
- Employs 500 or fewer employees (exceptions for certain industries that meet the SBA’s size standards).
- Amount of the loan request can be up to 2.5x the average monthly payroll costs (capped at $100,000 per employee), up to $10 million.
- 501(c)(6) organizations are now eligible to apply for PPP loans if they have 300 or fewer employees and do not receive more than 15% of their receipts from lobbying activities.
- Loan necessity requirement rules remain unchanged.
Second Draw Borrower Overview
- Previously received a first draw PPP loan and will, or has used, the full amount only for authorized uses.
- Employs 300 or fewer employees.
- Demonstrates at least a 25% reduction in gross receipts between comparable quarters in 2019 and 2020, or total 2020 annual gross receipts as compared to total 2019 annual gross receipts experienced a 25% decrease if in business for all of 2019.
- Maximum loan amount is $2 million, based on 2.5x average monthly payroll costs (either 2019 or 2020 payroll). Those in the Accommodations and Food Services sector can request up to 3.5x their average monthly payroll costs (NAICS Code 72).
PPP Forgiveness Clarifications
The Act also introduced and clarified several points of interest in relation to the loan forgiveness process:
- There will be no tax liability resulting from forgiven PPP or PPP2 loans, and expenses covered with PPP proceeds are deductible, regardless of whether the loan is forgiven.
- – This reverses the Treasury’s previous stance on the deductibility of expenses and new IRS guidance has been issued.
- Economic Injury Disaster Loan (EIDL) Advance proceeds no longer reduce PPP loan forgiveness eligibility.
- There will be a simplified loan forgiveness application process for loans that are $150,000 or less. The SBA is expected to create new forgiveness application forms in the next few weeks.
- Additional eligible expenses that apply to loans that were made before, on, or after the enactment of the Act, if forgiveness has not yet been applied for:
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- – Group life, disability, vision, or dental insurance expenses. Previously only group health insurance was covered.
- – Covered operations expenditures – software, cloud computing and other HR / accounting costs
- – Covered property damage costs – costs related to 2020 public disturbances not covered by insurance or other compensation
- – Covered supplier costs – expenditures essential to current operations
- – Covered worker protection expenditures – PPE and other measures to comply with COVID-19 federal health and safety guidelines.
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As we have been doing with all coronavirus legislation and IRS and SBA guidance during these past several months, we will be sure to update you with any additional insight as soon as possible. Continue to check back here for the most up to date tax information and changes in response to coronavirus. If you have questions about this or related topics contact an MCB Advisor at 703-218-3600 or click here.
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