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Within the Consolidated Appropriations Act, Congress has allocated $325 billion to continue the Paycheck Protection Program (PPP) and other small business support. The Act also clarifies congressional intent on tax matters related to the PPP and other programs, making forgiveness income non-taxable and expenses paid deductible.

Financial Management and Disaster Relief

Congress Reauthorizes PPP and Provides Some Needed Tax Relief

  • Jack Rybicki
  • 12/23/2020

Key insights

  • Another round of PPP funding has been authorized for hard-hit small businesses and nonprofits. The program will allow new and existing PPP borrowers with fewer than 300 employees that have experienced at least a 25% decrease in gross receipts to obtain additional PPP loans of up to $2 million.
  • Eligible uses of PPP loans, both new and existing, have been expanded to include certain operating expenses and supplier costs, worker protection expenditures, and unreimbursed property damage.
  • Participation in the PPP is expanded to include certain 501(c)(6) and direct marketing organizations.
  • Income from forgiveness of PPP loans is not taxable and expenses paid for using forgiven PPP loans are deductible.

On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021, which includes various forms of stimulus and relief for individuals and small businesses. The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act appropriates approximately:

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See forgiveness packages

  • $285 billion for the Paycheck Protection Program (PPP)
  • $20 billion for the Economic Injury Disaster Loan (EIDL) Advance program
  • $15 billion for shuttered venue operators
  • $5 billion for other Small Business Administration (SBA) administered loan progams

The legislation also includes clarifications of congressional intent regarding tax matters related to various forms of relief under the CARES Act.

Read on for a summary of the changes, if the President signs this bill into law.

What does this mean for existing PPP borrowers?

The Act reaffirms that the income from forgiveness is not includable in gross income and establishes that expenses paid for using forgiven PPP loan proceeds are deductible. This much-anticipated congressional fix in response to various IRS rulings provides clarity for existing PPP borrowers.

Existing borrowers will benefit from the following additional provisions:

  • Eligible expense types have been expanded to include certain operations expenses and supplier costs, worker protection expenditures, and unreimbursed property damage as a result of public disturbances.
  • Borrowers can now select their covered period, eliminating some of the confusion associated with requesting forgiveness. The covered period will be designated by the borrower and must be between 8 and 24 weeks in duration.
  • The forgiveness process for loans under $150,000 will be simplified. The SBA has been instructed to develop a one-page form that requires limited employee and payroll cost information and various borrower certifications. This new form could be similar in nature to the Form 3508S previously released by the SBA for use by borrowers with PPP loans of $50,000 or less.
  • The definition of health care benefits eligible for forgiveness was clarified to include group life, disability, vision, and dental insurance.

Who is eligible for this next round of PPP?

The next round of PPP will be available to eligible borrowers that have not previously participated in the PPP, as well as those that have an existing PPP loan and have used or will use the full amount of their first PPP loan. Eligibility is generally limited to those businesses with 300 or fewer employees, down from the 500 employee count of the original PPP. Additionally, eligibility is limited to those entities that can demonstrate that they have sustained a 25% or greater gross receipts loss in 2020 in relation to the comparable 2019 quarter.

Loans will generally be sized based on 2.5 times average monthly payroll, limited to a maximum amount of $2 million. Certain entities under the NAICS code 72 are eligible for larger loans based on 3.5 times average monthly payroll, still subject to the same maximum $2 million loan amount.

New entity types are also eligibile to participate in the PPP program, including 501(c)(6) and direct marketing organizations with limited lobbying activities.

How we can help

CLA can help you navigate PPP forgiveness and its impact on your 2020 taxes.

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