The Economic Aid Act expands eligible expenses for original PPP loan recipients that have not yet filed for forgiveness. Review these changes before applying.
Key insights
- Eligible uses for existing PPP loans are now expanded.
- A new, streamlined forgiveness application for loans of $150,000 or less is pending.
- EIDL grant advances will no longer be deducted from PPP loan forgiveness.
- You now have a choice of any covered period between 8 and 24 weeks.
Need support navigating PPP loan forgiveness?
The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (Economic Aid Act) changes the rules for existing PPP loans, second draw PPP loans, and new PPP loans. Understanding the highlights below may influence your path forward.
Expanded eligible expenses
The Economic Aid Act expands eligible expenses for original PPP loan recipients that have not yet filed for forgiveness. These provisions will also be available to new loan applicants utilizing the reconstituted PPP program contained in the Consolidated Appropriations Act, 2021.
Eligible expenses now include:
- Operations expenditures: payments for any business software or cloud computing service, product, or service delivery; the processing, payment, or tracking of payroll expenses; human resources, sales, and billing functions; accounting or tracking of supplies, inventory, records, and expenses.
- Property damage costs: costs related to property damage and vandalism or looting resulting from public disturbances that occurred during 2020 that were not covered by insurance or other compensation.
- Workers protection expenses: any operating or capital expenditures to adapt business activities to comply with requirements established or guidance issued starting March 1, 2020 by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration. Examples include the purchase, maintenance, or renovation of assets that create or expand an indoor or outdoor space such as a drive-thru window, combined air pressure ventilation or filtration systems, a physical barrier to ensure social distancing, and personal protective equipment.
- Supplier costs: expenditures made to a supplier for goods that are essential to your operations at the time they are purchased and are made in accordance with a contract or purchase order that was in effect at any time before your loan’s covered period, or with respect to perishable goods, in effect before or at any time during the loan’s covered period.
Additionally, payroll costs (60% of the funds from PPP loans must be spent on payroll to qualify for full forgiveness), have been expanded to include the following:
- Employer paid group life insurance, disability, vision, and dental insurance benefits.
What does this mean for existing PPP borrowers?
Borrowers who have not applied for forgiveness or exhausted their funds within the guideline can now include these additional eligible expenses into their application. If forgiveness has already been achieved, there is no need to consider these additional eligible expenses unless a borrower expects to apply for a second round of PPP.
Expenses will only qualify if incurred within the covered period. If you apply for round two funding you will not be able to include additional eligible costs incurred prior to the new covered period, which begins the day round two funding is deposited.
Streamlined forgiveness application process for loans in amounts up to $150,000
As of this posting a new or revised 3508 forgiveness application is pending for $150K loans.
This updated application will require the borrower to sign and submit a single page certification to the lender detailing:
- A description of the number of employees the borrower was able to retain as a result of the covered loan
- The estimated total amount of the loan spent on payroll costs
- The total loan amount
Support documentation will not be required at the time of application. Instead, borrower attestation will be accepted.
In addition to this single page certification, the borrower must attest that they complied with the PPP loan requirements. Borrowers are also required to retain all relevant records related to employment for four years, and all other records for three years following the submission of the form.
Economic Injury Disaster Loan (EIDL) grants
The new legislation clarifies that EIDL grants are not taxable and will not be deducted from PPP loan forgiveness amounts.
Choice of covered period
Previously, borrowers had to choose either an 8- or 24-week covered period. A borrower may now choose any covered period between 8 and 24 weeks. The covered period begins on the date the PPP loan funds were deposited in the borrower’s bank account.
Eligible compensation and limits continue to be applicable per the CARES Act and the Economic Relief Act. The $100,000 annualized compensation will be pro-rated to correspond to the selected covered period.
How we can help
CLA can help you navigate PPP forgiveness, the second round of PPP funding, and impact on your 2020 taxes. Join our Thursday livestream series to receive the latest updates, and watch for further articles and webinars on relevant and timely topics.