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Paycheck Protection Program Round 2: What You Should Know

December 29, 2020 by

Good news for small businesses—another stimulus package has been approved! The new package provides $900 billion in coronavirus relief and stimulus. Its provisions include an extension of last spring’s Paycheck Protection Program (PPP), allowing another $284 billion or so in forgivable, federally backed loans for ailing small businesses. And it provides some much needed relief for individuals.

The initial program, overseen by the U.S. Department of Treasury and Small Business Administration, provided $525 billion to more than 5 million recipients. It was first instituted under the CARES Act back in March 2020. Its purpose was to put funds in the hands of businesses who were increasingly being forced to close their doors due to coronavirus in the hopes that the money would prevent layoffs by funding these businesses’ payrolls. The loans could be fully forgiven if the businesses spent at least 60% of the proceeds on payroll costs.

The first iteration of the PPP was a success with tens of thousands of businesses receiving hundreds of billions of dollars that went toward keeping people in their jobs. It was such a success that business owners and elected officials have been lobbying for a second round of the program to be included in any future COVID-19 related stimulus package. This week, they got their wish!

Things to Know About the New PPP Act

The new PPP Act provides assistance to small businesses in part by revamping PPP, which contained loopholes and liabilities that raised countless issues. Whether you already have an existing PPP loan, are interested in obtaining a PPP loan, or want to obtain a PPP second draw, the new PPP Act makes changes to PPP rules that may be relevant to small businesses. These are some things to know about the new PPP Act:

• New PPP loan applicants can apply: The Act allows new PPP loan applications to be submitted by eligible applicants that never obtained a PPP loan. Eligible small business borrowers must fall into one of the following groups:
– Have no more than 500 employees and meet eligibility for SBA 7(a) loans or
– Be sole proprietors, independent contractors, and eligible self-employed individuals or
– Be a not-for-profit.

 

• Businesses can apply again: The Act permits some businesses that have already obtained a PPP loan to obtain a second PPP loan, called a “PPP second draw.”  Additional loans are available up to $2 million each, for previous PPP recipients, provided they meet these 3 criteria:
– Have no more than 300 employees;
– Used up all prior funds; and
– Show a gross revenue decline in any quarter of 25% over the prior year’s quarter.

 

• The Act changes PPP rules—for existing PPP loans, new PPP loans, and PPP second draws—in the areas of eligibility, allowable expenses, forgiveness, and more.  

 

• Simplified forgiveness process: The new PPP Act creates a simplified forgiveness process for loans of up to $150,000.
–Forgiveness is not automatic. You still must apply, but for loans of $150,000 or less, you can use a one-page certification. It simply describes how many employees you were able to retain and how much you spent on payroll costs.
– You do not need to submit supporting documentation when applying. However, you must retain records for up to four years and make them available should the government ask or audit you for PPP fraud.
– The SBA has to create the simplified form within 24 days of enactment, which would be mid-January.
–Borrowers must spend at least 60% of their PPP second draw on payroll costs in order to receive full forgiveness.

 

• Second Draw PPP loan may be deducted: The IRS previously indicated that expenses paid with the proceeds of a PPP loan that is forgiven, or with the proceeds of a PPP loan that the borrower reasonably expects to be forgiven, are not deductible.
– The Act reverses the IRS position by providing that, effective for all tax years ending after March 27, 2020, otherwise deductible expenses paid with the proceeds of a forgiven PPP loan may be deducted for federal tax purposes and that a borrower’s tax basis and other attributes will not be reduced as a result of the exclusion of forgiven PPP loan amounts from gross income.
– For 2021 and 2022, business expenses paid or incurred for food and beverages provided by a restaurant are fully deductible. To obtain the deduction, the business meal expenses must be paid or incurred after December 31, 2020 and before December 31, 2023.

 

• New PPP Act extends Employee Retention Credit (ERC): ERC was included in the CARES Act and has been one of the most successful benefits. ERC is a fully-refundable payroll tax credit for employers who meet eligibility requirements, equal to 50% of “qualified wages” paid by employers beginning on March 13, 2020. The ERC originally was scheduled to expire with respect to wages paid after December 31, 2020.  The Act extends the availability of the ERCs to qualified wages paid through June 30, 2021 and enhances the program, as follows:
– The ERC for wages paid between January 1, 2021 and June 30, 2021 will be equal to 70% of qualified wages, rather than 50%;
– For 2021 qualified wages, the ERC cap is increased from $10,000 of wages per employee per year to $10,000 of wages per employee per calendar quarter;
– In 2021, any employer with a reduction in gross receipts of 20% (rather than 50%) can take advantage of the ERC and, for purposes of calculating the reduction in gross receipts, an employer can use its prior quarter gross receipts to determine eligibility;
–and more. For additional details on all of the changes to ERC due to the new PPP act, see this detailed article in Forbes.

 

• Extension of the Families First Coronavirus Response Act – FFCRA tax credits: Employers who are required by the FFCRA to provide medical leave and family leave to employees are eligible for credits equal to (i) $511 per day for paid sick leave for employees to care for themselves. These credits were scheduled to end on December 31, 2020 but are extended by the new PPP Act until March 31, 2021. Learn more here.

 

• Repayment of Social Security tax deferral: Employers were permitted to defer collection of Social Security Tax from employees with respect to wages paid beginning September 1, 2020, and ending on December 31, 2020. Effectively, the due date for remitting such taxes was deferred until April 30, 2021. Under the new PPP Act, the due date is further extended until December 31, 2021, allowing employers to spread out the collection of such taxes from employees through 2021.

 

• Enhanced charitable contributions: The first Act included a special rule that allows taxpayer who do not itemize deductions to deduct charitable contributions, subject to a limit of $300 for individuals or $600 for joint filers.
– This provision also provides that, although a deduction is allowed, taxpayers’ adjusted gross income will not be reduced for purposes of determining other allowable deductions and credits.
– It extends the enhanced charitable deductions for corporations and for individuals who itemize deductions. For cash contributions made on or before December 31, 2021, an individuaI now may elect to take an itemized deduction for cash charitable contributions up to 100% of his or her gross income. A corporate taxpayer may deduct such cash contributions made prior to the end of 2021 up to 25% of its taxable income, depending on the type of business entity.

 

• The new PPP Act also creates tax benefits to incentivize responses to disasters within 60 days of the disaster declaration, a Production Tax Credit (PTC) for wind projects, and an Investment Tax Credit (ITC) for solar projects. Absent any future changes in law, the PTC still will be eliminated starting in 2022.

 

• Extensions: The new PPP Act also includes a variety of extensions of expiring tax provisions including:
– Returning the medical expense deduction floor from 10% of adjusted gross income to 7.5% of adjusted gross income for tax years beginning after December 31, 2020;
– For buildings placed in service after December 31, 2020, making the deduction for energy efficient buildings permanent and indexing for inflation the dollar limits eligible for the deduction;
– Extending the employer credit for paid family and medical leave, which exists separately from the FFCRA credits described above, through tax years that begin in 2025; and more.

 

• Tax checks for individuals: Individual taxpayers making up to $75,000 annually could receive checks for $600 each.  Married couples with income as much as $150,000 could receive $1,200. There’s also $600 for each child who is a dependent. There is a push from the White House and others to increase the payments to $2,000.

 

• Unemployment benefits extended: Congress allocated more unemployment aid. Workers will receive $300 per week as an unemployment supplement from December 26, 2020 to March 14, 2021.

 

Get Your Planning in Place in the New Year!

For anyone who does not have their planning in place, the new year is an ideal time to do so for many reasons, one of which is peace of mind! Here at the Farr Law Firm, we have strategies to help everyone plan for themselves and their loved ones. With advance planning, each person can retain the income and assets it has taken a lifetime to accumulate, and provide themselves the peace of mind that they are prepared should something happen to them or their loved one.

If you or your loved ones have not done Incapacity Planning or Estate Planning, or if a loved one needs nursing home care or even if your loved one is already in a nursing home, please contact us as soon as possible to make an appointment for an initial consultation:

Elder Law Fairfax: 703-691-1888
Elder Law Fredericksburg: 540-479-1435
Elder Law Rockville: 301-519-8041
Elder Law DC: 202-587-2797

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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