Update #19 – New Legislation from Congress
PPP Legislation Passes House & Senate; Tips to Close Out the Year
While there is lots to unpack in the latest “Omni-Bus” legislation approved by congress (still requiring signature by the President), part of the focus centers on renewed support for the Paycheck Protection Program (PPP) and an extension of unemployment assistance benefits provided by the CARES Act.
Here are the highlights:
- Business expenses paid with forgiven PPP loans now are tax-deductible. This supersedes previous IRS guidance that such expenses could not be deducted. The COVID-19 relief bill clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” by Section 1106 of the CARES Act .This provision applies to loans under both the original PPP and subsequent PPP loans.
- A second of PPP loans for affected small businesses, called “second draw loans” are available for businesses with 300 employees or less. This new legislation allocates around $284 billion with a limit of $2 million per loan, designed to cover 2.5 months of payroll. Loan amounts are determined by taking the company’s average monthly payroll in 2019 and multiplying it by 2.5. Restaurants and food businesses will receive a larger loan amount of 3.5 months of average monthly payroll.
- Firms taking out a second draw loan can use the monies over a period of 24 weeks for payroll, rent and mortgage expenses, along with new qualifying expenses such as operating expenses, workplace protection costs to protect employees from COVID-19. To qualify for a second draw loan, businesses must prove that they had a loss of revenue of 25% or greater by comparing their 2020 quarterly revenue or gross receipts against their 1st, 2nd and 3rd quarters of revenue in 2019. The borrower must be able to show a loss in revenue of 25% or more from at least one quarter of 2020 as compared to that same quarter in 2019 to qualify. At least 60% of the new loan must be spent on payroll costs.
- PPP loan-forgiveness rules have changed, with a simplified one-page forgiveness application for loans of $150,000 or less.
More info to come on the implementation of this new legislation.
Our entire team extends our warmest wishes for a successful and happy New Year.