What’s in the Covid relief bill: PPP Provisions

The latest Covid-19 relief bill, the Consolidated Appropriations Act of 2021, provides more funding for new Paycheck Protection Program loans, simplifies the forgiveness application process and allows tax deductibility for business expenses paid with forgiven PPP loans, among other provisions.

Included in the $900 billion Covid relief bill is $325 billion in aid for small businesses. Of that $284 billion is included for first and second forgivable PPP loans, along with $20 billion for Economic Injury Disaster Loan (EIDL) grants to businesses in low-income communities.

A notable update to the PPP loans – both the original round and this second round, referred to as PPP2 – is that the business expenses paid with forgiven PPP loans are tax-deductible. This is a significant and meaningful change from previous guidance from the Treasury Department that wanted to avoid “double dipping,” since the proceeds of the loan are not taxable.

The CAA, though, 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.”

The eligibility requirements for PPP2 are available to business owners who:

  • Have 300 or fewer employees;
  • Have used or will use the full amount of their first PPP loan; and
  • Can show a 25% gross revenue decline in any quarter in 2020 compared with the same quarter in 2019.

The second round of PPP funding is also available to those that did not apply for or receive original PPP funding if they are:

  • Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans;
  • Sole proprietors, independent contractors, and eligible self-employed individuals;
  • Not-for-profits, including churches; or
  • Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.

Borrowers that returned all or part of a previous PPP loan are eligible to reapply for the maximum amount available to them.

To be eligible for forgiveness, proceeds from PPP2 loans – like PPP1 loans – must be used for payroll, rent, covered mortgage interest, and utilities. In addition, PPP2 loans may potentially be forgiven for:

  • Covered worker protection and facility modification expenditures, including PPE, to comply with Covid-19 federal health and safety guidelines;
  • Expenditures to suppliers that are essential at the time of purchase to the recipients current operations; and
  • Covered operating costs such as software and cloud computing services and accounting needs.

At least 60% of the PPP2 funds must be spent on payroll over a covered period of either eight or 24 weeks.

Borrowers can apply for PPP2 loans of up to $2 million, which is significantly reduced from the $10 million maximum under PPP1. Individual borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the year prior to the loan or the calendar year. Hotels and restaurants can get up to 3.5 times their average monthly payroll costs – but again, the cap is $2 million.

The new law attempts to simplify the forgiveness application process for loans of $150,000 or less, by giving a borrower forgiveness if the borrower signs and submits to the lender a certification that:

  • Is not more than one page in length;
  • Includes a description of the number of employees the borrower was able to retain because of the loan; and
  • States the estimated total amount of the loan spent on payroll costs and the total loan amount.

The SBA is directed to create the simplified application form within 24 days of the bill’s enactment and may not require any additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. The SBA may review and audit these loans anytime up to four years.

The forgiveness application process also repeals the requirement that PPP borrowers deduct any EIDL grants received, and it includes set-asides to support PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible and for loans made by community lenders.