The latest COVID-19 relief package passed by Congress in December 2020 provides expanded support for Americans hard-hit by the coronavirus pandemic. In this article, we provide an overview of the new and expanded provisions set forth by the government relief package for small businesses, so you can take advantage of the financial safety net they offer in 2021.
Paycheck Protection Program (PPP) Second Loan Provision
- Congress has renewed funding for the Paycheck Protection Program initiated by the CARES Act at the onset of the pandemic in March 2020.
- Second-time PPP loans will be extended to small businesses with fewer than 300 total employees who have used the full amount of their original PPP loan.
- To be eligible for a second PPP loan, a small business must show at least a 25 percent reduction in gross receipts in the first, second, or third quarter of 2020 as compared with the same quarter in 2019.
- In general, borrowers may be granted a loan amount of up to 2.5 times the business’s average monthly payroll costs in the one year prior to the date of the loan, or the 2019 calendar year, up to $2 million.
- Borrowers of a second PPP loan are eligible for loan forgiveness under the same rules as the first PPP loan.
PPP Loan Forgiveness
- The new stimulus package has also simplified the Loan Forgiveness Application for loans under $150,000. You can read more about the simplified PPP Loan Forgiveness Application here.
- PPP loans can be used to pay for the following qualifying expenses, all of which are forgivable under the terms of the loan:
- Payroll, mortgage or rent payments, utilities
- Expenditures related to compliance with government health and safety guidelines, including personal protective equipment
- Supplier costs that are essential at the time of purchase to the business’s operations
- Operating expenses, including software, cloud computing, and other human resources and accounting needs
- Property damage costs due to public disturbances that occurred in 2020 not covered under insurance
- The bill provides clarification regarding the tax treatment of PPP loan forgiveness, stating that the forgiveness shall not be included in the business’s gross income, allowing borrowers to claim the same tax deductions for expenses paid with PPP loans.
- The bill clarifies that a borrower can elect a covered period at any point of the borrower’s choosing between 8 and 24 weeks after loan origination.
- The bill also repeals the requirement that borrowers deduct any EIDL (Economic Injury Disaster Loan) advance for their PPP loan forgiveness.
- Under the new relief package, the government clarifies that business expenses paid with forgiven PPP loans are tax-deductible.
Economic Injury Disaster Loan Program and Small Business Administration Debt Relief Funding
- The stimulus package provides an additional $20 billion for the Economic Injury Disaster Loan Program for businesses in low-income communities, $43.5 billion for additional Small Business Administration (SBA) debt relief payments, and $2 billion for enhancements to SBA lending. Additionally, $15 billion of dedicated funding is set aside for live venues, independent movie theaters, and cultural institutions.
Employee Retention Tax Credit
- In addition, the bill extends and expands the Employee Retention Tax Credit through July 1, 2021. It increases the refundable payroll tax credit from a maximum of $5,000 to $14,000 by changing the calculation from 50 percent of wages paid up to $10,000 to 70 percent of wages paid up to $10,000 for any quarter.
- The bill clarifies that small businesses will now be able to take the Employee Retention Tax Credit and participate in the Paycheck Protection Program.
- Employers, including tax-exempt organizations, are eligible for the Employee Retention Tax Credit if they operate a trade or business during the 2020 calendar year and experience either:
- the full or partial suspension of the operation of their trade or business during any calendar quarter because of governmental orders limiting commerce, travel, or group meetings due to COVID-19, or
- a significant decline in gross receipts
- A significant decline in gross receipts begins:
- on the first day of the first calendar quarter of 2020
- for which an employer’s gross receipts are less than 50% of its gross receipts for the 2019 calendar year
- The significant decline in gross receipts ends:
- on the first day of the first calendar quarter following the calendar quarter in which gross receipts are more than 80% of its gross receipts for the same calendar quarter in 2019
- The credit applies to qualified wages (including certain health plan expenses) paid during this period or any calendar quarter in which operations were suspended.
- Please note that the Employee Retention Tax Credit is taken through Form 941 and needs to be handled through payroll filings.
Deduction for Business Meals
- The stimulus package expands the deduction for business meals to 100 percent for 2021 and 2022.
We hope this overview of the most recent federal stimulus package is helpful to you as you navigate the constantly evolving business landscape impacted by the COVID-19 pandemic. The Honest Buck Accounting team of experts is here to guide you through the process of seeking out federal relief in the form of tax breaks or additional funding. Contact us today to learn how we can help.