New Act Provides Relief for Struggling Businesses

Jan 8, 2021

On December 27, 2020, the President signed the Consolidated Appropriation Act (Act), which includes legislation offering $900 Billion in COVID-19 Relief. Many of the Act’s provisions were designed to help business owners who are struggling with the effect of the pandemic on their businesses.

Expenses paid for with PPP loans are fully deductible! This is true whether loan forgiveness is obtained. This applies to a first PPP loan as well as a second loan if received.

Second draw loans are available to businesses that received a prior PPP loan, and meet the following requirements:

  • Must have a 25 percent or greater reduction in gross receipts for any quarter in 2020 compared to the same quarter in 2019
  • Not more than 300 employees
  • For businesses with multiple locations, not more than 300 employees per physical location
  • Received and have used or will use the full amount of the first PPP loan
  • Must have been in operation on February 15, 2020
  • Must not have permanently closed the business (businesses that have temporarily closed or suspended operations remain eligible)
  • Must also meet the requirement that there be an economic necessity for the loan
  • Last day to apply for first or second draw PPP is March 31, 2021

The loan cap is 2.5 times the average monthly payroll incurred for 2020. The maximum loan amount is $2 Million.

There is a special calculation of 3.5 times the average monthly payroll for businesses in the accommodations and food services NAICS Sector 72, which includes bars, restaurants, and caterers, among others.

Second draw loans are also available to self-employed individuals and partnerships consistent with the methodology used for the initial PPP loans.

Expansion of eligible expenses that can be paid with PPP funds, including first round PPP loans which were not forgiven prior to enactment of this Act. These include:

  • Covered worker protection expenditures, including personal protective equipment, physical barriers such as sneeze guards, air pressure ventilation or filtration systems, expansion of additional indoor, outdoor, or combined business space and other related expenses
  • Business software or cloud computing service that facilitates business operations, product delivery, tracking of payroll expenses, etc.
  • Costs related to property damage, vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
  • Certain covered supplier costs that are essential to the operations of the entity at the time the purchase is made
  • Additional group insurance costs, including group life, disability, vision, and dental are included as eligible payroll costs

It’s not too late to request additional loan amounts missed on the first PPP application. If your business did not receive all eligible funds with its initial PPP loan due to the changing guidance offered over time, you can request an increase in the included covered loan amount. This also means that businesses that did not previously apply for a PPP loan can apply now without the necessity of meeting the gross receipts reduction and can have up to 500 employees.

Simplified loan forgiveness application for loans up to $150,000. All that is required to be submitted to your lender is a one-page signed document, including certifications. No documentation is required with the submission; however, there is a three-year record retention requirement for the supporting documentation. This is applicable to initial PPP loans as well as second draw loans.

Businesses are allowed to select a covered period of between 8 and 24 weeks. This will allow borrowers to cut off the testing period before having a reduction in their workforce that may cause the reduction in workforce penalties to apply as long as the workforce is at its pre-February 15, 2020 levels on the last day of the selected covered period.

EIDL advances are non-taxable and no longer reduce PPP loan forgiveness. Prior law stated that any EIDL advance received would reduce PPP loan forgiveness. However, this provision was repealed so that the EIDL advance will no longer have an impact on PPP loan forgiveness. If your forgiveness application is in process, you should amend this now.

In addition, there is a new targeted grant program for small business owners in low-income communities that suffered an economic loss of greater than 30 percent and did not receive a full $10,000 EIDL advance the first time around.

Employee retention and rehiring tax credit is now allowed for businesses that took a PPP loan as long as the same payroll expenses aren’t included for both purposes. This provides an opportunity for businesses which suffered a decline of 50 percent or more of gross receipts when comparing the 2020 quarter to the same quarter in 2019 to claim the credit for 2020.

The credit is extended for two additional quarters through July 1, 2021. In addition, the credit was enhanced for 2021 as follows:

  • Increase from 50 to 70 percent of wages up to $10,000 per employee, which is now calculated as a quarterly rather than an annual limit
  • Eligible employers include those partially or fully shut down due to government orders or those that suffered a decline of 20 percent or more of gross receipts (previously 50 percent)

Extension of certain payroll tax provisions including deferred payroll taxes through April 30, 2021 and credit for paid sick and family leave through March 31, 2021.

Temporary allowance of full deduction for food or beverages provided by a restaurant for 2021 and 2022.

Further guidance will be provided by the SBA regarding the implementation of the new Act. We will update this information on our website once this guidance is received.

If you have any questions, we encourage you to consult with your MichaelSilver advisor and our CARES Act team. We can be reached at 847.982.0333.