As we approached year-end, many small businesses were in the midst of the PPP loan forgiveness process, the related tax implications, and focusing on the ongoing sustainability of their business.
Then, on Sunday, December 27, 2020, the Consolidated Appropriations Act of 2021 was signed into law. The act contains numerous individual, business, payroll, disaster, and energy-related tax provisions, as well as tax extenders.
The continuance of the Paycheck Protection Program and the approximately $284B of additional funding allocated to the program (being commonly referred to as “PPP2”) will be topic of this discussion. To summarize:
Changes to the Tax Treatment of Loan Forgiveness
Deductions are now allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven.
PPP Second Draw Loans
Eligible entities that experienced a 25% reduction in gross receipts (in any quarter of 2020 relative to the same 2019 quarter) may take a second draw from the PPP of up to $2 million. The Borrower may still elect a covered period between 8 and 24 weeks after loan origination. Loan necessity is likely to still be a requirement to obtain additional funds, even if all other criteria for eligibility are met.
Additional PPP Eligible Expenses
The Act provides additional allowable and forgivable uses for PPP funds for covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.
Simplified Loan Forgiveness Application for Loans Under $150,000
The SBA must establish the simplified application form with 24 days of enactment of this Act.
In general, the SBA has up to 10 days after the date of enactment of this Act to issue regulations to carry out this Act and the amendments made by this Act.
Like our prior experiences with PPP, more information from the SBA and lenders will be necessary to implement the items above. However, we are advising that you be proactive in determining how the provisions above or any other provisions in the Act could be applicable to you or your business and to take the steps necessary, based on the information currently available, to be ready to act.
Please reach out to an advisor for assistance navigating the new information.