Summary: COVID-19 Relief for Businesses
- The bill includes more than $284 billion for first and second forgivable Paycheck Protection Program loans, expanded PPP eligibility for nonprofit organizations and news outlets, and modifications to the program to serve small businesses, nonprofits and independent restaurants.
- The language ensures that churches and faith-based organizations are eligible for PPP loans.
- Businesses that received PPP loans and had them forgiven will be allowed to deduct the costs covered by those loans on their federal tax returns.
- The package provides $15 billion for independent movie theaters and cultural institutions.
- The deal includes $20 billion for targeted grants through the Economic Injury Disaster Loans program.
- The package also includes a tax break for corporate meal expenses
- Lawmakers said they reserved some of the PPP funds for “very small” businesses, as well as lending through community-based lenders and minority depository institutions.
- The legislation also includes $600 stimulus checks per person, including adults and children. That means a family of four would receive $2,400 up to a certain income threshold.
- The size of the payment decreases for people who earned more than $75,000 in the 2019 tax year. The check disappears altogether for those who earned more than $99,000.
If You’ve Already Received PPP Funds
- New treatment of PPP expenses. Expenses used for PPP forgiveness are now TAX DEDUCTIBLE. When Congress passed the CARES act, they indicated that PPP funds should NOT be taxable. However, Treasury Secretary Mnuchin decided businesses could NOT deduct expenses used to qualify forgiveness—thus making an equivalent amount to PPP funds taxable. This legislation corrects Mnuchin’s actions.
- Simplified Form for Forgiveness. If your PPP loan was for $150,000 or less, there will be a new, simple, one-page form to apply for forgiveness. Your lender should provide you a link to a form soon in the new year.
- More expenses qualify for forgiveness. While you still need to use at least 60% of PPP funds on “payroll expenses,” qualifying non-payroll expenses are much broader, now including payment for software, cloud services, accounting & HR, property damage due to civil unrest, PPE and Covid-prevention equipment and, importantly— supplier costs that were contracted or ordered before you got the loan or costs of perishable goods ordered before or during the life of the loan. (All these had to be paid during the forgiveness period, of course.) This should help companies that have high, non-rent and non-utility expenses.
New Round of PPP Funds Whether or not You’ve Received PPP Before
You can apply for a new PPP forgivable loan, whether or not you received one before. This can be your first or second PPP loan. You cannot get more than two.
- Your Income—GROSS RECEIPTS—must have declined by 25% or more in any quarter of 2020 compared to 2019. While Senator Marco Rubio (R-FL), head of the Senate Small Business committee, wanted this number to be at least a 50% loss, others pushed back and successfully got the amount lowered to a more appropriate loss of 25% of gross revenues, meaning many more struggling small businesses will get help. Gross receipts are likely to exclude funds from PPP loans or other loans or grants. This loss must be measured by a quarter of 2020 (Jan-Mar, Apr-June, July-Sept, Oct-Dec) and not just a three-month period. All or some borrowers may also have to indicate that the loan is an economic necessity. There are also provisions for seasonal businesses to adjust the time periods.
- You must have been in business prior to February 15, 2020.
- You have used, or will use, all of your previous PPP loan if you received one.
- You have fewer than 300 employees in any one location.
- Qualified businesses can be corporations, LLCs, sole proprietors, self-employed, independent contractors.
- No loan can be greater than $2 million.
How much can you get? For most businesses, the amount you can apply for is, as before, the amount of your average monthly payroll in 2019 or the year before your loan times 2.5. This is the same as the previous round of PPP.
For accommodation and food service businesses, the amount you can apply for is your average monthly payroll in 2019 times 3.5.
Forgiveness. You can get forgiveness for this PPP loan by spending at least 60% on payroll expenses (wages, salaries, retirement, group health insurance, etc.) and a maximum of 40% on qualifying expenses during an 8- or 24-week period.
PPP Set Asides for Certain Small Businesses
Because the smallest businesses and those located in low and moderate income areas were often shut out of the first round of PPP funding, this bill includes set-asides for small businesses with fewer than 10 employees, those in low/moderate income areas, and funds for small community banks, credit unions and community-based lenders. This will hopefully level the playing field, making it easier for smaller, needier businesses to get these forgivable loans.
Grants for Cultural, Arts, Live Events, Theaters, Smaller Cultural Providers
$15 billion in grants, not loans were included for certain live event, movie theatres, museums, and other cultural providers.
Small cultural providers, artists, etc. should MOVE FAST. This appears to be designed primarily as a bailout for large movie theatre chains, that will also be eligible for these funds and can get grants of tens of millions of dollars. Smaller venues and cultural providers theoretically go to the front of the line, but if you’re not ready to apply as soon as these are available, you’re probably going to get left behind. PAY ATTENTION!
- Eligibility: live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate at least a 25 percent reduction in revenues.
- Smaller providers: $2 billion was set aside for those with 50 full-time employees or fewer, but set aside only for 60 days. After that, those monies are available to larger businesses as well. (So it will be easy for smaller businesses to get left out.)
- In the initial 14-day period, grants will be awarded to eligible entities that have faced 90 percent or greater revenue loss. This may include large chains.
- In the 14-day period following the initial 14-day period, grants will be awarded to eligible entities that have faced 70 percent or greater revenue loss.
- After these two periods, grants shall be awarded to all other eligible entities.
- Grants to be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment.
- Initial grant can be up to $10 million, and a second grant could be up to 50% of the first grant. In other words, a large chain could get $15 million in GRANTS.
- The amount of grant appears to be up to 45% of your 2019 revenue or 85% of 2019 operating expenses, but I am not clear on that yet.
Grants for EIDL Advances and Other Changes to Program
When EIDL (Economic Injury Disaster Loan) grants were passed by Congress, they allowed for a $10,000 “Advance” to be treated as a grant, not a loan. Trump’s SBA unilaterally scaled back that grant to only be $1000 for each employee, counteracting Congressional intent. This addresses that issue.
- Businesses in low-income communities that received an EIDL loan can get a grant equal to the difference of what they received and $10,000.
- Eligible Businesses in low-income communities that did not get EIDL loans/Advance grants because funds had run out can now get $10,000.
- Also, if you previously received both an EIDL Advance grant and a PPP loan, you had to deduct the advance from your PPP forgiveness amount. You now no longer have to deduct that amount from forgiveness.
Many so-called “extender provisions” were set to expire on Dec. 31, 2020; however, the Act renews them through 2025. These include, but are not limited to the:
- New Markets Tax Credit
- Exclusion from gross income for discharged mortgage debt on qualified principal residences (though the maximum amount is reduced to $750,000 from $2 million)
- Employer credit for paid family and medical leave
Some provisions were made permanent by the Act including:
- Energy-efficient commercial building deduction under section 179D
- 7.5% adjusted gross income (AGI) threshold for determining the deductibility of individual medical expenses
Other tax provisions
- Taxpayers can use their earned income from 2019 to determine their earned income tax credit and refundable portion of the child tax credit.
- For employers that participated in the voluntary tax holiday, the employee portion of the Social Security payroll tax deferral repayment period was extended until December 2021. The original payback period ran through the first four months of 2021.
- Individuals that do not itemize their deductions can deduct up to $300 in charitable contributions in 2021. Originally, this was solely allowed for 2020 returns. The 100% AGI limit for cash contributions to a qualified charity, which was also set to expire at the end of 2020, is extended through 2021.
- The payroll tax credits for paid sick and family leave provided by the Families First Coronavirus Response Act are extended through March 31, 2021.
What You Should Do Immediately
- ACT FAST. What small businesses learned the last round of PPP funding was that if you snooze, you lose. You should be prepared to apply for everything THE VERY FIRST DAY IT BECOMES AVAILABLE.
- Figure out your income by quarters this year versus 2019. Many small businesses have lousy records, but you’re going to have to certify at least a 25% drop in gross revenues (minus PPP and, I suspect, unemployment or other grants). Get this info together now. Spend some time over the holidays getting your finances together!
- Contact potential lenders. Line up a few potential lenders. Contact local banks, community lending institutions, credit unions. Ask whether they’re going to participate in the next round of PPP lending. Try to connect with an individual lending officer.
- Set up business banking. If you don’t already have a business bank account, get one.
- Pay attention. Keep a close eye out for application openings and deadlines. Apply DAY ONE for everything you even potentially qualify for.
Further Details & Resources
- House Amendment
- PPP And EIDL Loan Changes After The Coronavirus Response And Relief Supplemental Appropriations Act (forbes.com)
- What’s inside the $900 billion stimulus package? (Washington Post)
- $900 Billion COVID Relief Package Update (blueandco)
- ALERT: Congress agrees to additional stimulus (bakertilly