On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act (CAA), which reversed the IRS position on expense disallowance, provided funding for the second draw of Payroll Protection Program (“PPP”) loans, and simplified the loan forgiveness application process for loans of less than $150,000.
The new law changes the following items included in the original PPP:
- The CAA allows a full deduction for expenses paid using PPP funds. If PPP loans are forgiven, these funds are excluded from taxable income as well.
- The CAA maintains the amount of the loan proceeds needed to spend on payroll at 60 percent. The amount of the loan proceeds available to spend on other expenses is 40 percent. It is important to note that the expenses included in the 40 percent category still includes payments for rent, mortgages, utilities, and interest on loans. The following have also been added: covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures.
- The CAA has extended the time to spend down the loan proceeds to 24 weeks. It extends the covered period to March 31, 2021.
- The CAA requires a one-page forgiveness application with certifications rather than numbers. The SBA is required to issue the form by January 20, 2021. This new application applies to PPP2 borrowers and PPP1 borrowers who have not yet applied for forgiveness.
- The CAA loan forgiveness amount is no longer reduced by the amount of the EIDL grant.
- The CAA allows that EIDL grants are now tax-free. No expense disallowance is also included in this legislation.
- Second draw PPP Loans (PPP2):
- SBA is required to provide procedures by January 6, 2021.
- Limited to borrowers with 300 employees or fewer
- Have used or will use the full amount from the first PPP
- Demonstrate a 25 percent reduction in sales in any 2020 quarter compared to the same quarter in 2019.
- The maximum loan amount is 250 percent of average monthly payroll
- The maximum loan amount is 350 percent of the average monthly payroll for restaurants, and the hospitality industry.
- Certifications still required: necessity and funds use to retain workers.
- There is a limited re-opening of PPP1. Prior PPP borrowers may be able to seek an increase from their original loan.
- Apply by March 31, 2021.
After reviewing the above changes to the original PPP and new information available on PPP2, please feel free to contact us with questions or if you require clarification on your loan issue.