New PPP loans and other critical help for businesses included in approved COVID-19 relief package
The recently passed COVID-19 relief bill, signed by President Donald Trump last night, has significant benefits to businesses, including additional money to extend the Paycheck Protection Program (PPP) and making the loans tax-deductible.
Below are details on how your business can start taking advantage of what the new relief package offers.
PPP loan-related expenses loans & EIDL advances tax deductible
Many business owners let out a big sigh of relief at the news that expenses covered by their PPP loans – especially payroll costs – are now tax-deductible. Without the change, many companies were looking at hefty tax bills.
Note: Not all states conform with the Federal tax code. Some states may continue to tax the loan forgiveness, despite this change.
Additionally, the relief package no longer counts the up to $10,000 advances that were part of Economic Injury Disaster Loans (EIDLs) against PPP loan forgiveness. Additionally, the $10,000 advance is not taxable income.
New PPP loans available under the relief package
The new PPP loan funding in the stimulus package essentially retains the same guidelines for applying for and using the money. Many banks have already started reaching out to businesses.
Here are the criteria to meet if you want to pursue a new PPP loan:
- 501c6 organizations such as chambers of commerce and trade associations are now eligible if they have 300 or fewer employees and meet certain lobbying restrictions.
- Businesses, including sole proprietors, with 300 or fewer employees that experienced at least a 25 percent reduction in revenues in at least one quarter in 2020 when compared to the same quarter in 2019. Additionally, applicants must have used, or plan to use, the first loan by the time they would receive a second one.
Note: Businesses eligible during the first round of PPP funding but did not receive a PPP loan can apply for one.
Calculating your PPP loan amount
Similar to the first round of PPP loans, for payroll expenses, companies take their average monthly payroll costs incurred during the one year before the date of the loan or calendar year 2019, multiplied by 2.5. The program caps the amount at either the result of this calculation or $2 million, whichever is less.
- Hotels, restaurants and other businesses with NAICS codes starting with 72 receive should multiply their average payroll costs by 3.5 – giving these industries a larger loan amount to pay employees.
PPP loan forgiveness
As with the first round of PPP loans, in addition to payroll, expenses eligible for loan forgiveness include rent, covered mortgage interest, and utilities.
- Note: Payroll costs must still account for at least 60 percent of your loan forgiveness amount.
The relief package also makes the following forgivable:
- Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
- Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
- Covered operating costs such as software and cloud computing services and accounting needs.
- Covered property damage costs
New guidelines for seeking PPP loan forgiveness
As part of the relief package, the federal Small Business Administration (SBA), which oversees the PPP program, is preparing a simplified forgiveness application for businesses borrowing between $50,000 to $150,000. (Those borrowing less than $50,000 can already use a streamlined process by filling out SBA Form 3508S.
Keep in mind that though the process is simplified, it is not automatic forgiveness. Borrowers still need to compute their forgivable costs and attest to their compliance with PPP rules.
From the start of the program, we advised clients to keep a separate account for PPP loan money, making it easier to track spending. We also suggest that clients still internally fill out the more detailed extended version of the forgiveness application to fully document the loan use if there are questions down the road. However, they will submit the new, simplified application.
Additional business benefits contained in the COVID-19 relief package
- More time to use FFCRA tax credits: Families First Coronavirus Response Act (FFCRA) tax credits, which cover coronavirus-related employee leave, is extended through the end of March. Previously, this program expired at the end of the year.
- Extension and Expansion of Employer Retention Tax Credit through June 30: Effective Jan. 1, the ERC credit increases 50 percent to 70 percent for qualified wages. It also increases the credit limit from $10,000 in wages per employee per YEAR to $10,000 in wages per employee per QUARTER.
The change increases the credit from up to $5,000 per employee/year to $7,000 per employee/quarter. Also, effective Jan. 1, businesses only have to show a 20 percent decline in revenue instead of the original 50 percent. The revenue calculation is based on 2021 quarter vs 2019 quarter. Other restrictions apply, so you will want to consult your tax advisor.
The stimulus act also amends language in the CARES act that previously prevented companies from receiving employer retention tax credits if they received a PPP loan. This change is retroactive to the CARES act, so businesses may be able to revisit 2020 filings and claim these credits. It is important to note that payroll costs used for PPP loan forgiveness purposes cannot be used ERC purposes. The relief act notes the IRS will provide additional guidance.
- Client meal deductions: Picking up the restaurant check for clients will again be fully deductible – at least for two years, before returning to the current 50 percent write-off.
The Boyer & Ritter team is keeping on top of the latest developments and are ready to help you navigate the oft-confusing regulations surrounding the COVID-19 relief programs. To learn more about engaging us for PPP Loan Forgiveness Support Services, please contact us HERE.
Benjamin R. Bostic, CPA, is a director at Boyer & Ritter with experience providing tax and accounting services for closely-held businesses, individuals, not-for-profit organizations. Reach Ben at 717-264-7456 or firstname.lastname@example.org