On December 21, 2020, Congress passed the Consolidated Appropriations Act, 2021 (Act). (Full Bill) (Summary) The Act contains several sections that directly impact the Paycheck Protection Program (PPP). President Trump is expected to sign the Act soon.
Subtitle B – “COVID-related Tax Relief Act of 2020” contains several important tax updates in general, with one specific section covering the PPP. Section 276, “Clarification of Tax Treatment of Forgiveness of Covered Loans” clarifies that the amount of a PPP loan for which a borrower is granted forgiveness will not be included in taxable income, and the expenses used by the borrower toward forgiveness will be deductible expenses on the taxpayer’s tax return. This amends Internal Revenue Service (IRS) Notice 20-32 that had stated the expenses would not be deductible on the taxpayer’s tax return. This amendment is for tax years ending after the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
Title III – “Continuing the Paycheck Protection Program and Other Small Business Support” clarifies or adds several sections relative to the PPP loans.
- Section 304 adds additional allowable expenses under either an existing PPP loan or a PPP second draw loan. These additional allowable expenses include: covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures, as defined in the Act.
- Section 307 adds a simplified forgiveness application process for loans up $150,000. Previously, only loans up to $50,000 had a simplified application process.
- Section 311 allows for PPP second draw loans for entities that qualify. The maximum amount of a PPP second draw loan is 2.5 times monthly payroll costs or $2 million. In order to qualify for a PPP second draw loan, an entity must meet the following requirements:
- Generally have not more than 300 employees
- Demonstrate a reduction in revenue of at least 25% in any of the first, second, or third quarters of 2020 as compared to the same quarters in 2019. If a PPP second draw loan is applied for after January 1, 2021, then the fourth quarter may be used as well
- Being an eligible business concern as defined in the Act