$900 Billion Coronavirus Relief Bill Awaits President Trump’s Signature; What’s Ahead for the Paycheck Protection Program?

After months of negotiations, Congress reached agreement on Monday on a new $900 billion round of coronavirus-related relief to help business and individuals struggling with the ongoing effects of the pandemic. The legislation, tied to a $1.4 trillion spending package to fund the government through 2021, was approved by the House and Senate late Monday evening and is currently awaiting President Trump’s signature.

When we sent our earlier alert about the new stimulus, the final text of the legislation was not yet available. Since then, the full details have been made public. In this alert, we’d like to focus on one particular component of the legislation that will be of particular interest to our clients: the Paycheck Protection Program.

The $900 billion bill includes $284 billion for the PPP, which will reopen after closing in August. The program will operate in much the same way as it originally did, but there are a few key changes. Note that the Act indicates that additional details will be forthcoming from the Treasury and/or Small Business Administration (SBA).

Eligibility
  • Existing borrowers are eligible to apply for a second loan, as long as they: 1) have 300 or fewer employees, 2) have already or will use the full proceeds from their initial PPP loan, and 3) can demonstrate that they sustained a 25 percent loss in gross receipts in any quarter in 2020, compared with the same quarter in 2019.
  • Note that the “good faith” certification requirement still appears to be in place for new PPP loans.
  • Public companies and certain entities that are affiliated with companies in China or Hong Kong are not eligible for a second PPP loan.
  • The maximum amount of a second loan is $2 million and loan amounts will be based on amount equal to 2 1/2 times the borrower’s average monthly payroll, just as before. There is an exception for businesses in the accommodation and food services industries, who will be eligible to borrow an amount up to 3 1/2 times their average monthly payroll.
  • Borrowers who returned all or part of their PPP loan earlier this year will be eligible to reapply for the maximum allowable amount as long as they have not already applied for forgiveness.
  • First-time borrowers will be subject to the program’s original eligibility requirements, which did not require a demonstrable revenue loss and allowed business with up to 500 employees to apply.
  • 501(c)(6) organizations will now be eligible for a PPP loan, although eligibility will be limited to those organizations with 300 or fewer employees and less than 15 percent lobbying activities receipts or disbursements.
Forgiveness
  • All borrowers are still required to spend at least 60 percent of loan proceeds on payroll.
  • 40 percent of loan proceeds can be used for eligible expenses such as mortgage expenses, rent, and utility payments, as before. However, the eligible expenses category has been expanded to include supplier costs, operations expenses such as software, investments in facility modifications and personal protective equipment to operate safely, and property damage costs sustained due to public disturbances in 2020.
  • Borrowers can now select a covered period of any length between 8 weeks and 24 weeks, and this period may start immediately after the origination of the loan.
  • The loan forgiveness process for borrowers with loans of $150,000 or less is being simplified to a one page forgiveness application.
Tax Implications
  • The CARES Act originally intended for business expenses paid for with PPP proceeds to be tax deductible. The Treasury subsequently denied the deductibility, which was a source of frustration for many PPP borrowers. The new legislation overturns the Treasury decision and restores its original intent, stating that businesses may take tax deductions for business expenses covered by forgiven PPP loans.
  • Owners of S corporations and partnerships will receive a step-up in basis attributable to the tax exempt income that results from PPP loan forgiveness.
  • PPP borrowers who also received an EIDL Advance were previously told that the amount of the Advance would reduce their PPP loan forgiveness. The new legislation overturns that provision, so that the EIDL Advance will now have no impact on PPP loan forgiveness.
Additional Tax Assistance
While not PPP-related, we wanted to mention two other tax incentives that will be relevant to many readers.
  • The deduction for business meals will be expanded from 50 percent to 100 percent.
  • The employee retention tax credit for employers that keep workers on their payroll has been extended through June 30, 2021. It also expands the credit, increasing the credit rate from 50 percent to 70 percent of qualified wages and increasing the limit on per employee qualifying wages from $10,000 per year to $10,000 for each quarter.
While the above points represent the main takeaways from the new Act, more pertinent details may emerge as we continue to sift through the many pages of the legislation. We will continue to provide information as it becomes available.

We will continue to monitor these developments and provide further information as it becomes available. As always, if you have any questions about these or any other matters, please contact your Kreischer Miller relationship professional or any member of our team. For additional PPP-related news and resources, visit our COVID-19 Resource Center here.

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.