Terri Johnson, CPA
COVID-19 Relief Bill (Round 2)
Updated: Dec 28, 2020
Trump has signed into law the second round of relief funding. Banks are still rolling out the applications, which will be delayed by the holidays, but here are some of the highlights that affect small businesses and taxpayers:
Expenses paid for with PPP loans will be tax-deductible. This had been a sticking point between the IRS and Congress before this latest bill.
There will be a simpler, 1 page, loan forgiveness application for PPP loans under $150,000. Borrowers will simply need to attest to the number of employees retained and the estimated amount of the loan that was spent on payroll. (This application must be created by the SBA within 24 days of the law being passed.)
EIDL advances do not need to be deducted from the amount of the forgivable PPP loan. (This ensures that the EIDL advances and PPP loans are both fully tax-free. EIDL loans in excess of the advance still need to be repaid.)
Updated: (The house has increased this to $2,000 and it is now awaiting Senate vote and approval.) Economic income payments begin to hit taxpayer accounts after the beginning of the year. Taxpayers will also receive $600 for each child dependent. These payments phase out at $75,000 for individual taxpayers and $150,000 for married couples (the same as the first round of payments).
Unemployment benefits have been extended. Workers will be eligible for an additional $300 per week from December 26, 2020 to March 14, 2021.
The PUA program, which covers self-employed individuals, has also been extended.
Business meals are now fully deductible at 100% (rather than the traditional 50% deduction), as long as the food was purchased at a restaurant, and fulfills the business purpose regulations already in the tax law. This provision expires December 31, 2022.
There will be additional funding for emergency rental aid and the eviction moratorium has been extended through January 31, 2021.
There will be a 15% increase in SNAP benefits for six months.
The employee retention tax credit has been extended.
There is also a second round of PPP funding available to first-time borrowers, as well as those that have already received a PPP loan. The maximum amount of the combined loans has been lowered to $2M. Highlights of the second round of funding are as follows:
The business has 300 or fewer employees.
The business fully utilized the first round of PPP funding.
The business must show a decrease in gross revenue of at least 25% from any quarter in 2020 as compared to the same quarter in 2019.
These loans have been broadened to cover Section 501c6 businesses (which include Chambers of Commerce and similar entities), as long as less than 15% of their funding comes from lobbying sources.
Sole-proprietors and self-employed individuals are also eligible for this round of funding, as well as nonprofits, churches, and accommodation and food service entities with fewer than 300 employees per location.
Funds have specifically been set aside for employers with 10 or fewer employees, first-time PPP borrowers, and loans made by community lenders.
Terms of the second round of funding are very similar to the first round, which some minor adjustments.
Costs include payroll, rent, mortgage interest and utilities.
Some additional costs may also become forgivable, such as PPE and facility improvements, expenditures to suppliers that are essential to current operations, software and cloud computing services and accounting needs. (More detailed guidance on these covered expenses is still forthcoming.)
Eligible payroll costs must still comprise 60% of the loan expenditures over an 8 or 24 week period.
Updated: Borrowers may receive up to 2.5 times their average monthly payroll costs in 2019. Restaurants and hotels are eligible for up to 3.5 times their average monthly payroll costs.
These loans are now maxed out at $2M in the aggregate, rather than the $10M maximum allowed for previously.
Please keep in mind that any businesses receiving PPP funding can be listed publicly on the SBA database and website. This was done in the first round of funding and surprised many recipients. Although businesses need to do what is necessary to keep their doors open, there is concern that a business applying for a second round is notifying competitors that their gross revenues decreased by at least 25% in at least one quarter in 2020.
Additional details will be rolled out over the next couple of weeks. These provisions will be implemented as quickly as possible, but please be patient as this law comes in the middle of the holiday season with bank and federal holiday closures, and already minimized staffing levels.
My firm is here to assist businesses in understanding and applying the ever-changing tax laws. We also provide ongoing accounting assistance for small businesses. This past year has shown the importance of having current and readily available financial records. If you do not have good accounting procedures in place, such as QuickBooks or other similar systems, we're happy to assist you in setting those up. We have bundled packages to fit various business sizes and needs, as well as monthly payment options to allow for better cash flow control for small businesses. If you would like to discuss our services further, please contact us at (814) 299-5505.