President Trump has signed the $900 billion Consolidated Appropriations Act, 2021 into law, bringing expanded COVID-19 relief to businesses, nonprofits and individual taxpayers.
As our advisors wrote about last week, included in the legislation is the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“the Act”), which includes another round of Paycheck Protection Program (PPP) loans, makes PPP-funded expenses tax-deductible, temporarily restores the 100% business meal deduction, and extends the employee retention tax credit and other important CARES Act provisions.
New PPP Loans
Of the $325 billion of business relief included in the Act, the vast majority ($284 billion) is allocated to more PPP loans for both first-time and repeat borrowers. The Act maintains the forgiveness potential based on the 60% payroll (40% non-payroll) expense requirement of the PPP Flexibility Act, but other key aspects of the program have changed.
The maximum loan amount is reduced to $2 million or 2.5 times monthly payroll costs incurred during the one-year period before the loan is made, or during calendar year 2019 (3.5 times monthly payroll if the entity’s NAICS code is 72).
The eligibility requirements have also changed to require:
300 or fewer eligible employees, on an affiliated company basis
The SBA determines number of employees in accordance with the CFR Section 121.106, which allows for all individuals employed on a full-time, part-time, or other basis to be included in the count, including employees obtained from a temporary employee agency, professional employee organization or leasing concern.
To determine the size of a concern, the SBA provides the following guidance:
(1) The average number of employees of the concern is used (including the employees of its domestic and foreign affiliates) based upon numbers of employees for each of the pay periods for the preceding completed 12 calendar months.
(2) Part-time and temporary employees are counted the same as full-time employees.
(3) If a concern has not been in business for 12 months, the average number of employees is used for each of the pay periods during which it has been in business.
(4)(i) The average number of employees of a business concern with affiliates is calculated by adding the average number of employees of the business concern with the average number of employees of each affiliate. If a concern has acquired an affiliate or been acquired as an affiliate during the applicable period of measurement or before the date on which it self-certified as small, the employees counted in determining size status include the employees of the acquired or acquiring concern. Furthermore, this aggregation applies for the entire period of measurement, not just the period after the affiliation arose.
(ii) The employees of a former affiliate are not counted if affiliation ceased before the date used for determining size. This exclusion of employees of a former affiliate applies during the entire period of measurement, rather than only for the period after which affiliation ceased. However, if a concern has sold a segregable division to another business concern during the applicable period of measurement or before the date on which it self-certified as small, the employees used in determining size status will continue to include the employees of the division that was sold.
Revenue decrease of at least 25%
For purposes of the PPP, this revenue decrease must have occurred during one of the first three quarters of 2020, or during Q4 2020 (if applying after January 1, 2021). The decrease is determined by comparing gross receipts in a quarter to the same quarter in the prior year.
Specifically excluded from applying for this round of PPP loans are: public companies, lobbying entities, entities with China-based ownership and venue operators receiving aid under the venue grant section of the Act.
Existing PPP Loans
The legislation also makes the following improvements that can be retroactively applied to all PPP loans:
- Tax deductibility of all qualified expenses paid with PPP funds is allowed.
- PPP allowable and forgivable expenses are expanded to include operating expenses, property damage costs (caused by acts of civil unrest), supplier costs and worker protection costs (both operating and capital costs).
- Borrowers can now choose any 8- to 24-week period as their loan forgiveness covered period.
- Economic Injury Disaster Loan (EIDL) grants will no longer reduce PPP forgiveness.
- A simplified forgiveness application for PPP loans of less than $150,000 will be limited to borrower certifications.
- Forgiven PPP loan funds will be considered tax-exempt income and will increase owners’ basis in pass-through entities.
In addition to the PPP updates, the bill also modifies or extends other individual and business-friendly provisions, including:
- Extends the employee retention tax credit into 2021; increases the credit to 70 percent (from 50 percent) of qualifying wages; and increases the limit on creditable wages to $10,000 per quarter (instead of per year).
- Allows small employers that received PPP loans to use the employee retention tax credit to cover other wages.
- In 2021 and 2022, allows a 100% deduction for the cost of business meals.
- Extends the deadline by which employers who deferred employees’ payroll taxes need to increase their employees’ withholding and pay the taxes owed. The deferred taxes must now be paid by the end of 2021 (originally due on April 30, 2021).
- Extends CARES Act charitable giving incentives (charitable deductions up to 100% of AGI and $300 above-the-line charity deductions) into 2021.
- Extends retirement plan distribution relief into 2021.
- Makes permanent the IRC Section 179D energy-efficient building deduction.
Grassi’s Tax and Emergency Loan Consultants will continue to provide analysis on specific areas of this massive piece of legislation. If you have any questions, please reach out to your Grassi advisor or contact or Crisis Response & Recovery hotline at 212.223.6216 or firstname.lastname@example.org.