Over the last two days, the House and Senate have passed a massive bill that includes significant extensions of existing COVID relief programs, new COVID relief programs, and modifications to existing COVID relief programs. The Bill is currently with the president for his signature. As of last evening, the President indicated dissatisfaction with the bill. It is yet to be seen if he will veto it, if Congress will amend it, or if they will attempt to override a potential veto (the bill was passed with veto-proof majorities originally). Despite this uncertainty, we thought it was important to get this information into your hands so that you can start to plan for what it may look like if it becomes law. The two biggest areas of concern for the President are the amount of foreign spending, which is part of the bill that keeps the government open and functioning, and the amount of the stimulus payments, which are too low for Mr. Trump’s liking. Neither of these matters is addressed below, and the following is written under the assumption that the bill will be passed. We will continue to apprise you on the status of things and any changes from what we have listed below.
Outlined below are many of the key aspects of the Bill, as we know them to relate to you. The Bill is massive. Click here if you want to view the entire bill. It has a tremendous amount of intricacies and there are significant pieces to be clarified in the upcoming weeks. The bill specifically says more information will be coming in 10 days after passage into law. The information presented below is our interpretation based on what we know today and have learned through our experiences with the CARES Act. Our interpretations are subject to change as additional information becomes available. Additionally, in the interest of this being as digestible as possible, there are aspects of the bill that potentially relate to you that are not included below. It is our intent to do a webinar and provide additional information in the future that takes a deeper dive into the Bill. We expect that to be sometime after Christmas when we have more clarification and have had the opportunity to further digest and interpret the information contained in the bill.
An additional round of PPP funds will be available to those who qualify. For simplicity sake, we will call this PPP2 and will refer to the original PPP program as PPP1.
1. Taxability and Deductibility
a. PPP Forgiveness is not taxable for federal purposes and the expenses relating to its forgiveness are deductible federally.
i. For those companies that apply for R&D credits, these credits will be able to take into account all wages that were covered under PPP loans.
ii. The state of PA will still treat forgiven PPP proceeds as taxable to S-Corporations, partnerships and sole proprietors.
2. If they have not already applied for forgiveness, PPP1 borrowers are able to increase the amount of their PPP1 loans for:
a. Group Life, disability, vision or dental insurance.
b. Farmers – New calculation based on Gross income.
3. PPP1 borrowers are able to increase the amount of their loan forgiveness for:
a. covered operation expenditures – payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses
b. Covered property damage costs – costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
c. Covered supplier costs – an expenditure made by an entity to a supplier of goods for the supply of goods that (1) are essential to the operations of the entity at the time at which the expenditure is made; and (2) is made pursuant to a contract, order, or purchase order in effect at any time before the covered period with respect to the applicable covered loan, or with respect to perishable goods in effect before or at any time during the covered period with respect to the applicable covered loan.
d. Covered worker protection – Broadly retrofit items and other costs incurred to minimize the spread of COVID.
e. The amount of forgiveness must still be at least 60% due to payroll costs, even with the inclusion of these non-payroll items
4. Broad PPP2 borrower requirements:
a. Less than 300 employees, presumably based on head count and not FTE’s
b. 25% quarter over quarter gross receipts reduction for any quarter in 2020 to 2019. First quarter to first quarter, second quarter to second quarter….
c. Loan amount is calculated at 2.5 months of payroll costs
i. Eligible entities with a NAICS code beginning with 72 (accommodations and food service) are allowed to use a multiplier of 3.5. In other words, accommodations and food service get a 40% increase in potential PPP2 funds.
d. Maximum loan of $2,000,000
e. Forgiveness calculations, similar to PPP1, still must be at least 60% payroll costs.
f. An eligible recipient applying for PPP2 must make the good faith certifications listed below. We expect that these certifications will be more of an impediment to PPP2 than PPP1 due to the experience that has been obtained over the last 6 months and as businesses have seen the impact COVID has on their businesses.
i. that the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient.
ii. acknowledging that funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments, and utility payments, as well as supplier costs, PPE, and property damage repairs as noted under item #3 above
5. PPP1 and PPP2 loans under $150,000 will have the option to use a simplified forgiveness application. We are still determining the impact this will have on those for which it applies, but the SBA is required by this bill to have 24 days from passage of the bill into law to pull together a simplified forgiveness application for those with PPP loans under $150,000.
Other SBA Loans
6. If you have an SBA loan where the payments of principal and interest have been made on your behalf by the SBA, those payments made for you are not federally taxable
7. If you have an SBA loan where 6 months payments of principal and interest have been made on your behalf by the SBA, payments will continue to be made on your behalf for an additional 3, 6, or 8 month period, depending on your circumstances.
Economic Injury Disaster Loans (EIDL)
8. EIDL Advances are not federally taxable.
9. EIDL Advances in the amount of $10,000 are available. These are grants and do not need to be repaid and no longer reduce loan forgiveness. If an EIDL Advance has already been received in an amount less than $10,000, the difference between $10,000 and the originally received amount is now available. • Note – There are some who read this portion of the bill who interpret it to say that there is a new $10,000 available. We will continue to monitor this section and let you know if our interpretation changes.
10. EIDL Advances will no longer impact loan forgiveness even for PPP1. If you have already applied for PPP1 forgiveness, and the advance you received reduced your forgiveness, you should be able to benefit from this part of the bill increasing your forgiveness amount. With that said, we are currently unsure of the mechanism the SBA and lenders will employ to make that happen.
11. For those of you who had employees who elected to defer payroll taxes as a result of President Trump’s September executive order, that deferral had originally needed to be repaid by April 30, 2021. The Bill extends the repayment deadline until December 31, 2021.
12. FFCRA sick-leave credits have been set to expire as of December 31, 2020. That has been extended until March 31, 2021.
13. There is a new facility in place for shuttered venue operators. The definition provided in the bill may be narrower than the title of the section implies. We are still working to determine how this aspect of the bill works and how it interacts with the PPP1 and PPP2 portions.
14. The Employee Retention Credit (ERC) has been made more robust. Below are some of the highlights, but our read on this topic has left it somewhat fuzzy.
a. The ERC can be taken with employers who have less than 500 employees
b. It is available for the first and second quarters of 2021.
c. The ERC covers 70% of wages up to $10,000 per quarter. That could be $7,000 per quarter per employee.
d. In order to apply for ERC for a certain quarter in 2021, gross receipts for that quarter must be at least 20% less than the same quarter of 2019.
e. We have seen interpretations that indicate that PPP1 recipients can claim the ERC, but that PPP2 recipients cannot. There is still uncertainty as to whether PPP1 and/or PPP2 recipients are precluded from claiming an ERC.
Items Not Included in This Summary
As mentioned in the introduction, there are several other additional items to note that are not mentioned above. The unmentioned topics relate more to individual taxation and specific tax topics, than they do to business operations. As a result, we will cover them through a different means of communication in the future.
What should you be doing if you believe you are entitled to and desire to pursue PPP2
• Begin accumulating 2019 and 2020 quarterly revenue information to determine if you meet the 25% revenue reduction thresholds.
• Begin accumulating 2019 and 2020 payroll information, including:
o Gross payroll
o Group Health Insurance
o Retirement benefits paid
o Employer state and local taxes
o Group life
o Vision and Dental insurance
We look forward to working with you and supporting you in the upcoming weeks. We expect PPP2 applications to could begin being accepted as early as the first or second week of January.