December 2020

Small Business Provisions in the New COVID Relief Bill

On December 21, 2020, Congress passed a 5,593-page COVID relief and government funding bill, which was signed into law by the President on December 27. This new law impacts small businesses in several ways.

PPP Loans

The new law includes renewed funding of $325 billion for small business loans, including $284 billion for the Paycheck Protection Program (PPP), providing forgivable loans to first- and second-time small business borrowers.

The new round of PPP loans, referred to as "PPP2," will be available to first-time qualified borrowers and for businesses that previously received a PPP loan. Previous PPP loan recipients may apply for another loan of up to $2 million (down from the $10 million maximum in the original PPP loan program), provided they meet the following criteria:

• Have 300 or fewer employees (the threshold for the original PPP loans was 500 employees)

• Have used or will use the full amount of their first PPP loan

• Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

PPP2 loans also will permit first time borrowers from the following groups:

• Businesses with 500 or fewer employees that are eligible for other SBA7(a) loans

• Sole proprietors, independent contractors, and eligible self-employed individuals

• Not-for-profits, including churches

• Accommodation and food service operations with fewer than 300 employees per physical location.

The costs eligible for PPP2 loans include those that were eligible under the original PPP loan program--payroll, rent, covered mortgage interest, and utilities—and now include an expanded list that consists of the following (original PPP loans can be used for these new eligible costs so long as the loan has not yet been forgiven):

• Certain expenditures for operations, such as payments for any business software or cloud computing service that facilitates business operations, product or service delivery, payroll processing and tracking expenses, or human resources expenses.

• Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance.

• Expenditures made to a supplier of goods for goods that are essential to the operations of the borrower at the time when the expenditure was made, and are made under a contract or purchase order that was in effect at any time before the covered period of the PPP loan (for perishable goods, the contract must be in effect before or at any time during the covered period of the PPP loan).

• Costs related to personal protective equipment, which includes a broader concept of that term, such as drive-through window facilities, physical barriers, or health screening capabilities.

Loan amounts remain up to 2.5 times average monthly payroll costs, as in the original loan program, except that eligible accommodation and food service operations can borrow up to 3.5 times their average monthly payroll costs. As with the original PPP loan program, to be eligible for full loan forgiveness, all borrowers will have to spend no less than 60% of the funds on payroll over a covered period of between 8 and 24 weeks.

The new law creates a simplified forgiveness application process for loans of $150,000 or less. Under that process, a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the covered loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.

One of the most significant changes is to allow businesses to deduct the costs covered by their PPP loans on their federal tax returns, even if the PPP loan is forgiven. This supersedes IRS guidance that stated that expenses could not be deducted. It is important to note that this applies only to federal taxes; each state must determine if these costs can be deducted for state income tax purposes, and the approach to this likely will vary from state to state.

If a PPP loan borrower also received an EIDL loan, including a $10,000 advance on that loan, the borrower was required to deduct that advance from the amount of the PPP loan that is forgiven. This deduction requirement has been eliminated.

The new law also sets aside funds available to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders.

Debtors and trustees in bankruptcy cases are now eligible to apply for a PPP2 loan, under the supervision and approval of the bankruptcy judge handling the bankruptcy case.

Other Provisions of Interest to Small Businesses

The new law includes several other provisions that impact small businesses:

The current employee retention credit created under the CARES Act is extended until June 30, 2021. The credit also is expanded to include a 70 percent credit for up to $10,000 in creditable wages per quarter, and the requirement that gross receipts decline has been reduced to a 20 percent decline (it previously required a 50 percent reduction).

The refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act (FFCRA), is extended through the March 31, 2021. Employers who provide leave under the terms of FFCRA can continue to receive a federal tax credit for leave through that date. The law is unclear as to whether employers are required to provide leave under the FFCRA terms through that extended date.

The new law includes a tax break for corporate meal expenses up to 100 percent (as opposed to the current cap of 50%), so long as the expenses are for food and beverages provided by a restaurant. This provision is effective for expenses incurred after December 31, 2020 and expires at the end of 2022.

The payroll tax deferral repayment period is extended through December 31, 2020. The President issued an executive order in 2020 that allowed employers to defer the employee side of payroll taxes for the last months of 2020. Employers who took advantage of this deferral now have until December 31, 2021 to repay these taxes.

There are many additional or expanded targeted loan or grant programs, including $20 billion for targeted grants through the Economic Injury Disaster Loans Program for businesses in low income communities; $15 billion in dedicated funding for grants to live venues, independent movie theatres, and cultural institutions; dedicated set-asides for very small businesses and lending through community-based lenders like Community Development Financial Institutions and Minority Depository Institutions: and expanded PPP eligibility for 501(c)(6) nonprofits, including and local newspapers, TV and radio broadcasters.

The new law provides $120 billion to extend enhanced unemployment benefits for jobless workers, who will receive a $300-a-week unemployment subsidy available through March 14, 2021. It also extends the maximum number of weeks an individual may claim benefits through regular state unemployment and enhanced unemployment benefits to 50 weeks.

The current CDC residential eviction moratorium is extended through January 31, 2021. The new law also provides $25 billion of assistance to tenants in arrears on their rent. This assistance can be utilized for past due rent, future rent payments, and utility bills.

Sacks Tierney has qualified attorneys to answer your questions about these provisions and to help guide your business if you wish to apply for and obtain any of the assistance available through the bill’s provisions above.

These materials are designed to provide general information prepared by professionals in regard to the subject matter covered. It is provided with the understanding that the author is not engaged in rendering legal, accounting, or other professional service. Although prepared by professionals, these materials should not be utilized as a substitute for professional service in specific situations. If legal advice or other expert assistance is required, the service of a professional should be sought..