December 26, 2020
Congress finally passed the new Covid-19 relief bill earlier this week. Although the President has not signed it, the Payroll Protection Program (“PPP”) provisions of the bill are not expected to change. It includes a new round of Payroll loans (PPP), or PPP2 as it’s being called. PPP2 contains many similarities to the first round of the PPP but also has several important differences. In the meantime, even with the bill up in the air over raising stimulus payments to $2,000, here is a high-level preview of the key PPP provisions:
Who is eligible to apply?
PPP2 loans will be available to first-time qualified borrowers and, for the first time, to businesses that previously received a PPP loan. Specifically, previous PPP recipients may apply for another loan, provided they:
- Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
- Have used or will use the full amount of their first PPP loan
- Certify in good faith as to the loan’s ECONOMIC NECESSITY (the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the business)
PPP2 loan terms
As with PPP1, the costs eligible for loan forgiveness in PPP2 include payroll, rent, covered mortgage interest, and utilities.
To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period of either eight or 24 weeks — the same parameters PPP1 had when it stopped accepting applications in August.
PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs in the twelve-month period prior to the loan or in the prior calendar year, the same as with PPP1. $2mln is the loan maximum. Restaurants and hotels can get up to 3.5 times their average monthly payroll costs.
Simplified forgiveness application and other notes
The new COVID-19 relief bill also:
- Creates a simplified one-page forgiveness application process for loans of $150,000 or less. Borrower’s will be able to attest, on a single-page form to be released, that they complied with PPP requirements.
- Repeals the requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount.
- Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees
Tax deductibility for PPP expenses
The bill also specifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS guidance that such expenses could not be deducted and brings the policy in line with what the AICPA and hundreds of other business associations have argued was Congress’s intent when it created the original PPP. This provision applies to loans under both the original PPP and subsequent PPP loans.
When to apply?
This will depend first on the enactment of the bill. If I learned anything this past year, it’s not to make predictions! But I’m happy to pass along someone else’s; the AICPA (my CPA industry trade group) is projecting that the PPP2 application process will open the second or third week of January. SBA has orders to issue detailed guidance within ten days of the bill’s enactment. So, now is the time to get your ducks in a row.
Everyone is still working through this new legislation and I will continue to provide you with additional important updates as I learn more. If you need more information or assistance regarding your PPP loan, please feel free to reach out to me. Happy New Year!
Eric Johnson, CPA
Tel. (702) 941-7787
Eric Johnson CPA LLC
2850 W Horizon Ridge Pkwy #200
Henderson, NV 89052
Near I-215/Eastern Ave. exit; only 2 miles via Eastern to Coronado Center at W. Horizon Ridge. The “Regus” building.