Consolidated Appropriations Act, 2021: Paycheck Protection Program (PPP) Update

The Consolidated Appropriations Act, 2021 (Act) was signed into law at the end of December 2020. We will be highlighting various tax provisions included in the Act over the next few weeks.

The Act includes a provision for a second round of PPP loans for qualifying businesses (PPP2). To qualify for PPP2, a business must have less than 300 employees, show a decline of 25% in gross receipts in any quarter in 2020 when comparing it to 2019, and, if it applied for the first round of PPP funds, it must have used the full amount on qualifying expenses. PPP2 funds are also available for some nonprofits and includes certain 501(c)(6) organizations that do not receive more than 15% of their receipts from lobbying.

Similar to the first round of PPP loans, the proceeds must be used at least 60% for payroll with the remaining amount that can be used for rent, interest, and utilities. For PPP2, the Act also includes expenses for certain property damage not covered by insurance, supplier costs, worker protection equipment, and operating expenses to facilitate business operations (software, cloud computing, and other human resources and accounting needs).

The SBA has released the PPP2 application form, and if a first loan was not applied for, a revised First Draw PPP loan application. Companies have until March 31, 2021 to apply for these loans. The SBA has announced that banks with less than $1 billion or less in assets can open their loan portals on Friday, January 15. All other large banks can open their portals on Tuesday, January 19.

Related to PPP, the Act also includes provisions that allow for the deduction of expenses paid with forgiven PPP loan funds on the federal income tax return, a more simplified forgiveness application process for PPP loans under $150,000, and does not reduce the PPP loan forgiveness amount for the EIDL advance. At this point in time, we are still waiting on clarification from the state regarding the deductibility of expenses for state income tax returns.

If you have any questions, please contact your client service partner or manager.