On December 27, 2020, the President signed the next stimulus bill that Congress passed on December 21, 2020. The package includes $284 billion for a second round of the Paycheck Protection Program, $15 billion is set aside for live venues, independent movie theaters, and cultural institutions, as well as an additional $20 billion for the Economic Injury Disaster Loan Program. 501(c)(6) organizations, ineligible for the first round of the PPP, may now apply. The bill also clarifies forgivable expenses for PPP and tax deductions for PPP expenses that include for borrowers under the original PPP. Here are some important takeaways for employers.
Second Round PPP
Most existing PPP borrowers that (a) have used all their existing PPP loans no later than the date of disbursement of their second-draw loans, (b) have 300 or fewer employees and (c) can demonstrate a 25% or more loss of gross revenues in any quarter of 2020 compared to the same quarter of 2019 will be eligible for second round PPP loans. The maximum loan size for a second round PPP loan in most cases will be the lesser of 2.5 times average monthly payroll for one of two periods and $2 million. Small businesses in the restaurant and hospitality industries may be eligible to receive larger awards of 3.5 times average total monthly payroll, rather than 2.5 times. Existing PPP borrowers who qualified under the more-than-one location exemption will continue to qualify only for each location that satisfies the 300 or fewer employees and 25% gross revenues reduction requirements.
PPP Expenses
The following are considered allowable expenses and forgivable uses of PPP funds:
- Payments for software, cloud computing and other human resources and accounting needs.
- Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the borrower’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- Personal protect equipment and adaptive investments to help a borrower comply with COVID-19-related federal, state or local health and safety guidelines during the period between March 1, 2020, and the end of the national emergency declaration.
The above expenses are allowed for loans made before, on or after enactment of the Act, except in the event that forgiveness has already been obtained.
Non-Profits’ Eligibility for PPP
501(c)(6) entities are eligible if:
- They don’t employ more than 300 employees;
- They have used, or will use, the full amount of their first PPP;
- They do not receive more than 15% of receipts from lobbying;
- Their lobbying activities do not comprise more than 15% of total activities; and
- Their cost of lobbying activities did not exceed $1,000,000 during the most recent tax year that ended prior to February 15, 2020.
Clarification of Tax Treatment of PPP Loans
The Act specifies that forgiven PPP loans will not be included in taxable income. It also clarifies that deductions are allowed for expenses paid with proceeds of a forgiven PPP loan, effective as of the date of enactment of the CARES Act and applicable to subsequent PPP loans.
Stay Up-to-Date with Smart HR
Smart HR will continue to monitor legislative initiatives and changes as we move into 2021. If you have questions or need guidance on how best to navigate the COVID-19 pandemic and its impact on businesses and employees, feel free to call us today.
