New Covid19 Bill and PPP2 FAQs- By Syed Nishat

FAQs about the New COVID-19 Bill and PPP2 Loan- by Syed Nishat

Congress has passed a new COVID-19 Relief Bill looking to extend aid for citizens and businesses as the pandemic continues ahead of the vaccine rollout. This new bill includes important  items such as increased tax deductions related to loan forgiveness as well as new rounds of stimulus checks, EIDL grants, and PPP loans. Read on for more information on the provisions of the new bill.

1. What are some highlights of the COVID-19 Relief Bill?

• For individuals making up to $75,000 per year, the bill creates economic impact payments (stimulus checks) of $600 each. For married couples making up to $150,000, the combined total they can receive is $1200, as well as $600 for each dependent child.
• For workers who are currently receiving unemployment benefits, there will be a weekly $300 additional payment. This supplement begins 12/26/2020 and will continue until 3/14/2021. The expanded coverage is inclusive of self-employed workers again as well.
• Beginning 1/1/2021, the current 50% deduction for business meals increases to 100%, provided the food or beverage considered expenses was obtained from a restaurant.
• Business expenses paid with forgiven PPP (Paycheck Protection Program) loans are now considered tax-deductible expenses.
• For PPP loans of $150,000 or less, there will be a new one-page simplified forgiveness application.
• The requirement that PPP borrowers deduct the amount of EIDL (Economic Injury Disaster Loan) advances from their loan forgiveness amount has been repealed.
• Funding has been provided for $20 billion in new EIDL grants for businesses in low-income communities.
• To help live venues, cultural institutions, and independent movie theaters, $15 billion of dedicated funding has been earmarked for those establishments.
• A second round of PPP loans has been announced.

2. What is different about the new PPP (PPP2)?

• The new bill renews funding of $284 billion for the PPP, which provides forgivable loans to small business owners.
• Businesses taking a PPP loan will also now be able to take the Employee Retention Tax Credit. Under the previous regulations, businesses could only choose to take the loan or the credit.
• In addition to the current qualifying expenses (i.e., operating expenses and employee wages), the new PPP allows for extended expenses such as supplier costs, worker protection payments, and property damage. If PPP loans are used to cover any of these expenses, the loan will be forgivable.
• The new bill expands eligibility for loans to community-based lenders, very small businesses, and non-profit organizations.

3. Who is eligible for this round of PPP loans?

• Both first and second-time borrowers are eligible for PPP loans as established in the new bill, however different eligibility requirements apply to each group.

4. Which first-time borrowers are eligible?

• Businesses with 500 or fewer employees
• Non-profit organizations, including churches and charitable organizations, community lenders, and very small businesses
• Independent contractors, self-employed individuals, and sole proprietors
• Businesses that qualify for other SBA 7(a) loans

5. How can a business that already received a PPP loan be eligible this time?

• Businesses must have 300 or fewer employees.
• To be eligible, businesses must have had a 25% decline in gross revenue in a 2020 quarter compared to the same quarter in 2019.
• To receive another loan, the business must have used or have plans to use the full amount of the first PPP loan.
• The second loan will have a maximum amount of $2 million.

6. What are the new PPP loan terms?

• Borrowers can choose either an 8- week or 24-week forgiveness period.
• Payroll expenses must be no less than 60% for the loan to be eligible for full forgiveness.
• The loan amount is calculated the same way as during the first round, which is 2.5 times the average monthly payroll costs in the prior year.
• Forgivable expenses may include rent, mortgage interest, payroll, worker protection, essential supplies, accounting fees, and software and cloud computing expenses.
• Restaurants and hotels may receive up to 3.5 times their average monthly payroll costs.

7. Is there an update for the first PPP loan forgiveness application form?

• For PPP loans of $150,000 or less, there will be a new one-page simplified forgiveness application. Banks are in the process notifying their customers about the process. Please reach out to your lenders for updated form.

8. Does a borrower have to pay taxes on a forgiven PPP loan?

• Forgiven PPP loans do not count as taxable income, as established in the CARES Act. Also, newly signed Bill allows business expense paid with forgiveness PPP loans are now considered tax-deductible. Meaning the expenses against this income can be deducted. Therefore, no taxes need to be paid.

9. Does a business have to pay taxes on HHS Grants?

• HHS Grants are considered part of taxable income, as they do not count as disaster relief. Taxes must be paid on that amount.

10. What is an SBA 7(a) Loan?

• The 7(a) loan program is run by the U.S. Small Business Administration (SBA) to give financial assistance to small businesses.
• The new bill provides $43.5 billion for continued SBA debt relief programs.
• It also provides an additional $2 billion for enhancements to SBA lending.

Because parts of the relief programs like HHS grants (Part 1,2 &3) may be counted as taxable income, it’s a good idea to speak with your financial advisor to go over your situation and see if you need to implement a strategy to minimize your taxes before the end of the year. Methods such as opening a 401(k) or Defined Benefit Plan may help you reduce taxable income, as well as cost segregation to maximize the tax savings of depreciation on aspects of your business. Click here to learn more steps you can take to reduce your taxes.