**All information listed below subject to change pending final signature by the President**
On Monday, December 21, 2020, Congress passed a massive 5,593 page bill titled the Consolidated Appropriations Act 2021 (“Act”). One of the items contained in the Act is a provision that will allow taxpayers that obtained a Paycheck Protection Program (“PPP”) loan to also deduct the expenses that were paid with the loan proceeds.
This was the intent of Congress when the CARES Act was passed in March, but the CARES Act did not have enough clarity and the IRS stated that expenses that were paid with the PPP loan would not be deductible.
With the passing of the December 21, 2020 Act, borrowers will not pay tax on the PPP loan proceeds that were forgiven, and will also be able to deduct the expenses paid with the loan.
The Act also includes a “New Round” of PPP funding that is being described as “PPP2”. We will list some of the generic guidelines that have been stated in the bill, but the details of each guideline will have to come from the SBA and is not expected to be released until early January. The banks cannot generate a “new” application until the SBA releases the official guidelines, therefore applying for a PPP2 loan will have to wait until that time.
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 of up to $2 million, provided they:
- Have 300 or fewer 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 will also permit first-time borrowers from the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits, including churches.
- Accommodation and food services operations (those with North American Industry Classification System (NAICS) codes starting with 72) with fewer than 300 employees per physical location.
In addition to the PPP provisions, it also provides $600 stimulus payments to individuals, adds $300 to extended weekly unemployment benefits, and provides more than $300 billion in aid for small businesses. Other Key provisions in the bill include:
- $325 billion in aid for small businesses struggling after nine months of pandemic-induced economic hardships. The bill provides more than $284 billion to the U.S. Small Business Association (SBA) for first and second PPP forgivable small business loans and allocates $20 billion to provide Economic Injury Disaster Loan (EIDL) Grants to businesses in low-income communities. In addition, shuttered live venues, independent movie theaters, and cultural institutions will have access to $15 billion in dedicated funding while $12 billion will be set aside to help business in low-income and minority communities.
- $166 billion for economic impact payments of $600 for individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each child dependent.
- $120 billion to provide workers receiving unemployment benefits a $300 per week supplement from Dec. 26 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
- $25 billion in emergency rental aid and an extension of the national eviction moratorium through Jan. 31, 2021.
- $45 billion in transportation funding, including $16 billion for airlines, $14 billion for transit systems, $10 billion for state highways, $2 billion each for airports and intercity buses, and $1 billion for Amtrak.
- $82 billion in funding for colleges and schools, including support for HVAC repair and replacement to mitigate virus transmission, and $10 billion in child care assistance.
- $22 billion for health-related expenses incurred by state, local, Tribal, and territorial governments.
- $13 billion for emergency food assistance, including a 15% increase for six months in Supplemental Nutrition Assistance Program benefits.
- $7 billion for broadband expansion.
The bill also extends the employee retention tax credit and several expiring tax provisions and temporarily allows a 100% business expense deduction for meals (rather than the current 50%) as long as the expense is for food or beverages provided by a restaurant. This provision is effective for expenses incurred after Dec. 31, 2020, and expires at the end of 2022.
The president has not signed the bill as of the date of this writing. We plan to release additional details and other important tax and PPP provisions of the Act in future e-mails.
