As you have likely heard, Congress has finally passed a second COVID-19 stimulus package only to have President Trump demand Congress significantly revise the bill. Notably, President Trump did not comment on provisions regarding the topics addressed below, which we believe are the provisions most important to employers. Accordingly, in hopes that a law will be enacted, we highlight the key anticipated provisions for employers below.
Changes in Eligibility/Loan Amounts
The bill reopens and funds the Paycheck Protection Program and revises the rules regarding eligibility and loan amounts.
Eligibility:
- Loans are generally available to businesses with no more than 300 employees.
- As with the first round of PPP loans, restaurants and hotels are eligible based on number of employees per location (while other businesses are eligible based on total number of employees across all locations).
- Borrowers must be able to demonstrate a 25% reduction in gross revenue in Q1, Q2 or Q3 of 2020 as compared to the same quarter in 2019.
- Borrowers must be able to certify that under current economic uncertainty the loan is necessary to support the borrower’s ongoing operations.
Loan Amount:
- The loan amount for most businesses will be 2.5 x their monthly payroll costs (or 250%).
- Businesses with a NAICS code beginning with “72” (including restaurants and hotels) will be eligible for 3.5 x their monthly payroll costs (or 350%).
- The maximum loan amount per borrower is $2 million.
Deductibility of Expenses
Qualified business expenses paid with the proceeds of a PPP loan are now deductible. The bill also revives the tax deduction for business meal expenses.
Changes to PPP Loan Forgiveness
The bill adjusts the rules relating to the expenses eligible for forgiveness and simplifies the loan forgiveness application process for loans of $150,000 or less.
Expenses eligible for forgiveness now also include:
-
“Covered worker protection expenditures,” i.e., expenses incurred to maintain a safe working environment such as PPE, physical changes required to enable social distancing, ventilation systems, etc.; and
- “Covered property damage cost” which are expenses incurred due to property damage and vandalism or looting due to public disturbances that occurred earlier this year that were not covered by insurance or other compensation.
These costs would be included as non-payroll costs which may account for up to 40% of the loan forgiveness amount.
Tax Credits
Employee Retention Tax Credit
The bill extends and expands the Employee Retention Tax Credit (ERTC) by changing the calculation from 50% of wages paid up to $10,000 to 70% of wages paid up to $10,000. The bill also clarifies that businesses can simultaneously take the ERTC and receive a PPP loan.
FFCRA Payroll Tax Credit Extension
While we await interpretation from the U.S. Department of Labor, it appears that the mandated paid leave required under the Families First Coronavirus
Response Act (FFCRA) is still set to expire on December 31, 2020.
However, the bill provides that if an employer continues to provide paid leave as if the FFCRA was in effect until March 31, 2021, employers may still apply for payroll tax credits for amounts paid to employees, up to the existing daily and aggregate maximums currently in place.
Therefore, while it appears that employers will not be legally obligated to provide paid leave under the FFCRA after December 31, 2020, if the employer chooses to do so, they can still reap the benefits of tax credits for such paid leave provided until March 31, 2021.
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Happy Holidays!
If you have questions or would like additional information, please contact Ilan Weiser (iweiser@egsllp.com) or the primary EGS attorney with whom you work.
