Paycheck Protection Program: Highlights from the New Stimulus Bill

The Consolidated Appropriations Act 2021, a new stimulus bill passed by the House of Representatives and US Senate, includes tax provisions to help both individuals and businesses.

ppp loanSmall businesses that received Paycheck Protection Program (PPP) loans can deduct business expenses paid for with PPP loans, which can be forgiven by the government without incurring a tax. This provision overrules previous guidance from the IRS that business expenses paid with forgiven PPP funds are not tax deductible.

Second round of PPP loans

The COVID-19 relief bill also includes $284 billion for a second round of PPP loans, but has different eligibility requirements than the loans available earlier this year. Businesses that previously received PPP loans can apply for the new round of PPP loans.

Eligibility for previous PPP borrowers:

  • Must have already used or will use the full amount of their first PPP loan
  • Have 300 or fewer employees
  • Can certify a loss in gross revenue of 25% or more from at least one quarter of 2020 as compared to that same quarter in 2019

Sec. 501(c)(6) business leagues (such as chambers of commerce and visitors’ bureaus) with less than 300 employees and do not receive more than 15% of receipts from lobbying are eligible to apply for the PPP loans.

Other types of eligible borrowers include businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans; not-for-profits; sole proprietors, independent contractors, and eligible self-employed individuals; and 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.

PPP loan details

The loan limit is $2 million, and the amount a small business will qualify for is determined by taking their average monthly payroll in 2019 and multiplying it by 2.5. There is a special calculation for restaurants and food businesses in order to provide a larger loan amount of 3.5 months of average monthly payroll.

Small business can use the loan proceeds over a period of 24 weeks and can use the funds for payroll, rent and mortgage expenses. It can now also be used for operating expenses, workplace protection costs to protect employees from COVID-19 and covered property damage. To receive full loan forgiveness, at least 60% of the funds must be used on payroll costs during the covered period.

There will be a one-page, simplified forgiveness application for loans under $150,000. It will include loan information as well as a certification from the business owner that the funds were used properly and are eligible for forgiveness, but will not include calculations or other additional information.

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