A measure to extend the Paycheck Protection Program (PPP) application deadline from March 31, 2021, to May 31, 2021, has passed the U.S. House of Representatives and the Senate. It now heads to President Biden’s desk for signature which he is expected to do promptly.
Small businesses will have until May 31, 2021, to continue submitting first and second-draw PPP loan applications to the Small Business Administration (SBA). The SBA was also granted an additional 30 days past May 31 to finish processing applications. The measure does not include any funding increases for the program.
Contact us for assistance with your PPP loan or forgiveness applications.
President Biden signed the $1.9 trillion American Rescue Plan Act (ARPA) on March 11. While the new law is best known for the provisions providing relief to individuals, there are also several tax breaks and financial benefits for businesses.
Here are some of the tax highlights of the ARPA.
The Employee Retention Credit (ERC). This valuable tax credit is extended from June 30 until December 31, 2021. The ARPA continues the ERC rate of credit at 70% for this extended period of time. It also continues to allow for up to $10,000 in qualified wages for any calendar quarter. Taking into account the Consolidated Appropriations Act extension and the ARPA extension, this means an employer can potentially have up to $40,000 in qualified wages per employee through 2021.
Employer-Provided Dependent Care Assistance. In general, an eligible employee’s gross income doesn’t include amounts paid or incurred by an employer for dependent care assistance provided to the employee under a qualified dependent care assistance program (DCAP).
Previously, the amount that could be excluded from an employee’s gross income under a DCAP during a tax year wasn’t more than $5,000 ($2,500 for married individuals filing separately), subject to certain limitations. However, any contribution made by an employer to a DCAP can’t exceed the employee’s earned income or, if married, the lesser of employee’s or spouse’s earned income.
Under the ARPA, for 2021 only, the exclusion for employer-provided dependent care assistance is increased from $5,000 to $10,500 (from $2,500 to $5,250 for married individuals filing separately).
This provision is effective for tax years beginning after December 31, 2020.
Paid Sick and Family Leave Credits. Changes under the ARPA apply to amounts paid with respect to calendar quarters beginning after March 31, 2021. Among other changes, the law extends the paid sick time and paid family leave credits under the Families First Coronavirus Response Act from March 31, 2021, through September 30, 2021. It also provides that paid sick and paid family leave credits may each be increased by the employer’s share of Social Security tax (6.2%) and employer’s share of Medicare tax (1.45%) on qualified leave wages.
Grants to restaurants. Under the ARPA, eligible restaurants, food trucks, and similar businesses that provide food and drinks may receive restaurant revitalization grants from the Small Business Administration. For tax purposes, amounts received as restaurant revitalization grants aren’t included in the gross income of the person who receives the money.
These are only some of the provisions in the ARPA. There are many others that may be beneficial to your business. Contact us for more information about your situation.
The American Rescue Plan Act (ARPA) of 2021 passed Congress and President Biden signed the bill into law on March 12, 2021. The ARPA approves $1.9 trillion in spending for individuals, businesses, governments, and certain industries impacted by the COVID-19 pandemic. The third Act in a year, the ARPA approves additional economic impact payments for individuals; the extension of federal unemployment benefits; additional funds for Paycheck Protection Program (PPP) Loans, and Economic Injury Disaster Loans (EIDL) for hard-hit small businesses; and grants for food and beverage establishments. Here are the key individual and business provisions in the bill.
Individual provisions in ARPA
The bill extends and slightly alters two key benefits many individuals have been relying upon through the pandemic.
Unemployment – Federal benefits of $300 per week (in addition to state benefits) are extended through Sep. 6, 2021. The first $10,200 in federal unemployment benefits is tax-free for households making less than $150,000 per year in 2020. Taxpayers who received unemployment income may need to update 2020 tax returns if already filed.
Economic impact (stimulus) payments (EIPs) – The IRS will issue another round of EIPs at $1,400 per individual, $2,800 per married filing joint (MFJ), plus $1,400 per dependent. Income phase-out limits reduce from previous EIPs to $80,000 for individuals and $150,000 for MFJ. Full-time students under the age of 24 are now eligible for economic impact payments (EIP), unlike previous rounds. Your 2019 or 2020 adjusted gross income (AGI) is the basis for EIPs, so taxpayers will want to consider when to file their 2020 tax return to ensure a maximum EIP benefit.
Small business funding provisions in ARPA
The bill includes additional funding for small business relief programs, including the PPP, EIDLs, and industry-specific relief.
PPP – The Act allocates an additional 7.25 billion in additional funds, and the eligibility expands to include:
- Nonprofits listed under Sec. 5019(c) that are not (c)(3), (4), (6), or (19)s with 300 or fewer employees can now apply. To be eligible, you must not receive more than 15% of receipts from lobbying, and lobbying cannot comprise more than 15% of activities. The cost of lobbying cannot exceed $1 million.
- Larger 501(c)(3)s and veterans’ organizations with up to 500 employees.
- Larger 501(c)(6)s, domestic marketing organizations, and additional covered nonprofits with up to 300 employees per physical location.
- Internet-only news and periodical publishers with more than one location and no more than 500 employees per location as eligible as long as the organization supports locally-focused or emergency information.
The deadline is still Mar. 31, 2021, to apply, so don’t delay.
EIDL advance payments – The Act allocates $15 billion for EIDL advance payments, and eligibility requirements state:
- Businesses must be in low-income communities with no more than 300 employees.
- The economic loss of more than 30% must be shown through gross receipts decline in an 8-week period between Mar. 2, 2020, and Dec. 31, 2021, compared to a comparable 8-week period immediately preceding Mar. 2, 2020.
- The timeline for issuing advances is as follows:
- First 28 days – Reserved for those who applied for Targeted EIDL Advances under the EAA and did not receive one due to lack of funds.
- Next 14 days – Reserved for severely impacted small businesses to receive grants of up to $5,000. Eligible entities must have a loss of more than 50% and ten or fewer employees.
- Next 14 days – Reserved for substantially impacted businesses to receive grants of up to $5,000 if they had a loss between 30-50% and 10 or fewer employees.
- Funds from Restaurant Revitalization Fund (RRF) and targeted EIDL advances are not included in gross income. No tax deductions will be denied, no tax attributes reduced, and no basis increase denied due to this exclusion from gross income.
Restaurants, bars, and other eligible food and beverage providers – The Act allocates $28.6 billion for grants, and $5 billion is set aside for applicants with 2019 gross receipts of $500,000 or less.
- Eligibility expands to food stands, food trucks, food carts, caterers, saloons, inns, taverns, lounges, brewpubs, tasting rooms, taprooms, and any licensed facility of a beverage alcohol producer that provides tasting, sampling, or purchasing.
- Grants are equal to the pandemic-related revenue loss of up to $10 million per entity or $5 million per physical location, limited to 20 locations.
- The grant revenue loss is calculated by subtracting 2020 revenue from 2019 revenue.
- Grant funds may cover payroll, principal and interest on mortgage, rent payments (not prepayments), utilities, maintenance for outdoor seating, PPE supplies, food and beverage expenses within the scope of normal business, covered supplier costs, operational expenses, and paid sick leave.
- Good-faith certification is required.
- Applicants cannot also apply for or receive a Shuttered Venue Operator grant.
- There is a 21-day preference period for minority-owned and operated businesses, including women, veterans, and the socially and economically disadvantaged.
- The SBA must distribute grants in an “equitable manner to eligible entities of different sizes and annual receipts.”
Shuttered venue operators – The program is extended from the Consolidated Appropriations Act (CAA) with $1.25 billion allocated.
Community navigator pilot programs – $175 million is allocated for programs that increase awareness of and participation in COVID-19 relief programs for socially and economically disadvantaged business owners.
Other provisions of ARPA
- State, local, and Tribal support – An allocation of $350 billion for costs incurred by the end of 2024. You cannot use funds to offset tax cuts or create a pension fund. Small states should receive at least the same amount of funding as the Coronavirus Aid, Relief and Economic Security (CARES) Act.
- $750 million is allocated to communities with revenue hits due to declining tourism, travel, and outdoor recreation.
- K-12 schools – $130 billion.
- Colleges and universities – $40 billion.
- COVID-19 testing, vaccine support, hospital funding, public health emergencies, biomedical research – $92 billion.
- Airline industry and airports – $23 billion.
- Emergency rental and housing assistance – $30 billion.
For assistance with any of these provisions, please contact us.
Form 1040, Schedule C taxpayers received an updated interim final rule (IFR) on the Paycheck Protection Program (PPP) from the Small Business Association (SBA). The IFR clarifies guidance released on Feb. 22 that made changes to how self-employed and sole proprietors could calculate their maximum loan amount to help expand the program for these groups. Approximately 2.6 million sole proprietors have applied for PPP loans, and it is estimated there are about 25 million sole proprietors across the country.
The biggest adjustment made by the IFR is that these borrowers may calculate their maximum loan amount using their gross income. Previously, the calculation was done by using payroll costs plus net profits. This excluded many sole proprietors who had little or negative net profit.
Determining how much you can borrow
For sole proprietors with no employees the calculation is as follows:
- Use either line 31 net profit or line 7 gross income (up to $100,000)
- Divide by 12 and then multiply that amount by 2.5
First-draw and second-draw owner compensation is capped at $20,833; however, for accommodations and food services, second-draw owner compensation is capped at $29,167
For sole proprietors with employees, the calculation is as follows: Use either line 31 net profit or calculate the following using gross receipts:
- Line 7 gross income minus employee payroll costs (lines 14, 19, 26)
- Divide by 12 to get monthly total (cannot exceed $100,00 annually or $8,333 monthly)
- Add average monthly payroll costs
- Multiply by 2.5 months
The same owner compensation limits apply as for those with no employees.
Limited liability companies with only one member do qualify for these updated calculations, but single member S-corporations do not.
The calculation is only for loans submitted after the rule’s effective date of Mar. 3, 2021, meaning loans submitted between Jan. 1 and Mar. 2, 2021, would not be eligible for this new calculation. You can access the new forms here:
Additionally, the IFR states that first-draw PPP loans with $150,000 or less in gross income on a Schedule C will be eligible for the economic necessity safe harbor, but loans above will not and could receive additional SBA review.
The current PPP application period expires Mar. 31, 2021, and lenders are experiencing delays in implementing these new calculations. It is anticipated they will begin accepting applications the week of Mar. 8. We are continuously monitoring the situation for additional clarifications and updates.
The nation’s smallest businesses are getting revamped Paycheck Protection Program (PPP) rules and a special filing period announced in recent changes from the Biden-Harris administration. Small businesses with fewer than 20 employees make up 98% of the small businesses in the U.S. but have not received much assistance from the PPP so far and have accounted for a significant portion of business closures during the pandemic. These new rules seek to remedy that. Here’s what you should know.
Dedicated filing period – Small businesses with fewer than 20 employees will get a dedicated filing period starting Wednesday, Feb. 24 and running through Tuesday, March 9 to allow lenders to focus on loans for these businesses. This includes individuals who receive 1099s or are considered self-employed who file a Schedule C.
New calculations for ‘no-payroll’ business owners – Specifics have not yet been released, but self-employed, independent contractors, and sole proprietors can expect a new calculation method to account for the missing payroll component of their PPP loans. Additionally, $1 billion is being set aside for this group for those located in low and moderate-income areas.
More opportunities for underserved communities – Former felons (with nonfraud convictions) and non-citizen small business owners with Individual Taxpayer Identification Numbers (ITINs), green card holders, and those with visas will be eligible to apply for relief. Further guidance is expected.
Greater access for business owners with delinquent student loan debt – Business owners with delinquent or defaulted federal debt over the last seven years will now be able to apply for a PPP loan.
Address PPP processing delays – Anti-fraud violation checks have been a significant hold up for PPP processing, and the White House expects to continue to work with the Small Business Administration (SBA) to address this issue while maintaining program integrity.
Further guidance is expected in many of these areas, and we will continue to update you as it becomes available. Contact us for assistance with your PPP loan application or forgiveness application.
Last spring, the CARES Act created the ERC for businesses that were affected by the COVID-19 pandemic. However, the CARES Act disallowed the credit for businesses that received a Paycheck Protection Program (PPP) loan. Fast forward to December 2020, when Congress declared that businesses that had obtained PPP loans could also qualify for the ERC. In addition, Congress extended the availability of the ERC into the first two quarters of 2021, with a few new favorable provisions. The credit is refundable, which means that qualified businesses are able to get cash to the extent that the credit exceeds the payroll tax liabilities. The chart below outlines the terms of the ERC for both the original and extended filing periods:
How does PPP loan forgiveness impact the ERC?
In a statement from the Internal Revenue Service (IRS)
, “[t]he eligible employer can claim the ERC on any qualified wages that are not counted as payroll costs in obtaining PPP loan forgiveness. Any wages that could count toward eligibility for the ERC or PPP loan forgiveness can be applied to either of these two programs, but not both.” The release of the new loan forgiveness applications
on January 19, 2021, includes a provision to incorporate this change in guidance on a forward-looking basis. The revised loan forgiveness applications (Form 3508S
, Form 3508EZ
and Form 3508
) note that a borrower should “not include qualified wages taken into account in determining the Employee Retention Credit.”
My PPP loan was already forgiven, what now?
As I previously noted, a business cannot “double dip,” or utilize the same wages to obtain PPP loan forgiveness while still benefiting from the ERC. However, the ERC was not available to PPP recipients prior to December 27, 2020. Accordingly, those businesses that applied for loan forgiveness would have included all eligible payroll costs paid or incurred during the covered period pursuant to the instructions in the loan forgiveness applications. Certainly, those businesses shouldn’t be penalized for already receiving forgiveness prior to this change in the law; however, this wouldn’t be the first time we’ve seen something like that with the evolution of the PPP.
On January 15, the American Institute of Certified Public Accountants (AICPA) sought clarification on this matter. In a letter to the IRS, the AICPA “recommends that the IRS and Treasury provide guidance stating that the filing of a PPP loan forgiveness application does not constitute an election to forgo the ERC with respect to the amount of wages reported on the application exceeding the amount of wages necessary for loan forgiveness.” It is clear — additional guidance is imminent.
As we await clarification from the IRS, businesses who have already received forgiveness on their PPP loans should first evaluate their eligibility for the ERC. After concluding their eligibility, businesses should begin gathering payroll reports, government shutdown orders and financial statements to calculate and claim their credits.
Borrowers of PPP loans who have yet to apply for loan forgiveness have an alternative path; those businesses looking to leverage the ERC now have an additional element to consider in their evolving journey to loan forgiveness. This change in guidance further emphasizes the importance of an intentional strategy to maximize the benefits of both programs, but also leaves questions unanswered for borrowers who have already received forgiveness on their PPP loans.
The Small Business Administration (SBA) announced that the Paycheck Protection Program (PPP) reopened the week of January 11. If you’re fortunate to get a PPP loan to help during the COVID-19 crisis (or you received one last year), you may wonder about the tax consequences.
Background on the loans
In March of 2020, the CARES Act became law. It authorized the SBA to make loans to qualified businesses under certain circumstances. The law established the PPP, which provided up to 24 weeks of cash-flow assistance through 100% federally guaranteed loans to eligible recipients. Taxpayers could apply to have the loans forgiven to the extent their proceeds were used to maintain payroll during the COVID-19 pandemic and to cover certain other expenses.
At the end of 2020, the Consolidated Appropriations Act (CAA) was enacted to provide additional relief related to COVID-19. This law includes funding for more PPP loans, including a “second draw” for businesses that received a loan last year. It also allows businesses to claim a tax deduction for the ordinary and necessary expenses paid from the proceeds of PPP loans.
Second draw loans
The CAA permits certain smaller businesses who received a PPP loan and experienced a 25% reduction in gross receipts to take a PPP second draw loan of up to $2 million.
To qualify for a second draw loan, a taxpayer must have taken out an original PPP Loan. In addition, prior PPP borrowers must now meet the following conditions to be eligible:
- Employ no more than 300 employees per location,
- Have used or will use the full amount of their first PPP loan, and
- Demonstrate at least a 25% reduction in gross receipts in the first, second or third quarter of 2020 relative to the same 2019 quarter. Applications submitted on or after Jan. 1, 2021, are eligible to utilize the gross receipts from the fourth quarter of 2020.
To be eligible for full PPP loan forgiveness, a business must generally spend at least 60% of the loan proceeds on qualifying payroll costs (including certain health care plan costs) and the remaining 40% on other qualifying expenses. These include mortgage interest, rent, utilities, eligible operations expenditures, supplier costs, worker personal protective equipment and other eligible expenses to help comply with COVID-19 health and safety guidelines or equivalent state and local guidelines.
Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors and small agricultural co-operatives.
Deductibility of expenses paid by PPP loans
The CARES Act didn’t address whether expenses paid with the proceeds of PPP loans could be deducted on tax returns. Last year, the IRS took the position that these expenses weren’t deductible. However, the CAA provides that expenses paid from the proceeds of PPP loans are deductible.
Cancellation of debt income
Generally, when a lender reduces or cancels debt, it results in cancellation of debt (COD) income to the debtor. However, the forgiveness of PPP debt is excluded from gross income. Your tax attributes (net operating losses, credits, capital and passive activity loss carryovers, and basis) wouldn’t generally be reduced on account of this exclusion.
This only covers the basics of applying for PPP loans, as well as the tax implications. Contact us if you have questions or if you need assistance in the PPP loan application or forgiveness process.
The employee retention tax credit (ERTC) is intended to provide liquidity to employers during the pandemic and was greatly expanded in the Consolidated Appropriations Act of 2021 thanks to Sections 206 and 207 of the Taxpayer Certainty and Disaster Relief Act portion, opening the doors to more businesses to be able to qualify for and receive this credit who are facing significant hardship as a result of the coronavirus pandemic. Many changes from the original credit were enacted including an expansion in the amount of credit and business eligibility, and how it plays with the Paycheck Protection Program (PPP).
Here’s what you need to know about this credit, how it works, and how to apply. Note that when a provision is designated as effective Jan. 1, 2021, it does not apply to any retroactive credit claims.
Who is eligible for the ERTC?
The following businesses and organizations engaged in a trade or business are eligible to qualify for the ERTC:
- For-profit businesses
- Tax-exempt organizations
- Certain government entities that are state or local-run (Effective Jan. 1, 2021, previously no government entity at any level was eligible):
- Colleges or universities
- Organizations providing medical or hospital care
- Certain organizations charted by Congress (such as Fannie Mae, FDIC, Federal Home Loan Banks and Federal Credit Unions)
How does my business qualify for the ERTC?
An eligible organization can qualify for the ERTC if:
- Their operations are fully or partially suspended due to a lockdown order, OR
- Their gross receipts are less than 80% for a quarter in 2021 or the immediately compared to the same quarter in 2019 (or 2020 if the business was not open in 2019) or, there is a 20% drop quarter-over-quarter when comparing Q1 of 2021 to Q4 of 2020 compared to Q4 of 2019.
The gross receipts test is Effective Jan. 1, 2021, this is an increase from the previous law and expands the threshold for eligible businesses.
Effective Jan. 1, 2021, businesses with 500 employees or less are eligible to claim the credit even if an employee is working during the first two quarters of 2021 (an increase in the threshold from 100 employees in the original law). For affiliated companies sharing more than 50% common ownership, the 500 count is aggregated.
What is the time period for the credit, and when can I start collecting?
The passage of the bill at the end of December extended the availability of the ERTC through the first two quarters of 2021, allowing for more relief as the pandemic continues on. Qualified wages paid after March 12, 2020, and before July 1, 2021, are eligible for the credit.
Additionally, the new law will allow for an advanced credit for companies with 500 or fewer employees, allowing these companies to monetize the credit before wages are paid. The amount is based on 70% of the average quarterly payroll for the same quarter in 2019, and if there is excess advance payment, companies will need to repay the credit to the government.
How much credit can I receive?
Effective Jan. 2021, 70% of qualified wages are eligible for the ERTC including the cost to continue providing health benefits (such as if an employee is on furlough). This is an increase from the 50% provided in the previous stimulus bill. The qualified wage limit was increased to $10,000 per quarter per employee for the first 2 quarters of 2020. Previously was $10,000 per employee for the entirety of 2020.
Also, effective Jan. 1, 2021, the credit maxes out at an aggregate $14,000 per employee, or $7,000 for the first two quarters of 2021, and is available even if the employer received the maximum credit for wages paid to the same employee in 2020. This is an increase from the $5,000 max in the previous bill.
Additionally, the credit is now available for certain pay raises including hazardous duty pay increases (previously not allowed and is retroactive).
How does my PPP loan factor in?
First and foremost, companies with PPP loans can now also claim the ERTC, and the change is retroactive to the effective date of the original law (March 12, 2020). Key to note is that the ERTC cannot be applied toward wages covered by the PPP.
If, for example, your business received a PPP loan in 2020 and paid qualified wages in excess of the PPP loan amount, you could qualify and apply for the ERTC through an amended employment tax return (Forms 941X). This also applies to affiliate companies related to a PPP borrower. Furthermore, if your PPP payroll costs are not forgiven, those same payroll costs can be applied toward ERTC qualified wages. Your accountant can help you calculate and designate these costs.
Claiming the ERTC, with or without a PPP loan, requires careful calculation and documentation. Contact us for assistance with this credit.
The U.S. Small Business Administration (SBA) and Treasury have announced that lenders with $1 billion or less in assets will be able to open applications for the next round of Paycheck Protection Program (PPP) funding starting Friday, Jan. 15 at 9 a.m. ET. Both first and second-draw loans will be able to apply at that time. For large lenders, the application opens on Tuesday, Jan. 19 for first and second-draw loans.
Community financial institutions (CFIs) began accepting applications for underserved small businesses on Jan. 11 for first-draw loans and Jan. 13 for second-draw loans. More than 9,100 applications were submitted so far totaling over $1.4 billion of the $284.5 billion available in this round of funding.
As a reminder, the second round of PPP funding expanded certain provisions of the original program including:
- Expanded eligibility for nonprofits, independent contractors/sole proprietors/self-employed individuals, certain businesses eligible for other SBA 7(a) loans, accommodation and food services, business leagues with a Sec. 501(c)(6) designation, and news/nonprofit public broadcasting organizations.
- Expanded eligible costs including COVID-related worker protection and facility modifications; property damage costs related to public disturbances; suppliers expenditures essential to operations; operating expenditures for software/cloud computing services essential for running the business.
- Simplified applications for first-draw loans of $150,000 or less.
- Repeal of Economic Injury Disaster Loan advances (EIDL) deduction from forgiveness amount.
- Repeal of duo claims on a PPP loan and the employee retention tax credit program – Businesses can qualify for both.
- Allowance for second-draw PPP loans if a business has maxed out the first, has fewer than 300 employees, and a 25% reduction in revenue.
- Allowance of expenses paid with a PPP loan to be tax-deductible.
You can read more about the provisions of the second round of PPP funding in our blog. Contact us for assistance with a first or second-draw PPP loan and your forgiveness application.
Three new interim final rules (IFRs) for the Paycheck Protection Program (PPP) have been released from the Small Business Administration (SBA) and Treasury in response to the changes and second round of funding enacted by the relief portion of the Consolidated Appropriations Act signed at the end of December.
Here’s the breakdown on the first two IFRs.
Changes in provisions for first-draw PPP loans
First-time borrowers of PPP forgivable loans received consolidated rules in the IFR “Business Loan Program Temporary Changes; Paycheck Protection Program as Amended” as well as an outline of changes made by the Act. Here’s what this rule clarified:
- The authority to make PPP loans was extended to March 31, 2021.
- Eligibility was expanded to:
- Businesses that are also eligible for other SBA 7(a) loans with 500 or fewer employees.
- Independent contractors, sole proprietors, certain self-employed individuals.
- Nonprofits, including churches.
- Accommodation and food services – Fewer than 500 employees per location.
- Business leagues, chambers of commerce, visitor’s bureaus and others (not sports leagues) that fall under the Sec. 501(c)(6) designation – Must have fewer than 300 employees, less than 15% of receipts from lobbying, and less than 15% of activity and less than $1 million spent toward lobbying.
- Certain news organizations and nonprofit public broadcasting organizations with no more than 500 employees.
- Publicly traded companies or businesses with direct or indirect control by the president, vice president, head of executive departments, or members of Congress (including spouses) are now ineligible.
- Qualifying payroll documentation may include payroll records; payroll tax filings; Form 1099-MISC; Form 1040, Schedule C or Schedule F; sole proprietorship income and expenses; bank records.
- Hotels and restaurants can receive loans up to 3.5 times their average payroll cost (2.5 times for every other industry).
- Maximum loan amount is $10 million.
- Additional eligible costs include COVID-related worker protection and facility modifications; property damage costs related to public disturbances; suppliers expenditures essential to operations; operating expenditures for software/cloud computing services essential for running the business.
- First-draw loans of $150,000 or less can use a simplified forgiveness application (form is due to be released by Jan. 20).
Additionally, specific funds were set aside for minority, underserved, veteran, and women-owned businesses. When the PPP portal reopens on Monday, Jan. 11, lenders for underserved communities will have exclusive access for two days for first-draw loans and will be able to offer second-draw loans on Wednesday, Jan. 13. The portal will be open to all borrowers following these exclusive access days.
New provisions for second-draw PPP loans
In the IFR “Business Loan Program Temporary Changes; Paycheck Protection Program Second Draw Loans,” much-awaited guidance was released for those looking to apply for a second PPP loan. Here’s what it said:
Eligible borrowers must
- Have 300 or fewer employees
- Have used or will use the full amount of their first PPP loan on or before expected date of second loan disbursement, and the full amount must have been used on eligible expenses.
- Have had at least 25% reduction in revenue for all or part of 2020 compared to the same time in 2019. Gross receipts can be used for calculation, or annual tax forms can be used for those in operation for all four quarters of 2020.
- The gross receipts used for calculation were defined to include all revenue regardless of form in which it was received or accrued or the source.
- First draw PPP loans should not be included in 2020 gross receipts.
Third interim final rule clarifications
In an IFR released on Jan. 19, the SBA and Treasury made a few notable changes and clarifications to the PPP that apply regardless of which type of forgiveness application a business uses. Here are the key points:
- Alternative covered payroll periods are no longer available – This is a break from the previous PPP program that allowed businesses with biweekly or more frequent payroll schedules to use a covered period that aligns with their payroll schedule vs the date of loan disbursement.
- Covered periods begin on the date of loan disbursement – This isn’t new, but a reminder to businesses that you have 8 or 24 weeks from date of loan disbursement to use as your covered period.
- Be aware of cash compensation related to ERCs – If you’re considering pairing your PPP loan with an employee retention credit (ERC), be mindful of what wages you’re using for which program. Read more about the ERC here.
- Watch your owner cash compensation limit – As a reminder, self-employed individuals, general partners, or owner-employees with at least a 5% stake are limited in forgiveness on their compensation. You can use 2.5 months’ worth of compensation during the year used to calculate your PPP loan amount with a cap at $20,833 per individual across all businesses.
- Use a separate forgiveness application for each loan – If you have multiple entities and multiple PPP loans, each loan needs its own forgiveness application, including second-draw loans.
Additionally, the three forgiveness applications have been updated to account for changes in these IFRS. Here are the links:
New PPP application forms have been released for first or second-draw loans. We will continue to update you as further guidance becomes available. Contact us for assistance with your application for a first or second-draw loan or forgiveness.