The new tax law just signed by President Trump has significantly changed the current Paycheck Protection Program.
Most importantly, it provides a second round of additional PPP loan funding.
Here are the key changes — from forgiveness to the requirements for new PPP funding.
PPP Program and Forgiveness
- The expenses paid with PPP funds and the EIDL grant are now fully deductible.
- PPP loans and the EIDL grants that businesses received will be treated as tax exempt income and therefore not be taxable. For partnerships and S corporations, it will increase the basis of the partner’s or shareholder’s equity by the amount forgiven. However, you cannot increase your basis until the PPP loan is actually forgiven. That may mean that even though you can report the expenses on your 2020 tax return, if it generates a loss and you do not have enough basis, you may have to wait until 2021 to increase your basis by the amount of the loan forgiven. We’ll have to wait until the SBA provides more clarity.
- The EIDL grant that you received will no longer reduce the amount of the PPP loan that is eligible for forgiveness.
- Any PPP loan under $150,000 will have a new simplified form for forgiveness.
The form asks for:
- The number of employees that were retained by the use of PPP funds
- The estimated amount of payroll costs
- The total loan and attestation for which you used the money
- Attestation that the information you are providing is accurate.
No documentation needs to be submitted, but you will be required to save the information for 4 years.
For loans between $150,000 and $2,000,000, the form will be more complex, but still simpler than anticipated. It is not yet clear what documentation will be required with the loan forgiveness application.
The SBA and the Treasury Department should be coming out with more details within the next few weeks.
We are available now to help you prepare the forgiveness applications to be submitted to your bank. Please let us know if we can be of assistance.
Second round of funding for new PPP loans
In order to be eligible for the second round of PPP loans:
- a) You must employ less than 300 peopleb) You have used or will use the total amount of the previously received PPP loan by the time you receive the second PPP loan round. At this time it appears that you must have previously received PPP funds to apply for the second round.c) Your gross receipts for any quarter of 2020 must have decreased by more than 25% from the same quarter in the prior year
d) The loan must be necessary.
- The loan amount will be 2.5 times the average monthly payroll for 2019 or the 12 months prior to the application. For Restaurants and Hotels (NAICS code 72), the amount is 3.5 times the average monthly payroll for same periods.
- The covered period for the new loan will be from 8 up to 24 weeks, to be chosen at your discretion. The funds received must be used for:
*At least 60% of payroll costs, which now includes group health insurance coverage.
The 40% non-payroll costs have been expanded to include:
a) Covered Operations expenditures (business software or cloud computing for HR, sales or billing, and accounting)
b) Covered property damage
c) Covered supplier costs, which include costs of goods sold, and
d) Any work or protection expenditures.
Again, we need to wait for more SBA guidance.
If your sales have dropped by at least 25% and you are still feeling the effects of the crisis, you should consider filing an application for the new round of PPP funding sooner rather than later. You can file with your bank or any Eligible Fintech company. The SBA will provide more information over the next few weeks.
The deadline to apply is 3/31/21.
As always, we are here to help. Our CPA Governing body has partnered with FinTech firm, Biz2Credit, and created a portal that we can use to help our clients file for the PPP loan. You can either file with your bank or with Biz2Credit. Biz2Credit has stated that their turnaround time would be very quick. The process is user-friendly as well.
If you would like us to assist you in preparing the new application, please reach out to us immediately. We believe the funds will go very fast.
As always, we will keep you informed as more guidance and regulations are issued.