stimulus 12/27/2020 - businesses
Below is a summary of significant provisions of the Consolidated Appropriations Act, 2021 (the Act) that was signed into law on December 27, 2020. The items summarized below are the provisions of the Act we believe are most relevant for our clients.
Second Round of Paycheck Protection Program Loans (PPP2)
Small businesses and not-for-profits that were harder hit, as a result of the economic fallout from COVID-19, can apply for a second PPP loan. To be eligible, the entity must:
Deductibility of PPP Expenses
The original CARES Act passed earlier in 2020 that created PPP loans made clear that PPP loan forgiveness would be tax-exempt income. However, the IRS took the stance that, while the loan forgiveness would be tax exempt, expenses paid with PPP loans would not be deductible. This most recent Act makes clear that PPP loans forgiven are tax-exempt income and expenses paid with PPP funds are deductible.
Simplified PPP Loan Forgiveness Application
The Act directs the SBA to create a one-page forgiveness application for loans of $150,000 or less. The form shall require the borrower to:
100% Deduction for Business Meals
Between January 1, 2021 and December 31, 2022 meals purchased from a restaurant will be 100% deductible. Previously, only 50% of business meals were deductible.
Second Round of Paycheck Protection Program Loans (PPP2)
Small businesses and not-for-profits that were harder hit, as a result of the economic fallout from COVID-19, can apply for a second PPP loan. To be eligible, the entity must:
- Employee 300 or fewer employees.
- Have used all of the previous PPP loan proceeds.
- Have at least a 25% reduction in revenue in a calendar quarter in 2020 compared to 2019. Additional rules apply if the business or not-for-profit was started in 2019 or 2020.
Deductibility of PPP Expenses
The original CARES Act passed earlier in 2020 that created PPP loans made clear that PPP loan forgiveness would be tax-exempt income. However, the IRS took the stance that, while the loan forgiveness would be tax exempt, expenses paid with PPP loans would not be deductible. This most recent Act makes clear that PPP loans forgiven are tax-exempt income and expenses paid with PPP funds are deductible.
Simplified PPP Loan Forgiveness Application
The Act directs the SBA to create a one-page forgiveness application for loans of $150,000 or less. The form shall require the borrower to:
- Provide the number of employees the employer was able to keep because of the loan.
- Provide an estimate of the amount of the loan spent on eligible payroll cost.
- Provide the total loan amount.
- Attest that the borrower –
- Accurately provided the required certification.
- Complied with PPP loan requirements.
- Retain records to prove compliance.
100% Deduction for Business Meals
Between January 1, 2021 and December 31, 2022 meals purchased from a restaurant will be 100% deductible. Previously, only 50% of business meals were deductible.