The Consolidated Appropriations Act, 2021 (the Act) includes $900 billion in COVID-19 stimulus relief, along with a broader $1.4 trillion omnibus spending package to fund the federal government through the 2021 fiscal year.
The Act is comprehensive (over 5,000 pages) and contains several updates to the Paycheck Protection Program (PPP) and introduces new eligibility criteria for PPP 2.0.
Paycheck Protection Program Updates
Of extreme importance to PPP borrowers, the Act allows PPP borrowers to fully deduct their covered expenses, while also not reducing tax basis or tax attributes. In addition, borrowers who claim the R&D credit will not have a potential reduction in their qualified R&D expenses now that expenses paid with PPP funds are deductible.
This change is retroactive to March 27, 2020, the date of the CARES Act. Taxpayers have been looking to Congress to address this issue with legislation since the IRS took the position that expenses paid with PPP funds were not deductible.
The Act expands eligible covered costs to include certain costs related to property damage, supplier costs and worker protection expenses. These costs, along with other nonpayroll costs, cannot make up more than 40% of a borrower’s PPP expenses.
Under the Act, borrowers are also permitted to use a covered period between 8 and 24 weeks. Previously, borrowers only had the option to use an 8- or 24-week period.
Finally, the Act includes a simplified forgiveness process for PPP loans of $150,000 or less.
Paycheck Protection Program 2.0 Eligibility
The Act contains approximately $284 billion for PPP 2.0. Taxpayers that failed to participate in the original PPP loan program still fall under the original guidelines (500 or fewer employees, etc.). While there are some similarities to PPP 1.0, the Act makes several modifications and introduces new eligibility criteria to PPP 2.0, as detailed below.
- Borrowers must have 300 or fewer employees
- Borrowers must show 25% reduction in revenue when comparing any quarter from 2019 to the same quarter in 2020
- Monthly payroll, at the election of the borrower, is based on the greater of trailing 12 months or the 2019 calendar year
- Loan amount is limited to the lesser of 2.5 times the average monthly payroll or $2 million
- 72 NAICS code (i.e., restaurants and hotels) are eligible for the lesser of 3.5 times the average monthly payroll or $2 million
- The same waiver of the affiliation rules that applied in PPP 1.0 apply for PPP 2.0
The Small Business Administration (SBA) will need to issue guidance on the accounting principles borrowers must use to compute the 25% decline in revenue. The Act requires the SBA to release guidance within 10 days of the passage of the Act.
Connect with a PPP Advisor
Warren Averett will continue to keep you informed as information is made available. If you have questions about how these provisions impact your business, please reach out to your Warren Averett advisor, or have a member of our team reach out to you
This article was originally published on December 22, 2020 and was most recently updated on December 28, 2020.