Source: CO- The U.S. Chamber of Commerce. By: Sean Ludwig, Contributor, Published 12-21-2020
This week, Congress passed a $900 billion stimulus bill to assist individuals and small businesses that continue to be impacted by the COVID-19 pandemic.
For businesses, the new stimulus bill includes significant updates to the Paycheck Protection Program (PPP), changes to how PPP loans are taxed, tax credit eligibility changes, the ability to receive grants and more.
During the recent Small Business Update, U.S. Chamber of Commerce executive vice president and chief policy officer Neil Bradley and Jeanette Mulvey, content director at CO—, discussed the new coronavirus relief deal and the updates to PPP.
Here are some of the largest takeaways (among many) from the discussion.
Businesses can apply for PPP loans if they didn’t before
The new stimulus bill reopens the PPP program for any business that did not apply before and expands which types of businesses can apply for forgivable PPP loans, including 501(c)(6) non-profits, local news media organizations or housing cooperatives. The new funding for first-time PPP loans is available through March 31, 2021, or until the new funds are exhausted. Notably, the maximum loan amount for a first-time PPP loan has been reduced from $10 million down to $2 million.
Bradley said businesses should consider applying even if they did not submit the first time. “Whether you waited too long, the window was closed, or whatever the reason, [I would apply],” Bradley said.
A new ‘second draw’ PPP will offer businesses additional aid
Any business that qualified and received a PPP loan in 2020 will now have the chance to apply for a second PPP loan if they meet certain criteria. The “second draw” program will offer forgivable loans to small businesses, non-profits, sole proprietors and independent contractors if they meet these conditions: 1) the company has less than 300 employees, and (2) the company had a 25% reduction in gross receipts during at least one quarter of 2020 versus the same quarter of 2019. The maximum loan size for a second PPP loan is $2 million. Businesses should be on the lookout for a new application for the second-draw program.
Eligible PPP expenses have changed
To get a PPP loan forgiven, businesses needed to make sure 60% of the loan went toward payroll, and the remaining 40% could go toward expenses such as rent, utilities and interest on mortgages. Bradley notes that under the new loan terms, the 60% amount for payroll remains, but the 40% expenses have been expanded. Eligible non-payroll PPP expenses now include:
- Operations expenses: cloud computing services, business software, human resources and related expenses.
- Supplier costs: payments that go to suppliers who provide essential goods.
- Worker protection expenses: expenses that go toward keeping employees safer during COVID-19, including personal protective equipment (PPE), drive-thru windows, sneeze guards and outside dining enclosures.
- Covered property damage costs: costs related to riots or public disturbances that occurred in 2020 that were not covered by insurance.
Paycheck Protection Program loans are not taxable
One of the trickiest parts of the original PPP loan program was the fact the PPP loan could ultimately reduce how much a business owner could write off on their business taxes. This has been updated in the new stimulus bill.
“This is a really important change,” Bradley said. “Back when Congress first passed the PPP program, they said if the loan is forgiven, it doesn’t count as taxable income. So then along came the IRS who said it would not let you deduct business expenses that you paid for with PPP funds, which of course is a backdoor way of taxing your PPP loan. Congress fixed this; so whether you already received a loan or are getting one in the future, it’s retroactive all the way to the beginning of the CARES Act. It says that PPP loans aren’t taxable and the IRS can’t limit your deductions as a result of the PPP loan.”
[Read more: Will You Owe Taxes on Your Paycheck Protection Loan?]
Changes to the employee retention tax credit (ERTC)
Another massive change for companies in the new stimulus bill is that companies will be able to take advantage of both PPP loans and the employee retention tax credit (ERTC). It also greatly expands the ERTC in 2021, with the new ERTC credit offering a maximum of $14,000 per employee through June 30, 2021.
Originally, the CARES Act only allowed businesses to choose PPP or ERTC. Bradley notes that businesses should take these major changes into account for year-end tax planning purposes and start using it to help them plan out 2021. If a business used and exhausted a PPP loan early in 2020, for example, they could then use the ERTC to help them with their 2020 taxes.
“A lot of small businesses may not have taken advantage of the employee retention tax credit this year because they took a PPP loan,” Bradley said. “You now have the opportunity before the end of the year to claim that tax credit and look back at prior quarters and count those wages.”
EIDL grants will reopen
Notably, the new law sets aside $20 billion in order to reopen the $10,000 Economic Injury Disaster Loan (EIDL) grant program. This means more small businesses could apply for an EIDL grant to help them through this challenging time.
“These are $10,000 grants that you don’t have to repay,” Bradley said. “If you have experienced a more than 30% reduction in revenue in an eight-week period or if you operate in a low-income area, you have first priority for these EIDL grants. And if you got an EIDL grant for $2,000, you can also apply for that $8,000.”
Additionally, the new law revises the rules around EIDL grants so businesses can receive a full $10,000 EIDL grant and a PPP loan without the PPP loan forgiveness being reduced.
[Read more: How to Get Your PPP Loan Forgiven]
A new grant program for live venues
The new stimulus bill also sets aside $15 billion in grants specifically for live venues that have been impacted by the pandemic. This includes concert venues, movie theaters, museums and more.
“This is a new grant program, and you do need to demonstrate a significant reduction in revenue as a result of the pandemic,” Bradley said. “Then you can receive a grant for up to $10 million to help you pay for costs that a PPP loan would normally pay for. If you take one of these grants, you can’t also get a PPP loan. You have to choose, but the dollar amount of the grant might be higher and you don’t have to worry about applying for forgiveness.”
Bradley notes that the $15-billion cap means any company in the live event industry should get started on preparing for this right away in order to get a crack at these funds. Event operators should be ready to apply as soon as the applications open.