PPP Loan Forgiveness is Non-Taxable For Many Businesses

Congressional leaders reached a deal on an almost $1 trillion COVID-19 economic relief package – the Consolidated Appropriations Act, 2021.  The President is expected to sign this bill into law soon.  

The agreement includes $300 per week in enhanced unemployment benefits and $600 direct stimulus payments to many Americans, along with a new round of subsidies for hard-hit businesses, funds for education, public transit, welfare programs, health care providers, theater operators and rental assistance.

The bill is over 5,000 pages and it will take time to digest and interpret all the provisions.  Here are some highlights of the final bill:

PPP Borrower Tax Relief

• Excellent News!  – The new agreement allows PPP borrowers to deduct PPP loan-related expenses AND continue to exclude loan forgiveness from income.  
• There appear to be some problems in the wording of these provisions in the bill that will hopefully be resolved in future technical corrections.  The expectation is that most businesses should receive this favorable tax treatment.  
• Note:  We prepared tax 2020 projections including the PPP funds as income, per the IRS  guidance that was in place.  If PPP loan income was included in your tax projection, AND you have a tax payment due January 15, 2021, please contact us in January and we will adjust your projection as needed.  Otherwise, we will work on returns and, if needed, have adjusted payments resolved in time for the April 15th deadline.    

Business Meals Will Be Fully Deductible 

• More Excellent News! – The 50% limitation has been lifted for the 2021 and 2022 tax years for meals provided by a restaurant.

Simplified Applications for Loans Under $150,000 and to a More Limited Extent for Loans Between $150,000 and  $2,000,000

• Borrowers who received less than $150,000 in PPP loans during the first round will now only have to submit a one-page application for forgiveness, but all of the same rules apply.

EIDL Advance Non-Taxable and Retroactively No Longer Reduces PPP Loan Forgiveness 

• If your business received an EIDL advance/grant, it will no longer reduce your PPP loan forgiveness amount.
• Borrowers that have already received loan forgiveness presumably may now amend their application to request that the EIDL advance not reduce their forgiveness amount.

New Round of PPP Loans for Eligible Companies

• The new Act allows new and old borrowers to receive a PPP loan if they meet the requirements of an “eligible entity” and the “necessity” test.
• Loan amount would be 250% of average monthly payroll with a maximum loan size of $2 million (rather than $10 million in round one).
• Applies to borrowers with 300 employees or less (as opposed to 500 in round one), and alternative size standards apply.
• Borrowers must demonstrate a 25% reduction in gross revenue in any quarter of 2020 as compared to the same quarter in 2019.

• Borrower must certify as to loan necessity (same as in round one).
• Broader scope on use of funds to include certain PPE and other items.
• PPP borrowers can select a covered period for as short as 8-weeks and as long as 24-weeks.
• Certain borrowers can amend loan applications to request an increase in PPP loan amount.

A New Targeted EIDL Program For Businesses Hardest Hit by the Coronavirus

• These grants would be taxable.

A Number of Expiring Provisions Have Been Extended

• Employee Payroll Tax Deferral
• Families First Coronavirus Response Act (FFCRA) credits
• Employee Retention Tax Credit
• Charitable contributions for non-itemizers
• Charitable cash contributions AGI limit
• Medical expense deduction AGI limit
• A host of other more obscure provisions

Conclusion

This bill provides much needed relief to small businesses affected by the Coronavirus.  This bill is over 5000 pages and many lawmakers admit they did not read it prior to voting on it.  It is likely there will be many changes, corrections and conflicting interpretations of this bill.  You can rest assured that we continue to monitor these updates and changes closely and keep you informed of key provisions.  We are honored to be a part of your team and hope that you and your family have a healthy and wonderful holiday.  

Resources

• Journal of Accountancy