After months of delays and stalled negotiations, Congress passed the second largest stimulus bill in U.S. history: The Consolidated Appropriations Act. President Trump signed the bill on December 27, 2020. This much-needed and long-awaited pandemic relief package comes after months of surging COVID-19 cases and repeated lockdowns. The new aid package provides $600 stimulus checks for some individuals, enhanced federal unemployment benefits of $300 per week, and additional funding and support for hard-hit small businesses. While both parties indicated that the relief bill doesn’t address all pandemic-related economic concerns, many believe that more aid is on the way once President-elect Joe Biden is inaugurated.
For small businesses worried about keeping their doors open and retaining employees, key provisions of the $900 billion COVID-19 relief bill include $285 billion to renew the Paycheck Protection Program (PPP), $20 billion in Economic Injury Disaster Loan (EIDL) advances, and $15 billion in aid for live-venue operators, independent movie theaters, music clubs, and cultural institutions. The stimulus also reauthorized the Employee Retention Credit for the first two quarters of 2021 and provided other forms of tax relief. There were also some adjustments made to the PPP loan eligibility rules and terms as well as rules surrounding the tax credits.
The return of the PPP, or PPP2 as some sources are calling it, is welcome relief for many small businesses who were either shut out of the initial round of funding or could use a second loan to help them get through tough times as the pandemic drags on. Learn more about the new PPP2 provisions including who is eligible to apply, changes to loan terms including an expansion of covered expenses, and tax deductibility. Plus find out how your business can benefit from other provisions in the new COVID-19 relief package.
More funding for forgivable PPP2 loans
First authorized by the CARES Act, the Paycheck Protection Program supported $525 billion in forgivable loans to 5.2 million U.S. businesses according to reports from the Small Business Administration. The latest COVID-19 relief package has reauthorized the PPP with a few important differences. In particular, the PPP2 includes some stricter terms that address several unpopular elements from the original program—for example, publicly-traded companies are not eligible for PPP2 loans but nonprofits are eligible for the first time. Here are some additional highlights:
First-time PPP borrowers must have 500 or fewer employees and can apply for up to $10 million.
Previous PPP recipients are eligible for a new loan if the business experienced significant revenue losses in 2020. To qualify for a “second draw loan,” a business must have 300 or fewer employees and demonstrate a 25 % loss in any one quarter in 2020 as compared to 2019. The maximum loan amount for second-time borrowers is capped at $2 million.
Borrowers can now choose a longer covered period—borrowers can elect to use the proceeds during a period of no less than 8 weeks to no more than 24 weeks.
There are more expenses that can be covered by PPP2 loans yet still qualify for 100% forgiveness. For example, PPP proceeds can be used for Personal Protective Equipment (PPE) and other costs required to adhere to COVID safety standards, supplier costs, and any property damage not covered by insurance related to public disturbances in 2020.
The loan forgiveness process has been simplified for loans less than $150,000.
Expenses paid with forgiven PPP loan proceeds will now be tax deductible—this is a reversal from previous IRS guidelines.
Businesses applying for PPP2 loans should remember that demonstrating need is still a part of the application process. Each business must attest and certify in good faith that the loan is necessary for business survival. And to be eligible for full loan forgiveness, PPP2 borrowers have to spend at least 60% of the funds on payroll over their elected covered period.
$20 Billion for EIDL Advance Grants
At the beginning of the COVID-19 crisis, the EIDL Loan Advance was made available to small businesses experiencing a temporary loss of revenue. The new COVID-19 relief bill added $20 billion in EIDL grant aid for businesses in low-income communities. Advance grants are limited to $10,000, but if a business didn’t get the maximum allowable amount in 2020, they can reapply for additional aid. Another notable change is that proceeds given to PPP borrowers no longer need to be reduced from the amount eligible for forgiveness.
Important changes to and extension of the Employee Retention Credit
The Consolidated Appropriations Act made some changes to the Employee Retention Credit (ERC) to provide help to small businesses in the form of tax relief. Forbes Columnist Anthony Nitti explains that the Act expands the eligibility rules for the ERC to include PPP loan borrowers from March 12, 2020 through December 31, 2020. For the 2020 tax year, the credits are calculated at 50% of qualifying wages with the maximum amount of creditable, qualified wages capped at $10,000 for all quarters.
The second part of the Act reauthorizes the ERC from January 1, 2021 through June 30, 2021 but increases the credit amounts. Eligible employers, including PPP loan borrowers, can claim payroll tax credits calculated at 70% of qualifying wages. For 2021, the Act also increases the maximum amount of creditable, qualified wages to $10,000 for any quarter.
Other relief targeted for small businesses
The Act also includes some additional tax relief measures that could help small businesses. Though the emergency paid sick leave coverage provided in the CARES Act has officially expired, the Consolidated Appropriations Act extends the employer tax credits for providing paid sick leave and family and medical leave through March 21, 2021.
Businesses can also take advantage of a larger tax deduction for business meals while helping out your favorite local restaurants. The deductibility of business meals has been raised from 50% to 100% for the 2021 tax year.
Learn more at Asure’s COVID-19 Resource Center
Asure created the COVID-19 Resource Center to help business leaders keep up with changing legislation and assistance programs. There, you can access eBooks, articles, and webinars to help you make the best possible decisions for your business during this challenging time. For more information about the latest stimulus bill, be sure to watch How the $900B COVID Relief Bill Affects Small Businesses. During this webinar, Asure compliance experts unpack what the relief bill means for small businesses and what to do to qualify.