Unfortunately, there’s not an easy name to remember (like the CARES Act), but this bill is (almost) just as important. Since the COVID and tax-related sections make up a relatively small portion of this massive, 5,500-page, $2.3 trillion budget bill, we’ll save you the trouble of sorting through the text and give you the relevant highlights. Keep in mind that, as of the writing of this article, the bill has not yet been signed by the President (but we’re being told it’s a foregone conclusion—which it better be, for how long this has taken).
So, what made it in? For better or for worse, we got pretty much what we expected. First up:
$600 for each individual and dependent under the age of 18. Note that, if you’re eligible to be claimed as a dependent on another person’s tax return, you are not eligible for a payment (regardless of whether or not you actually are claimed as a dependent). What this leaves in place is the hole for those 18+ year-olds who are still dependents. Similar to the CARES Act, the payments phase out when married filing joint taxpayers hit AGI of $150,000 ($75,000 for single). Amounts will be based on 2019 tax info and are able to be trued up (but only if you’re eligible for more) on your 2020 tax return.
Great news here for hard hit businesses—there’s a round 2. However, round 2 is much more restrictive as to who is eligible. Your business must have fewer than 300 employees, you must show at least a 25% drop in gross receipts during a quarter in 2020, when compared to that same quarter in 2019, and loan amounts are limited to $2 million. There is some expansion of terms though. The borrower is able to use any covered period lasting between 8 and 24 weeks that begins after the loan disbursement date. Plus, eligible costs now include “Operations” (i.e. software), “Property Damage” stemming from public disturbances occurring during 2020 that was not covered by insurance, “Supplier” costs, and “Worker Protection.” Note that the 60% payroll rule still applies. Most of the other provisions are similar to PPP round 1. There is one notable exception (which we’re thinking may be an oversight that will be corrected at some point). There are NO provisions for FTE or salary/hourly wage reduction tests.
More on PPP Loans
Possibly the biggest (and most simple) single item that businesses care about today is the deductibility of expenses paid with PPP proceeds. Good news—it’s in there. The bill makes it clear that no taxpayer will incur a tax liability by virtue of receiving loan forgiveness.
Existing PPP Loans
I’m sure many of you are wondering at this point whether or not you can take advantage of the new squishy covered period and expansion of eligible costs. Good news—you can—as long as you haven’t applied for forgiveness yet. If you have, hopefully you’re getting full forgiveness, and thus don’t care. If you haven’t applied for forgiveness yet, and are worried about receiving full forgiveness, let’s talk.
Expansion of the Employee Retention Credit
Until today, getting a PPP loan and taking the Employee Retention Credit was like mixing chlorine and ammonia (please don’t do that – it’ll kill you), you just didn’t do it. This bill changes the laws of chemistry and makes it ok … you just can’t double up. So, the Employee Retention Credit and a PPP Loan now play nicely together, but you can’t take the credit for wages paid with PPP funds (for which you’re claiming forgiveness) and vice versa. In addition to this, the program is extended through July 21, 2020, the credit percentage is increased to 70% of eligible wages, the cap of $10,000 per employee is now increased to $10,000 per employee per quarter, and the revenue decrease test is now just 20% instead of 50%.
Other Items to Note
- EIDL advances—no longer reduce PPP loan forgiveness.
- PPP Loans of $150,000 will have a simple, one-page forgiveness application.
- Business meals and entertainment—this one is a surprise, although maybe it shouldn’t be considering how hard the restaurant industry has been hit—full tax deduction for business “restaurant” meals (does this mean eat-in only?) in 2021 and 2022.
- Increase to above the line charitable contributions—the CARES Act created a $300 above the line (i.e. non-itemizing) deduction for charitable contributions. That’s now $600 for married filing joint taxpayers.
That’s it for the hot items. Lots of details to work through yet, but we (as always) like to get a head start.
Questions on submitting your PPP loan application or the forgiveness process?
Our team stands ready to assist you through the PPP loan application and forgiveness process. Do not go at it alone. Ensure you are submitting the right information and receiving the highest forgiveness amount possible. Visit our PPP Loan Consulting webpage by clicking here to request assistance or support.