New PPP News and the Employer Retention Credit

Congress has revived the Paycheck Protection Program (PPP) as part of the $900 billion COVID-19 relief bill that was signed into law on December 27. The Consolidated Appropriations Act of 2021 restarted the Paycheck Protection Program (a PPP second draw or PPP2). The new program has many of the same parameters as the first program, but there are also several essential differences.

One of the most significant changes is that PPP funding is available to businesses that have previously received a PPP loan. However, for a company to be eligible for a second PPP loan, it will have to show a decline in gross revenue by 25% or more in 2020 compared to the same quarter in 2019.

Some other requirements are:

  • The company must have 300 or fewer employees
  • First-round borrowers must have used or will use the full amount of their loan

PPP2 loans will be calculated using 2.5 times the average monthly payroll costs in 2019, 2020 or the 12 months prior to application. The maximum loan amount for a PPP2 loan will be capped at $2 million.

Hotels and restaurants are eligible for 3.5 times the monthly average payroll up to the $2 million cap. In addition, businesses that did not qualify last time do this time including housing cooperatives. News and 501(c)(6) organizations also qualify this time, but they have additional, specific criteria that must be met.

PPP Expense Deductibility

The act clarified that deductions are allowed for expenses paid with the proceeds of a PPP loan that is forgiven. Those PPP expenses eligible for forgiveness include:

  • Payroll costs (clarified to include group life, disability, vision or dental insurance), mortgage interest, rent and utility payments. This is the same as the first round of PPP funding.
  • Covered worker protection expenditures like personal protective equipment (PPE) and costs to comply with COVID-19 federal health and safety guidelines.
  • Covered supplier costs include expenditures to a supplier that are essential to the recipient’s current operations.
  • Covered operations expenditures including software, cloud computing and other HR/accounting expenses.
  • Covered property damage costs, which include costs related to 2020 public disturbances not covered by insurance or other compensation.

This deductibility applies to original PPP loans as well a new PPP loans (unless forgiveness has already been processed).

Simplified Forgiveness

There is good news for those with loans under $150,000 as the bill creates a simplified forgiveness application for them. The form is to be no longer than one page. Plus, the borrower is required to certify use of the funds without providing any documentation to the bank when submitting the forgiveness application.

Economic Injury Disaster Loan (EIDL) Advance

PPP forgiveness is no longer reduced by any EIDL advance received.

PPP Borrowers Can Now Take the Employer Retention Credit

The act extends this program through June 30, 2021, and increases the amount of the credit. For 2020, the credit was equal to 50% of qualified wages for each eligible employee with qualified wages limited to $10,000 per employee for the year. The amount has been increased for 2021 to 70% of qualified wages, and the limit is now $10,000 per quarter. Borrowers can also go back and amend their 2020 payroll tax filings to take advantage of the credit as a result of the extension.

Eligible employers include those whose operations were completely or partially suspended due to orders from a government authority. Also, those with gross receipts in any 2020 quarter that are less than 50% of gross receipts from the same quarter in 2019. This gross receipt test changes for 2021 though. The decline must be at least 20% of what they were in the same calendar quarter of 2019.

Help for Struggling Businesses

Congress worked for months to provide this additional help for businesses that have been negatively impacted by COVID-19. If your business is one of them, you’ll want to consider the new relief available to you. Please call your Windham Brannon advisor to discuss what may make sense for you and how we can assist you in the process.

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