COVID-19 Relief
January 01, 2021

Covid-Congress

President Trump recently signed into law the $900 billion COVID-19 relief package passed by Congress on December 21st. The legislation includes a bevy of tax provisions. Read on for a summary of the most notable changes.

PPP2

The bill authorizes a second round of PPP loans for those who satisfy the following criteria:

  • 300 or fewer employees
  • Used, or will use, the full amount of the first PPP loan
  • Show a 25% decline in gross revenues in any 2020 calendar quarter as compared to the same quarter in 2019

Rules governing PPP2 will largely mirror those of the first round of PPP loans. The loan amount will be based on 2.5 times average monthly payroll costs for either the current year or one year prior to the loan. One important change impacts borrowers in the hotel and restaurant industry. They will be permitted to use 3.5 times average payroll costs to figure their loan amount.

The eligible covered period to spend PPP2 funds will continue to be either 8 weeks or 24 weeks – chosen by the borrower. Eligible covered period expenses will remain the same as PPP1 with the addition of protective equipment costs and certain technology expenditures.

As with PPP1, the Small Business Association (SBA) and Treasury Department will jointly administer the program. As of this writing, there is no indication of when PPP2 will go live. Approximately $284 billion has been earmarked for PPP2.

PPP Expense Deductibility

The bill overturns the IRS position that expenses paid with PPP proceeds are nondeductible. The legislation also clarifies that tax basis and other attributes will not be reduced as a result of excluded PPP loan forgiveness income. These provisions apply to loans received under both waves of the PPP.

In conjunction with the PPP loan forgiveness income exclusion, the bill provides that Economic Injury Disaster Loan (EIDL) grants are also excluded from income and should not reduce the amount of PPP loan forgiveness.

Simplified PPP Forgiveness

The new legislation creates a simplified loan forgiveness process for loans of $150,000 or less. The forgiveness application for these loans will consist of a one-page certification form with little to no documentation required to be submitted. The borrower will still be required to retain supporting documentation and relevant records.

Stimulus Checks

Taxpayers will be eligible for a second round of stimulus payments. Payment amounts will be $600 per individual ($1,200 for joint filers) with an additional $600 per qualifying child. Eligibility will be pegged to income levels. The payment amount will fully phase out at modified adjusted gross income (MAGI) of $87,000 for individuals and $174,000 for married taxpayers filing joint. Initial payments will be based on 2019 tax return information. As with the first round of stimulus checks, the payments will be an advance of a 2020 refundable tax credit. 

Other Provisions

The bill contains several other tax provisions. The most notable include:

  • Extension of payroll tax credits under the Families First Coronavirus Response Act (FFCRA) to the end of March 2021
  • Extension of the Employee Retention Tax Credit (ERTC) through June 30, 2021. The credit is also enhanced and expanded.
  • Business meal expenses incurred in 2021 and 2022 are fully deductible.
  • Employee retention tax credit for businesses operating in a qualified disaster zone
  • Extension through 2021 of CARES Act qualified charitable contribution enhancements
  • Penalty-free retirement plan distributions for those living in a qualified disaster area
  • Permanent extension of 7.5% income floor for purposes of deducting qualified medical expenses
  • Permanent extension of Section 179D deduction for energy efficient commercial buildings
  • Five-year extension of Work Opportunity Tax Credit (WOTC)
  • Five-year extension of income exclusion related to discharge of principle residence debt
  • Five-year extension of income exclusion related to employer payment of student loans
  • One-year extension of qualified mortgage insurance premium deduction
  • One and two-year extensions of various commercial and residential energy tax credits

 

The COVID-19 pandemic continues to impact businesses and individuals. BMM has the resources to help guide you through these financial challenges. Please give us a call.