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.
The bill authorizes a second round of PPP loans for those who satisfy the following criteria:
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.
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.
The bill contains several other tax provisions. The most notable include:
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.