Paycheck Protection Program (PPP) – New Legislation
A new COVID-19 relief package was passed by the House and Senate on 12/21/2020 and is awaiting the President’s signature. It includes changes to the existing PPP program and approves a second round of the PPP funding.
Original PPP Loan Changes
The new law includes a long-awaited fix regarding the deductibility of expenses paid with PPP funds that are later forgiven. IRS originally said the deduction is disallowed, but the new law clarifies that the deduction is indeed allowed. In addition, the PPP loan forgiveness is no longer reduced for any EIDL advance. These changes apply to all PPP borrowers.
Some changes are only available to eligible PPP borrowers who haven’t applied for forgiveness:
- The definition of eligible expenditures to allow forgiveness has been expanded. Up to 40% of the forgiveness amount can include non-payroll expenses, including these new items:
- Business and cloud-based software to support operations,
- Unreimbursed property damages from public disturbances that occurred in 2020,
- Essential supplier costs, and
- Worker protection expenditures.
- Borrowers may choose their covered period beginning on the date a borrower receives the loan and ending any period between 8 and 24 weeks later.
- Borrowers with loans of under $150,000 can follow a streamlined forgiveness process. Applications will be reduced to one page and supporting documents do not need to be submitted.
Lastly, the new law reopens the original PPP program for eligible borrowers who haven’t previously received PPP loans.
Second Round of PPP Loans
The relief bill also includes a second round of PPP funding. This round is similar to the original program with a few changes:
- Gross receipts must have declined by 25% during any quarter in 2020 relative to the same period in 2019.
- Eligible entities must employ fewer than 300 employees.
- Loan amounts will be 2.5 times average monthly payroll or 3.5 times the average for businesses in the hospitality industry.
- Maximum loan is limited to $2 million.