The CARES Act, signed into law in March of 2020, came as a much-needed stimulus to our economy during the beginning of the COVID pandemic when businesses were starting to feel the weight of shutting down. It included an assortment of loans and grants to help businesses and individuals get back on their feet, but as the pandemic once again escalates, the funds it originally provided are drying up. As such, Congress has spent many hours in the past weeks negotiating a secondary stimulus package that was signed into law December 27, 2020.
The $900 billion Consolidated Appropriations Act, 2021 (the Act) contains several extensions of provisions that were initially passed in the CARES Act and Families First Coronavirus Response Act, as well as new laws. The following is an overview of some of the more impactful portions of the Act.
Payroll Protection Program (PPP) – Updates and second round
Included in the Act is $284 billion earmarked for a second round of PPP loans. The funds are available to first time loan recipients as well as those who received a PPP loan during the initial round. There is NOT a requirement to have filed and received forgiveness for an initial PPP loan prior to applying for this secondary round.
The funds are limited to:
- Businesses with fewer than 300 employees.
- Businesses that have used, or are slated to use, the entirety of their first PPP loan.
- Businesses that show a 25% or more decline in gross receipts in any quarter of 2020 from that same quarter in 2019. However, if the business was not in operation for a specific quarter of 2019, alternate quarters may be used for comparison.
- All loans must still be a “necessary requirement” and the applicant must be able to attest that at the time of the application the loan is necessary to support the ongoing operations of their business.
There are two options the applicant may use for determining their loan amount. They may choose to multiply the entity’s average total monthly payroll, either in the year prior to the date which the loan is made, or by the average of calendar year 2019, by 2.5 times. The exception to this is those borrowers that fall under NAICS Code 72, which are typically those in the hospitality industry. Those applicants may use a 3.5 times multiplier. The maximum amount of PPP loan allowed per entity has been reduced from $10 million to $2 million for this second round, in either case.
The second round of PPP loans will allow the borrower to choose the length of the period covered by the loan if it is more than eight weeks and does not exceed 24 weeks. This flexibility will allow more control per entity as they handle their own personal situation, and potential reduction in workforce, as the funds are depleted.
As with the initial PPP loans, the funds are to cover payroll costs, mortgage interest, rent and utilities. In addition to those costs the new loans will also cover:
- Covered Operations Expenditures: This includes business software/cloud computing systems that support processes such as product delivery, processing payroll and HR functions, billing functions, inventory and others that enable business operations to continue.
- Covered Worker Protection Expenditures: This includes the costs associated with complying with the recommendations from the CDC and federal and state governments regarding safety requirements. This would include things such as PPE, expanding outdoor spaces, physical barriers, gloves, ventilation, and filtration.
- Covered Supplier Costs: This includes costs of any supplier that are essential to the operation of the entity.
- Covered Property Damage Costs: These costs would have been from any damage or vandalism caused by events in 2020 that were not covered by insurance.
With this ruling these PPP loans, as well as existing and prior PPP loans will not be included as taxable income. Any expenses that are related to the forgiven amount will now be considered tax-deductible. Additionally, any increase in tax basis because of the PPP loan will remain even after the loan is forgiven.
The Act also provides streamlined methods for loan forgiveness. For those loans under $150,000, the process has been simplified to a one-page certification where the loan recipient will attest to complying with all PPP loan requirements.
All nonprofit organization are eligible, including 501(c)(6) nonprofit organizations for the first time. These include things such as chambers of commerce, real estate boards, and boards of trade.
Farmers that file using a Schedule F are now qualified for PPP loans and may use their gross income revenue in lieu of their net income when calculating the loan amount. Be aware that limitations do apply.
The SBA is required to come out with additional guidance 10 days from the enactment of this bill.
Items of Impact
- Business meals are now 100% deductible for 2021 through 2022 if they are provided by a restaurant. Delivery and carry-out are included.
- Work Opportunity Credit, a credit available to employers for hiring individuals from specific target groups that have faced obstacles in obtaining employment, has been extended to 2025.
- Employer Credit for Paid Family and Medical Leave, a credit for employers who offer paid leave to employees for sick time or to take care of family members, has been extended to 2025.
- Extension of the Families First Coronavirus Act Credits for Paid Sick and Family Leave, a payroll tax credit specific to the COVID-19 pandemic, will be extended an additional 3 months to March 31, 2021.
- The investment tax credit for solar energy facilities is extended by two years to January 1, 2024.
- Commercial Energy Efficiency Deduction, which allows for up to a $1.80/sq ft tax deduction for commercial spaces that use qualifying energy efficient technologies, has been made permanent.
- $15 million is allocated to assist live venues, museums and other cultural institutions and independent movie theaters.
- Those employers who deferred their employees’ payroll taxes after President Trump’s Executive order in August, have until the end of 2021 to increase their workers’ withholding to pay the taxes owed.
- Energy Efficient Home Credit, a credit that provides $1,000 to $2,000 for newly built, or substantially renovated, energy efficient dwellings, has been extended through 2021.
- A stimulus check of $600 per person, $1,200 for joint filers, with an additional $600 per qualifying child will be issued. Phase out for this stimulus check begins at $75,000 per person or $150,000 for joint filers.
- The deduction for mortgage insurance premiums has been extended through 2021.
- The threshold for medical AGI has been permanently changed to 7.5%.
- If a principal residence is foreclosed upon after 2020, the Act offers an extension of the forgiveness of the resulting income from the foreclosure until 2025. For joint filers the allowable amount will be $750,000, while single filers will be forgiven up to $375,000.
- All unemployment assistance, with the additional $300 per week established in the Act, will continue through March 14, 2021.
- The rental assistance and eviction moratorium has been extended through January 31, 2021.
- No Surprises Act, a new act which prohibits surprise medical bills, has now been enacted. The “surprise bill” would be defined as a separate, sizable bill that comes from an out-of-network provider while the patient is receiving medical attention from an in-service provider.
- Additional funding for virus testing, vaccine development and distribution will be provided at $68 billion.
- The Supplemental Nutrition Assistance Program (SNAP) will receive a $13 billion boost, helping with additional food stamp dispersal, food banks and local pantries.
- The Provider Relief Fund, which supports American families, workers and healthcare providers during the pandemic by distributing billions to hospitals and healthcare facilities on the front lines, will be given an additional $3 billion.
- Educational funding to assist with reopening for in-person learning will receive $82 billion.
- Broadband providers will receive $7 billion to put towards connectivity support and infrastructure.
- $50 billion is earmarked to assist the transportation sector.
- $25 billion will go to support mental health and substance abuse prevention and aid.
This is a very quick overpass of some of the items found in an extremely large and varied act. Please look to Faw Casson to provide more information as it becomes available. We will also be hosting a series of virtual informational sessions on the Act. Please contact our offices at 302-674-4305 or firstname.lastname@example.org to receive information on these sessions as it becomes available. Information will also be posted on all of our social media sites (Facebook, Instagram, Twitter and LinkedIn) as well as our website at www.fawcasson.com