On Sunday, December 27, President Trump signed the $900 billion relief package passed by Congress before Christmas into law. The act includes modifications to the current PPP loan provisions contained in the CARES Act and adds another round of PPP funding that we will call PPP2. The bill that was passed was over 5,000 pages and contains pretty much everything Congress has not done for the past six months. Not only did they address the PPP loan issues in this bill, but they also decided to increase the size of the Saguaro National Forest and also issued a statement of policy advocating that Taiwan become a part of the United Nations, the World Health Assembly and other meaningful international bodies…not sure any of this really matters to a stimulus relief package, but I guess Congress does.
Below are highlights of the significant changes in the bill:
Changes to Current PPP Loan Process
- Expenses paid for with PPP loan funds are now deductible for tax purposes. Prior to this bill, the IRS released a revenue ruling in November requiring for tax year 2020 that expenses paid with PPP loan funds to not be deductible. This is great news and will save all taxpayers large amounts of money!
- There has been a simplified loan forgiveness process for loans of $150,000 or less. Prior to this bill in October, the SBA released a simplified loan forgiveness process for loans of $50,000 or less and now this has been expanded to loans of $150,000 or less.
- Additional expenses are allowable, for example, certain cloud-based software purchases, cleaning supplies and other property and equipment purchased to protect employees and patrons from contracting covid-19.
- EIDL advances will not reduce the PPP loan forgiveness.
New Second Round of PPP Loans
- If you received an original PPP loan, you are eligible for PPP2. The requirements do include a reduction in gross receipts (think revenue) of 25% or more for any quarter in 2020 vs the same quarter of 2019. Most of you will be able to compare your 2nd quarter 2020 revenue to the 2nd quarter 2019 to determine if you qualify.
- Loan amounts are maxed at $2 million.
- Businesses with 300 or fewer employees are eligible for a PPP2 loan but for restaurants there is an exception where 300 or fewer employees is by location vs collectively for the entire company.
The above changes do have an impact on the forgiveness of PPP loans. I do believe the SBA will have to cease the forgiveness process until they can modify and change loan forgiveness applications. Also, once the bill is enacted the SBA has 10 days to issue implementation guidance so I do not believe you will see any banks allowing you to complete an application for a PPP2 loan until the New Year! Stay tuned as we will be providing additional guidance and webinars discussing all these changes.
Brian Campbell, CPA