Did you hear? Congress passed a second COVID-19 stimulus package this week. Yay! They got it done just in time before the end of the year, and the end of many federal aid packages that came along with it.
In addition to direct stimulus payments to individuals, additional funding for unemployment, and other aid programs, the package also provides over $300 billion in financial aid for small businesses. Congress also clarified the uncertain tax implications of funding received by small businesses through loans and grants provided under the CARES Act and this new lifeline. This is great news for small business owners since many of the opportunities to get support from the CARES Act programs were long gone. Although the recent vaccine developments provide a glimmer of light at the end of the tunnel, many small businesses are in dire need of support to stay afloat. This new package will hopefully help more small businesses weather the rest of the storm.
Your business may be eligible for first-time or additional forgivable loans under the Paycheck Protection Program (“PPP”). For more information visit sba.gov. The new stimulus package expands both the scope of businesses that can apply for PPP loans and the permitted uses of funds from the loans. Congress also made it clear that payments made with the funds from these support programs are, indeed, deductible on your taxes.
Let’s take a quick look at the aid provided this go around, and the differences between the programs coming out of this package and the original CARES Act.
PPP forgivable loans
The new package reopens and expands the PPP after the last PPP round ended in August 2020. Congress expanded both the types of business entities that are eligible to apply and the permitted uses for funds obtained through the PPP.
In addition to the types of entities that could obtain PPP loans through the original CARES Act (e.g. businesses eligible for other SBA small business loans), the new package allows 501(c)(6) business associations (e.g. chambers of commerce) to be eligible PPP borrowers if they meet certain criteria.
The CARES Act also limited use of PPP funds to certain specific categories: payroll, rent payments, mortgage interest payments, and utilities. Funds obtained under this new law’s PPP round may also be used for certain health protective costs (e.g. personal protective equipment), essential supplies, and operating costs itemized in the new act.
Many small businesses obtained both PPP loans and EIDL grants following passage of the CARES Act. Under the CARES Act, businesses could receive an advance on their EIDL grant that did not have to be refunded even if the grant ultimately was not given. However, the amount of any EIDL advance received had to be deducted from the amount of forgiveness sought under the PPP. Congress removed that requirement in this new package and you no longer have to deduct your EIDL advance from the forgiveness sought under your PPP loan.
Also, don’t just dismiss this new stimulus package if you already received funds through the PPP! The expanded PPP allows for a second forgivable loan if your business meets three criteria: (1) it has 300 or fewer employees; (2) has used or will use all funds from the first PPP loan; and (3) can show a 25% reduction in revenue between any quarter in 2020 with its corresponding quarter in 2019 (e.g. Q1 2019 v. Q1 2020). So even if you already received PPP funds, you may be eligible for more!
Tax implications
Last, and certainly not least, Congress overruled the Internal Revenue Service (“IRS”) with regard to deductibility of payments made using PPP funds. The original CARES Act provided that funds obtained through PPP loans and EIDL grants were not included in your gross taxable income. However, the IRS followed that up with a notice and ruling providing their interpretation that since the loans and grants were tax exempt, any payments made with those funds were not tax deductible. The IRS’s stance was met with complaints that Congress never would have intended for that result with a support bill. Congress spoke up and confirmed that to be the case by including a provision in the new package providing that tax deductions cannot be refused for payments made using these funds.
We’re here to help!
If you are one of the many businesses needing help to get through the COVID-19 crisis, get in touch today https://skepsistech.com/contact-us/ and we can help you determine what aid you may be eligible for and help you navigate the PPP, its application, and forgiveness processes!