12/23/2020
Major PPP Legislative Update
Congress passed legislation for a multi-faceted COVID relief program. It includes significant provisions regarding both the first and new second round of PPP. The legislation also provides for an additional economic impact payment (stimulus check), continued supplemental unemployment until mid-March, landlord and tenant relief, and a focus on small businesses, specifically including restaurants. We'll explain more below.
HOWEVER, President Trump has announced that he does not intend to sign this into law without changes made. The specific changes are an increase to the payment amounts and "wasteful" provisions.
Therefore, it is unclear what will happen next. Since Congress announced this legislation and passed it late last night, it has been expected to become law. We will have to wait to see what happens.
In case this does become law, we want to highlight a few parts of the legislation that we expect to be particularly impactful for our community. We have also sent a client email with more information.
PPP dominates the discussions around this legislation. Before get to that, however, we want to list a few ways that individuals are affected.
The additional economic impact payment is for $600 for every individual taxpayer with an income up to $75,000 (and then phased out) and for $1,200 for every married couple filing jointly with an income up to $150,000 (and then phased out). An additional $600 is added for any dependent minor child.
For those on unemployment, the federal supplement will now be in effect until mid-March.
Landlords and tenants both will find specific funding provisions intended to help them.
Now, to the business focused provisions.
The loans from the first round of PPP will be affected in a few ways. First, any EIDL advance will no longer count against the PPP forgiveness amount. Second, expenses paid using PPP loan funds that are expected to be forgiven are now deductible business expenses. This is a legislative change, superseding Treasury's prior guidance, that will reduce many businesses' income tax owed this year. Third, for those with original PPP loan amounts qualifying for forgiveness under $150,000, there will be a streamlined, one-page application for forgiveness. The SBA has 24 days to create this document, which will require the borrower to declare the total loan amount, the amount used for payroll, and the number of employees retained due to the loan. It is very important to keep records substantiating this information in case of audit. Fourth, for those who applied earlier in the first round of PPP and might have therefore understated the applicable loan request, there is an amendment process to request the additional amount up to $2 million through their bank.
Additionally, this legislation creates the second round of PPP. The requirements are stricter with this round, with a greater focus on small businesses and industries seen to be most seriously impacted. There are provisions that allow those who have utilized the first round and those who did not receive funds in the first round. For all, it is anticipated that the funds will run out quickly. Therefore, for any application under this legislation, the general recommendation is to have your financial records and other information prepared and already know which bank you will be using. Especially given that the bill is not being signed into law currently, it is unknown when this will be. If it becomes law, the general expectation is that it will take a short time for the SBA and banks to prepare.
Finally, in a look forward for tax planning, there is a provision intended to assist restaurants specifically. This is a change in the business meals deduction so that business meals where the food is provided by a restaurant in 2021 and 2022 could be 100% deductible. Therefore, it is important to segregate these expenses from meals that are deductible at another amount or not at all.
