A long-anticipated COVID-19 relief package was overwhelmingly agreed to by congressional members and signed into law on Monday, December 21, 2020.
The new legislation of over 5,500 pages provides $900 billion in economic relief, a sizeable portion directed to small businesses and industries struggling to deal with the COVID-19 pandemic. The bill provides a $600 stimulus payment to eligible individuals ($1,200 for married couples, and $600 for each dependent child), and adds $300 to extended weekly unemployment benefits through March 14, 2021. A highlight of the bill is funding for a second Paycheck Protection Program (PPP) for small businesses.
The COVID-19 relief package includes:
PPP Round 1 (CARES Act)
- Expenses paid with the first round of PPP loans that are forgiven are fully deductible for federal income taxes.
- Establishes a simplified one-page forgiveness process for loans under $150,000.
PPP Round 2
- PPP Round 2 loan eligibility for businesses (and self-employed) with fewer than 300 employees (perhaps by location) which have experienced a revenue reduction of 25% or more in any quarter of 2020 (likely calendar quarter), when compared to the same quarter in 2019.
- A limit of $2 million for second PPP loans based on 2.5 times average monthly payroll expenditures. However, some food service and hospitality businesses will be eligible for loans based on 3.5 times average monthly payroll expenses.
- Choice of calculating average monthly payroll based on 2019 payroll expenses, or payroll expenses for the 12-month period prior to the application.
- Group insurance payments for health, life, disability, vision and dental insurance programs are specifically considered payroll costs, as are employer retirement plan contributions.
- Loan forgiveness eligibility for businesses that spend a minimum of 60% on payroll costs during the covered period.
- Businesses may choose any 8- to 24-week covered period (or a period between the two) in which to spend PPP loan proceeds, beginning on the date loan is received.
- Additional qualified expenditures are eligible for forgiveness.
- An expanded list of entities eligible for PPP loans.
- SBA has 10 days to issue additional guidelines.
Tax Credits and Additional Items
- FFCRA payroll tax credits for small employers required to pay for qualified family leave or COVID-19 related sick leave have been extended to March 31, 2021.
- Employee retention payroll tax credits (“ERTC”) are extended through July 1, 2021, with an increased credit amount up to 70% of qualified wages paid ($10,000 per employee per quarter).
- This credit may now apply to businesses that have at least a 20% decline in quarter-over-quarter revenues.
- Employers who received PPP loans may still qualify for the ERTC with respect to wages that are not paid for with forgiven PPP proceeds.
- EIDL loan advances and Section 7 SBA loan payments under the CARES Act are not taxable income.
- Bill compels SBA to pay an additional three months of principal and interest on an existing Section 7 loan beginning in February 2021.
- 100% deduction (instead of 50%) for business meals in 2021 and 2022.
- Extension of the Work Opportunity Credit through 2025.
- As with the first stimulus checks, payments represent an advance against a credit taxpayers will claim on their 2020 tax return. If eligible individuals did not receive their stimulus payment or were eligible for a higher amount, the taxpayer will claim an additional credit. If an individual was overpaid, there is no requirement to pay back the IRS. Eligibility based on AGI of $75,000 for an individual and $150,000 for a married couple.
- For employees who deferred paying payroll taxes in late 2020, the pay back of deferral that was originally by April 30, 2021 is now due no later than December 31, 2021.
- Bill extends the ability for non-itemizers to deduct $300 for charitable contributions for individuals ($600 married couples filing jointly) through 2021.
- Temporarily increases limits for deductible cash contributions to a public charity from 60% of AGI to 100% for 2021.
Please keep in mind the above are the items of the greatest interest to most of our business clients. The legislation is extremely complex; and no doubt, we will be learning more in the coming weeks. If you are considering a PPP Round 2 loan or if you have any questions regarding the new relief bill, please email or call your Lopata, Flegel & Company contact, or call the firm at 314‑514‑8881.