The Consolidated Appropriations Act of 2021
(“Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act”)
Great news! The President signed this Act on 12/27/20 making the following changes to existing aid to businesses, adding new provisions, making PPP qualified expenses deductible and creating a second round of PPP loans.
The most pertinent provisions are summarized below. Please contact your RYBD client service contact for further information as we are always glad to help!
Changes to Existing Loans/Aid
- PPP Qualified expenses ARE deductible – Under the Act, allowable expenses paid with PPP loan proceeds on a PPP loan for which forgiveness is obtained will be FULLY deductible; a contrast form the IRS’ initial stance that these expenses would not be deductible.
- EIDL advances – The original EIDL advance (which was $1,000 per employee up to $10,000) will be excluded from income and no longer will reduce the amount of PPP loan forgiveness.
- Simplified application for loans of $150k or less – (application would be no more than one page and borrower will estimate the number of employees they were able to retain and provide an estimate of the amount of PPP spent on payroll). A certification will be required and there should be no additional information required, however the borrower must retain relevant employment records for up to 4 years and other supporting records for 3 years.
Second Round of PPP Loans
- Timing of Distribution of Loans
- The SBA has 10 days from the passage of the bill to issue guidance and regulations on the new application process and it can be expected to take lenders a few days to update their systems and processes. Therefore it is likely that the second week of January businesses can start applying for the second round of loans and can expect to receive funds the 3rd or 4th week of January
- Loans will be made on a first come first served basis
- Who can apply-
- Businesses with 300 or fewer employees (including self-employed individuals)
- First time borrowers
- Those that already received a first round PPP loan (have to have used the full amount or will use the full amount) may apply again
- Must show at least a 25% decline in gross receipts in ANY quarter of 2020 compared to the same quarter in 2019. If the entity was not in operation in 2019 but was in operation on February 15, 2020, a reduction of at least 25% of gross receipts from gross receipts of the entity during the first quarter of 2020.
- The eligible loan amount is the lesser of a) 2.5 times (3.5 times for hotels and restaurants) average monthly payroll over either the 1 year period before the date on which the loan is made or calendar 2019 OR b) $2 million.
- For seasonal businesses – the average total monthly payments for payroll costs incurred by the entity for any 12 week period between February 15, 2019 and February 15, 2020 or $2 million
- Note – guidance has not yet been released on the calculation of loans for sole proprietors, partnerships and independent contractors without payroll but most likely would be calculated in the same manner as the first round of PPP loans – ie 2.5 times average monthly net income from 2019 for sole proprietors and independent contractors and 2.5 times average monthly distributions for partnerships
- At least 60% of the loan must be spent on payroll
- Loans will be excluded from income and all expenses used in calculation of forgiveness will be deductible.
- If a PPP borrower returned all or a portion their loan the first time – they can reapply for an amount equal to the difference between the amount retained and the maximum amount applicable and can request a modification to increase the amount of the covered loan to the maximum amount applicable.
- Covered costs – same items eligible as first PPP loan PLUS:
- Purchase order or order of goods made prior to receiving the PPP loan that are essential at the time of purchase to the recipient’s operations
- Any covered property damage cost – including vandalism or looting due to public disturbances in 2020 that was not covered by insurance
- Covered worker protection and facility modification expenditures (including personal protective equipment) to comply with COVID-19 federal health and safety guidelines beginning March 1, 2020 and ending when the national emergency declaration expires. Examples include renovation of drive-through window facilities, air pressure ventilation systems, physical barrier such as a sneeze guard, expansion of additional indoor or outdoor business space, onsite or offsite health screening capability.
- Costs such as cloud computing services and software (that facilitate business operations, product or service delivery, payment processing, tracking payroll expenses, human resources, sales and billing, or accounting or tracking of supplies, inventory, records and expenses)
- Eligibility of these costs is in place back to the enactment of the CARES Act (3/2/20) but PPP loans on which forgiveness has already been determined are not eligible to apply for these additional costs.
- Loan Terms for 2nd Round PPP Loans
- 1% interest rate
- 5 year term
- First payment deferred for 12 months from date of receipt of loan proceeds
- No personal guarantee or collateral is required
- Additional provisions
- Simplified application for loans of $150k or less – same as those noted above for existing PPP loans
- Audit Plan – the SBA is required to submit its audit plan (no more than 45 days after enactment of the Act) detailing policies and procedures for conducting forgiveness audits and reviews for covered loans and the metrics for determining which covered loans will be audited.
- Covered period – All borrowers can choose a covered period ending any time between 8 and 24 weeks
- Specific group insurance payments are allowed as payroll costs – The Act specifies that group life, disability, vision or dental insurance benefits are eligible – effective back to the original CARES Act enactment date.
- Borrowers in Bankruptcy will now be allowed to apply – previously these borrowers were excluded from eligibility
Shuttered Venue Operations
- Live venue operator or promoter, theatrical producer, or live performing arts organization operator, motion picture theater operator or talent representative that was fully operational on February 29, 2020 and had gross earned revenue decrease of at least 25% from the same quarter in 2019 are eligible for grants.
Employee retention credit (ERC)
- Under the Act, PPP loan recipients ARE eligible for the ERC. Provisions are noted below:
- The ERC was set to expire on December 31 but has now been extended to July 1, 2021.
- For calendar quarters beginning after December 31, 2020, employers can receive up to $7,000 (70% of $10,000 of qualified wages vs 50% under the CARES Act) per full-time employee per quarter (previously $5,000 per quarter in 2020).
- The ERC will be claimed on employers’ quarterly federal tax return (941) by reducing the quarter’s required payroll tax deposits on the 941. The ERC is applied against the 6.2% employer’s share of social security taxes for the quarter. If the ERC is greater than that amount, the ERC then offsets the remaining payroll tax liabilities on the 941 for the quarter and if the ERC exceeds payroll taxes in total the Company may receive a refund.
- If a Company previously filed its 941 without claiming an ERC for which it is eligible it can file a 941-X for the applicable quarter to claim the credit.
- Must be an “eligible employer” which means you have experienced one of the following:
- Business either fully or partially suspended (not operating at normal capacity) due to federal government order or a state government with jurisdiction over the employer that limited commerce, travel or group meetings due to COVID-19
- Business experienced significant decline in gross receipts (defined as a decline of 20% from the same calendar quarter in 2020 – this had previously been 50%)
- Also covered – when a member of a business’s supply chain resulted in the business not operating at normal capacity as a result of the business being unable to acquire needed materials and supplies necessary to provide full services to its customers.
Determination of qualified wages –
- If more than 500 employees – credit only available for compensation paid to employees not working as a result of one of the 2 circumstances above
- If fewer than 500 employees – any compensation paid during the period when operations were affected by one of the 2 circumstances above, whether the employees were working or not.
Included payments –
- Compensation after March 12, 2020 and before July 1, 2021 (may also include eligible employer’s qualified health plan expenses that are allocable to wages)
Cannot double dip –
Business cannot claim credits based on the same wages for ERC purposes, PPP forgiveness determination and other wage-based tax credits. Wages used in the Families First Coronavirus Response Act (FFCRA) cannot be considered qualified wages for purposes of the ERC and employers can’t use the same wages for Work Opportunity Tax Credit calculations.