All information in this COVID-19 Response Resource issue is effective as of Dec. 23, 2020.
Late Monday evening, Dec. 21, 2020, in response to public clamor to "do something," Congress passed the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (the "Supplemental Response Act"). The Supplemental Response Act allocates $900 billion for various relief measures related to the COVID-19 pandemic, in addition to serving as the primary appropriation bill. The President has yet to sign the Supplemental Response Act and has threatened to not sign it because the President has demanded larger direct stimulus payments to individuals ($2,000 per person instead of $600).
While we wait for the impasse between Congress and the President to be resolved regarding this issue, below are key highlights in the Supplemental Response Act that are likely to remain in place once the bill becomes law.
Second Wave of PPP Loans
The Supplemental Response Act provides a second wave of Payroll Protection Program ("PPP") loans, with some significant modifications.
- To be eligible for a second PPP loan, a business must generally:
- employ 300 employees or less; and
- have suffered a decrease in 25% of gross receipts for any quarter in 2020 as compared to the equivalent quarter in 2019.
While not specifically addressed by the Supplemental Response Act, the term "gross receipts" likely does not include prior PPP loan proceeds.
- The loan amount for most businesses is, again, determined by calculating average monthly payroll expenses during 2019 (or for a period of one year prior to the date the loan is made) and multiplying that amount by 2.5. For hotels and restaurants, the multiplying factor is 3.5. The loan amount is capped, however, in all cases, at $2 million.
- For loans of $150,000 or less, the borrower need only provide certification regarding a decrease in 25% of gross receipts provided that the borrower is able to provide supporting documentation when the borrower applies for loan forgiveness.
- To be fully forgiven, 60% of loan proceeds must be used for payroll expenses. Other expenses eligible for forgiveness include items previously eligible under the original PPP loan program -- mortgage payments, rent, and utilities as well as new categories of expenses including operating expenses, property damage costs, supplier costs and worker protection expenses (such as PPE).
Deductibility of Expenses Paid With PPP Loan Proceeds
The CARES Act, which created the initial tranche of PPP loans, provided that any forgiven proceeds would not be considered as taxable income to the recipient. The Treasury Department determined in subsequent guidance, however, that because of this exclusion the corresponding expenses would not be deductible. The Supplemental Response Act provides that business expenses that are paid for by PPP loan proceeds are deductible expenses even if the PPP loan is forgiven. This deduction is available to all businesses, regardless of size and whether the PPP loan has been forgiven before the close of the tax year. This provision provides an unexpected windfall to most PPP loan recipients equal to between 25-45% of their PPP loan amount, with the amount being a function of the marginal tax rate of the recipient.
Extension of FFCRA Leave Rights
The Supplemental Response Act also extends the expiration of the paid sick leave and paid family leave provisions of the Families First Coronavirus Response Act from Dec. 31, 2020 to Mar. 31, 2021 and extends the corresponding tax credits.
Various Other Changes to the Tax Code
The Supplemental Response Act provides over 80 changes to the Internal Revenue Code. Several notable changes that may immediately impact year end planning include:
- Providing that business meals in 2021 and 2022 will be 100% deductible
- Tolling the expiration or reduction of a variety of tax credits and incentives from 2021 to 2022, including incentives related to renewable energy and development on tribal lands
- Clarifying and expanding several employee retention credits, including the existing employee retention tax credit and the credit created under the CARES Act for employers that continue to pay employees during the pandemic
For further questions about the Supplemental Response Act, contact Sean Monson at (801) 536-6714 or firstname.lastname@example.org; Liz Mellem at (406) 333-0530 or email@example.com; or Ross Keogh at (406) 206-9710 or firstname.lastname@example.org.