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The long-awaited second federal pandemic stimulus bill, the Consolidated Appropriations Act 2021, was signed into law by President Trump on December 27, 2020. The $900 billion COVID-19 relief package included in the legislation contains assistance for households and businesses, as well as funding for vaccine distribution and more.
Key takeaways of the new legislation for business owners are as follows:
The new legislation includes appropriations of approximately $284 billion for additional Paycheck Protection Program loans and $20 billion for Economic Injury Disaster Loans. These loans will be made available until March 31, 2021.
The eligibility requirements are similar to what was included within the CARES Act, providing additional eligibility to categories not previously included. These categories include local chambers of commerce, housing cooperatives, and certain news organizations. Also included in the new legislation is language confirming that churches and religious organizations are eligible borrowers.
The new legislation provides that PPP borrowers will be provided the option to choose between an 8-week covered period and a 24-week covered period. It is not clear whether this flexibility to choose a customized covered period will apply retroactively to loans made prior to the enactment of the new legislation. Under the CARES Act, some borrowers were required to use the 24-week period.
Borrowers that previously received a PPP loan, and have fully spent or plan to spend the funds, are eligible to apply for a PPP Second Draw loan. These draws are subject to new eligibility requirements including the following:
The CARES Act calculation of the loan amount was based on 2.5x the borrower’s average monthly payroll in either the rolling 12-month period prior to applying for the loan or the 2019 calendar year.
The Second Draw loan amount is capped at the lower of either (1) 2.5x the borrower’s average monthly payroll costs for the 1-year period before the loan is made (this need not be calendar year 2019) or calendar year 2019, or (2) $2 million.
For businesses categorized under NAICS Sector 72, most notably accommodation and food service businesses, the payroll multiplier is increased from 2.5x to 3.5x. Additional adjustments to the formula apply for seasonal employers and businesses that did not exist for a full year prior to February 1, 2020.
The new legislation expands the scope of expenses that PPP loans may be used for and for which forgiveness may be granted to include the following types of expenses:
Within the new legislation (Section 276, “Clarification of Tax Treatment of Forgiveness of Covered Loans”), borrowers are allowed to deduct payroll and non-payroll expenses paid for with PPP loans for income tax purposes. Read more about this issue here.
The legislation also provides for a streamlined loan forgiveness process for loans of $150,000 or less.
The legislation provides for automatic forgiveness if the borrower:
(i) signs and submits to the SBA lender a certification, to be established by the SBA not later than 24 days after the enactment of the new legislation, which
(1) shall not be more than 1 page in length;
(2) shall only require the borrower to provide
(a) a description of the number of employees the eligible recipient was able to retain because of the covered loan,
(b) the estimated amount of the covered loan amount spent by the eligible recipient on payroll costs, and
(c) the total loan value;
(ii) provides certifications as to complying with PPP loan requirements; and
(iii) retains records that prove compliance for four years, as to employment records, or three years, as to all other records.
You can find a detailed summary of the complete legislation here.