COVID-19 Relief Law - New Stimulus Explained, Business
Paycheck Protection Program (“PPP”)
Considered the white knight of the CARES Act, the Paycheck Protection Program(“PPP”) program will have renewed funding to provide forgivable loans to first- and second-time small business borrowers. The bill expands eligibility for nonprofits and includes set-asides for very small businesses and community-based lenders. Second-time loans are limited to businesses with fewer than 300 employees and at least a 25 percent drop in gross receipts in a 2020 quarter compared to the same quarter in 2019. The maximum loan size for second-time borrowers is $2 million. Businesses taking a PPP loan will now be able to take the Employee Retention Tax Credit (“ERTC”), when previously they were only allowed to opt into one or the other.
The bill also clarifies that businesses can deduct expenses paid with forgiven PPP loans. This clarification applies to old loans and to new loans and does not include guardrails or limitations. IRC § 265 generally prohibits firms from deducting expenses associated with income that is tax-free, so without specification, the Treasury Department ruled that expenses paid for with PPP loans were not deductible. This clarification results in a two-part subsidy to businesses comprised of deductions and tax-free loan forgiveness.
Economic Injury Disaster Loan Program (“EIDL”) & Small Business Administration (“SBA”) Debt Relief Payments
The bill provides $20 billion for new EIDL grants (economic injury disaster loan program) for businesses in low-income communities, $43.5 billion for continued Small Business Administration (SBA) debt relief payments, and $2 billion for enhancements to SBA lending.
Employee Retention Tax Credit
Extension and expansion of the Employee Retention Tax Credit through July 1, 2021. The bill increases the refundable payroll tax credit from a maximum of $5,000 to $14,000 by changing the calculation from 50 percent of wages paid up to $10,000 to 70 percent of wages paid up to $10,000 for any quarter. The bill clarifies that businesses will now be able to take the Employee Retention Tax Credit and participate in the PPP.
Deduction for Business Meals
Expansion of the deduction for business meals to 100 percent for 2021 and 2022.
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