On December 27th, Congress passed a $900 billion coronavirus aid package, included in the Consolidated Appropriations Act 2021. The bill is very detailed. We are keeping our eyes open as more information and guidance becomes available.
Below is a summary of the key provisions of the bill:
Simplified PPP Loan Forgiveness Application
PPP Loans – both new and existing – up to $150,000 now have a simpler and easier forgiveness application.
EIDL Advance will not reduce PPP forgiveness.
Originally, the EIDL advance of $1,000 - $10,000 that businesses received reduced the amount of potential PPP loan forgiveness. Essentially, the advance was only a loan for companies that also received the PPP. The advance will now be treated as a grant in addition to full PPP loan forgiveness. Companies that have already received PPP loan forgiveness will be able to have their forgiveness amount adjusted to include the EIDL advance amount.
Increase in Original PPP Loan Amount for Change in Rules
Companies that applied for a lower amount on their PPP loan than they were eligible for because later guidance made more funds available can request the additional PPP funds. The SBA is expected to give more guidance regarding which entities fall into this category.
PPP Second Draw
Companies that experienced a 25% drop in revenue during any quarter in 2020 compared to the same quarter in 2019 may be eligible for a second PPP loan. The loan amount will be equal to 2.5 months of payroll for most industries, except restaurants and hotels, which will receive 3.5 months of payroll.
Extension of Paid Leave Credit
FFCRA and FMLA paid leave credits, which were originally set to expire on December 31, 2020, are now extended through March 31, 2021.
Business Meals Deductions
Business meals were previously 50% deductible. For 2021 and 2022, business meals purchased from restaurants are 100% deductible.
Charitable Deduction Limitation Suspension Extended to 2021
Charity contributed in 2020 and 2021 can reduce up to 100% of taxable income and is not limited by a percentage of adjusted gross income, as it was in the past.
Faster depreciation for Real Estate Companies that elected ADS
Real estate companies that elected to use ADS depreciation in order to avoid the 163(j) interest limitation may be able to claim more depreciation for residential property.
PPP is now fully tax free
Prior IRS guidance suggested that expenses paid with PPP funds were not deductible. The new law clarifies that the PPP funds received are tax-free, and the expenses are deductible.
Stimulus Payments
The federal government will send $600 per person, including children. The process and phase-out will be similar to the first round of stimulus payments, but with a slightly lower maximum income where the payments get phased out. (A new bill passed in Congress, but not approved by the Senate yet, increases the payment to $2,000 per person.)
Expansion of Employee Retention Credit
The original Employee Retention Credit was limited to $5,000 and was not available to employers receiving PPP loans; thus, this credit was not a good option for most employers, as the PPP provided more funds. The new law allows a credit for PPP loan recipients retroactively. It also raises the maximum credit to an additional $7,000 per quarter for the first two quarters of 2021. Eligible entities are companies that (1) experienced a 50% reduction in revenue during any quarter in 2020, or a 20% reduction for a quarter in 2021, compared to 2019, or (2) for the period that a company had a full or partial suspension in operations due to a government order.