December 23, 2020
The bill includes tax deductibility of PPP expenses and new round of PPP loans
On Monday, Congress passed a more than $2.3 trillion federal funding bill, the Consolidated Appropriations Act, 2021 (CAA). Included in this legislation, which is currently awaiting the President’s signature to pass, is the Continuing Small Business Recovery and Paycheck Protection Program Act, which provides $900 billion in COVID-19 relief.
In addition to funding the federal government and many other relief provisions, the bill includes additional Paycheck Protection Program (PPP) loan funding and allows businesses to deduct expenses paid with PPP funding. The legislation passed is 5,593 pages and additional guidance is expected in the next few weeks on some of these provisions.
Below is a brief summary of some of the provisions of the Act that impact our for-profit and nonprofit clients:
- The Act allows expenses paid with PPP loans to be tax deductible even if the PPP loan is forgiven. The IRS has previously issued guidance disallowing the deductibility of these expenses.
- “Second draw” PPP loans mean that some business will qualify for additional PPP loans. To be eligible, an employer must meet a number of requirements including: (1) having no more than 300 employees; (2) showing a decrease in gross receipts of 25% in the first, second or third quarter of 2020 compared to the same quarter in 2019; and (3) previously used or will use the full amount of their first PPP loan.
- PPP funding will open to certain first-time borrowers with 500 or fewer employees.
- 501(c)(6) organizations are now eligible to apply for PPP loans if they meet certain criteria, including: (1) having no more than 300 employees; (2) less than15% of their receipts come from lobbying activities; (3) lobbying activities do not constitute more than 15% of total activities; and (4) the cost of lobbying activities is not more than $1 million during the most recent tax year ending before February 15, 2020.
- The Act creates a simplified forgiveness application process for loans of $150,000 or less. The SBA has 24 days after the enactment of the legislation to establish the simplified form for submission.
- Additional “covered expense” categories have been added. In addition to payroll, rent, covered mortgage interest, and utilities, PPP loan proceeds can be used for software and cloud computing needs, worker protection and facility modification costs due to COVID-19, and payment to suppliers for goods that were essential to the operations at the time of the purchase.
- The non-itemizer charitable deduction was raised to $600 in the case of a 2020 joint return. This deduction was limited to $300 under the previous CARES Act.
While Congress and the Administration continue to discuss the amount of direct payments to individuals, GRF CPAs & Advisors’ COVID-19 Response Team is analyzing the legislation and will provide updates as information becomes available. In the meantime, resources are available to the general public through GRF’s newly-updated COVID-19 Response page. For questions about the aid package, contact your CPA or firstname.lastname@example.org.