Paycheck Protection Program Loans (PPPLs)
Previously, the CARES Act provided that forgiven loan proceeds used for qualifying expenses would be excluded from taxable income. Congress also intended that qualifying expenses paid for with PPP loans would be deductible, but this portion was not specified in the CARES Act.
New Law – The CAA, 2021 provides that qualifying expenses paid for with the proceeds of PPP loans are specifically tax deductible.This clarification applies to new and existing PPP Loans and has no additional limitations.
Additionally, the CAA, 2021 renewed funding for another round of PPP loans to first- and second-time small business borrowers.
Second-time borrowers must meet the following three requirements:
Finally, the CAA, 2021 creates a simplified PPPL forgiveness application process for loans up to $150,000. Eligible borrowers need to certify and provide the following information:
Emergency Economic Injury Disaster Loans (EIDLs)
The CARES Act provided various types of small businesses with access to Economic Injury Disaster Loans under Section 7(b)(2) of the Small Business Act. If a business applied for a disaster loan under this program during the covered period, they would receive an immediate advance, if requested, of up to $10,000. The CARES Act also stated that any EIDL Advance received would reduce PPPL forgiveness, essentially requiring the advance to be repaid.
New Law – The CAA, 2021 repeals the provision so that the receipt of an EIDL Advance will have no impact on PPPL forgiveness. The Act also provides that the EIDL is nontaxable and the deductions are allowed for otherwise deductible expenses paid with the amounts not included in income.
Borrowers that have already applied for and received forgiveness for the PPPL will soon be able to amend the application to request the EIDL Advance not reduce the forgiveness amount and request repayment.
**Note: Please watch for further communication once additional guidance has been released.
Subsidy for Certain Loan Payments
The CARES Act also provided benefits to businesses with current SBA Section 7(a) loans other than the new PPP Loans in the form of a government subsidy whereby the SBA will pay six months of principal, interest, and fees on qualifying loans. The payments were applied to the covered loan such that the borrower is relieved of the obligation to pay that amount at any future date.
New Law – The CAA, 2021 clarifies that the payments of principal, interest and fees on qualifying loans is tax-free and the related interest expense is deductible.
In addition to the original six-month forgiveness of payments, most entities are also eligible for an additional three months of payments beginning on February 1, 2021. Going forward these payments are capped at $9,000 per borrower per month.
Certain other entities are eligible for another eight months (vs. three months) beginning on February 1, 2021 and these payments are also capped at $9,000 per borrower per month. Eligible entities include the following:
Employee Retention Credit (ERC)
The CARES Act provided an employee retention credit for employers that closed, suspended operations, or had a decline in gross receipts of greater than 50% due to COVID-19. This refundable credit is allowed against an eligible employer’s share of Social Security payroll taxes (6.2%). The CARES Act also stated recipients of PPP loan funds were not able to utilize this credit.
New Law – Beginning January 1, 2021 through June 30, 2021, the Act extends and expands the following CARES Act provisions:
Retroactive to March 12, 2020, the CAA, 2021 allows employers who received PPP loan funds to potentially qualify for this credit.
**Note: Any wages used to determine the payroll tax credit for family medical or sick leave as part of the FFCRA that was passed may NOT be considered in determining qualified wages for this credit. Additionally, wages paid for with the PPP loan funds may NOT be considered in determining qualified wages for this credit.
Tax Provision Extenders & Other Tax Updates
Business Meals for 2021-2022
With the passage of this Act, taxpayers may deduct 100% of business meals (rather than the current 50%) if the expense is for food or beverages provided by a restaurantincluding carry-out or delivery meals. This benefit is effective for expenses incurred after Dec 31, 2020 and before January 1, 2023.
FFCRA Sick Pay & Emergency FMLA Credit Extended
The Families First Coronavirus Relief Act (FFCRA) passed earlier this year allowed employers subject to the EPSLA and the Expanded FMLA paid leave requirements a fully refundable tax credits to cover the cost of the leave wages related to COVID-19 from April 1, 2020 to December 31, 2020. These credits have been extended to March 31, 2021.
Other Extenders
This email provides a summary of a few significant provisions in the Consolidated Appropriations Act of 2021 which was signed into law on December 27, 2020. The details of the provisions are beyond the scope of this new blog.