Paycheck Protection Program (PPP)
The new stimulus legislation announced this week includes a second round of Paycheck Protection Program Loan for affected small businesses. The rules of second PPP, also referred to as second draw loans, looks fairly similar to the first round of PPP but there are several drastic changes. This new stimulus allocates $284 billion to this program. Small businesses eligible for PPP may apply for loans of up to maximum $2 million (down from $10 million in the first round).
PPP Loan Amount
Similar to the first round of PPP, a small business may receive a loan of 2.5 times their average monthly payroll in 2019 subject to a maximum of $2 million. Borrowers operating restaurants and food businesses are eligible to apply for a loan of 3.5 times their average monthly payroll in 2019 (maximum $2 million).
Eligibility to apply for second PPP
To qualify for the second draw loan, a small business
must have 300 or fewer employees (down from 500 employees in the first round)
must have already used or will use their first PPP loan
must verify 25% decline in gross revenue in at least one quarter of 2020 as compared to the same quarter in 2019.
Expansion of Eligible expenses
This new legislation expands the provisions of PPP to authorize uses of PPP loan proceeds to include following non-payroll costs:
Covered operations expenditures
Covered property damage cost
Covered supplier costs
Covered worker protection expenditures
PPP Forgiveness Simplified
This new legislation will also mandate the Small Business Administration to create the simplified forgiveness application for PPP loans of $150,000 or less. This application should be one-page and describe the number of employees the borrower was able to retain, the total amount of loan spent on their payroll cost, the total amount of loan. The SBA is required to create the simplified application within 24 days of bill’s enactment.
Expenses paid with forgiven PPP loan: Deductible or not?
Business owners can now breathe a sigh of relief as this new bill specifies that business expenses paid with forgiven PPP loans are tax-deductible. This Act overrides the IRS Notice 2020-32 stating that such expenses could not be deducted. The CARES Act specified that PPP loan forgiveness is excluded from gross income but did not address if the expenses covered with PPP loans are deductible or not.
This legislation clarifies that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income provided” as stated in Section 1106 of the CARES Act.
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