In the wee hours of the night Monday night, the House of Representatives recently passed the Consolidated Appropriations act of 2021 with a 359-53 vote, and hours later the Senate followed with a 92-6 vote. It is in front of President Trump expected to be signed into law shortly. This act comes at a time when our economy desperately needs help since many businesses and their employees are suffering from the effects of the COVID-19 pandemic. Below are some very top-level highlights of what this current act (hopefully soon to be law) will provide for American businesses and individual taxpayers.
A new stimulus payment that provides $600 to individuals making up to $75,000 per year and $1,200 for married couples making up to $150,000 per year, as well as a $600 payment for each dependent child (under age 17)
A $300 per week supplement for unemployment benefits from December 26 until March 14, 2021. This bill also extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to the self-employed, gig workers, and others in nontraditional employment, and the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
A second PPP (Paycheck Protection Program) Loan program will have similarities to the first one, but with several types of restrictions if you already received the first one.
Must have 300 or fewer employees (the first one was 500)
Have used or will use the full amount of your first PPP Loan
Can show a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.
Must use 60% for payroll over an 8- or 24-week period
Can receive up to 2.5 times their average monthly payroll costs from the year prior (maximum of $2 million down from $10 million in the first PPP Loan)
Funds can be used for the same things from the first PPP loan like payroll, rent, covered mortgage interest, and utilities; but additional expenses for personal protective equipment (PPE) to comply with COVID-19 federal health and safety guidelines, expenses to suppliers that are essential at the time of purchase to the recipient’s current operations, and covered operating costs such as software and cloud computing services and accounting needs (yeah accountants!)
A change to the deductibility of the original PPP loan forgiveness. This topic has been highly contested by top accounting organizations and Congress is listening. Previously the IRS issued guidance (IRS Notice 2020-32; IRS Rev Rul 2020-27) that if a taxpayer or business has their PPP Loan forgiven (following all the rules associated with forgiveness) or expects it will be forgiven, that the expenses that were paid with the PPP Loan funds that are forgiven will not be deductible (drawing from law that has been in existence for decades about forgiven business loans). This new act allows those expenses (and the expenses from the new PPP Loan) to be tax-deductible. Fixing the problem many would be faced with where they had to borrow to keep their business going, and if the loan were forgiven, they could not deduct the very expenses they used the borrowed and forgiven funds and would have to pay more taxes on their 2020 tax filing.
A simplified application process for loans of $150,000 or less if borrowers can show that they maintained employee count when they received the loan. (which was the intended purpose, to begin with, keeping people employed).
Repeals the requirement that PPP borrowers deduct the amount of any EIDL (Emergency Injury Disaster Loan) advance from their PPP forgiveness amount.
Includes set-asides to support first- and second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers that have recently been made eligible, and for loans made by community lenders. (a great win for small businesses!)
As of this writing, we are still waiting for this to be signed by President Trump, but with the overwhelming support from Congress, we expect that to happen soon. You may find that you have a lot of questions regarding this new bill (hopefully soon law) and how it applies to you personally and to your business. If there is any way we can assist you with questions, please reach out to Grandfield Tax & Business Services at 714.921.2790 and set up a phone appointment. You can also subscribe to our newsletter where we will be sending updates on this bill and future bills and laws as our economy works to make its way back from this global pandemic as we are “connected to you for generations.”