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Congress just passed the 5,593 page "Consolidated Appropriations Act, 2021." The price tag: $900 billion. And with it, the provision most of us have been waiting for: PPP loan forgiveness deductibility.
PPP Deductibility
As a brief recap, the Paycheck Protection Program was established under the CARES Act and provided forgivable loans to eligible businesses. As long as the money was spent appropriately, then the loan is to be forgiven and that amount excluded from taxable income. Great! Except that the IRS issued guidance stating that the expenses were not deductible. That was unfortunate news and viewed by many as counter to the intention of Congress. This Act allows for deductibility of those expenses.
Simplified Forgiveness Application
Additionally, we've been hoping for a "rubber stamp" for forgiveness. Again, this Act gives us that. Loans under $150,000 will be eligible for a simplified application. We don't know exactly what it's going to look like but the Act provides that it cannot be more than 1 page in length and shall require the recipient to provide a description of the number of employees the eligible recipient was able to retain because of the covered loan, the estimated amount of the loan spent on payroll costs, and the total loan value along with an attestation. The Act includes additional language that recipients of loans $150,000 and under will not have to submit any application or documentation in addition to the certification and information required to substantiate forgiveness. The Act does make a point that the recipient still needs to maintain adequate records as they may be subject to audit. In the case your loans is between $150,000 and $2 million, documentation will still be required.
PPP 2.0
We're getting a second iteration of PPP loans. However, there will be added stipulations. First, the business must have not more than 300 employees. And secondly, there must have been a 25% drop in any quarter revenues in 2020 compared to 2019. It also looks like you'll have to wait until after January 1, 2021 to ensure you get credit for a drop in 2020 Q4's revenue. The amount is 2.5x of payroll costs based on the lower of 2019 or 1-year from the loan. However, NAICS 72 industries - accommodations and food services - are allowed to use 3.5x payroll costs rather than the 2.5x multiplier and can choose their covered period.
Temporary Allowance for Full Deduction For Business Meals
This is one provision that I thought was interesting. Food and beverages provided by a restaurant are allowed a full deduction if paid or incurred before January 1, 2031 - meaning they're deductible in 2021 and 2022. I'm sure more guidance is to follow but this is a great hat tip to the hospitality industry and hopefully this will spur some business spending to help get restaurants back on their feet.
Some other provisions include funding for COVID vaccinations, direct payment checks of $600 per adult and child, rental assistance, credits for employers offering paid sick leave, enhanced unemployment insurance benefits, funding for ventilation repairs for schools and colleges, enhanced broadband services, and funding for child care assistance to help keep child care providers open, to name a few.
This Act is massive and will be dissected over the coming days and weeks. The Administration doesn't have much time to wait, however, as some of the provisions, specific to PPP require that regulations to carry out this Act be issued not later than 10 days.
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