Nearly $900B Relief Act Includes Funds for Second Round of Paycheck Protection Program Loans
Signed into law on Dec. 27, 2020, the Consolidated Appropriations Act, 2021 includes a COVID-19 fiscal relief package that creates opportunities for U.S. businesses to gain access to needed funds.
Update as of March 30, 2021: The American Rescue Plan Act, signed in to law March 11, 2021, impacted some provisions of the Consolidated Appropriations Act, 2021, while the PPP Extension Act, signed in to law March 30, 2021, extended the PPP loan application deadline by two months, to May 31, 2021.
Update: The Small Business Administration published FAQs on the Targeted EIDL Advance program and updated FAQs on the Shuttered Venue Operators Grants program.
The signing of the Consolidated Appropriations Act, 2021, by President Trump on Dec. 27, 2020, in to law provides businesses impacted by the COVID-19 pandemic an opportunity to secure stimulus funds that provide financial relief.
The $892 billion relief package includes $284.5 billion in additional funding for the Paycheck Protection Program (PPP) that can be used by eligible business for an initial loan and creates a second draw PPP loan for smaller and harder-hit businesses. Additional funds also have been earmarked for loans and grants.
The law also includes other provisions. Read an article and view videos with more details on the impact to unemployment insurance benefits, retirement plans and healthcare plans.
The provisions in the law will impact original PPP loans and other aspects related to the original stimulus law from March 2020. New PPP and other stimulus provisions such as tax credits also will be affected. Paychex continues to actively update our existing PPP resources on this site and awaits the release of additional guidance by government agencies to know how provisions of the law should be implemented. This article deals only with the new relief bill.
Additional resources such as webinars, podcasts and more are available on the COVID-19 Help Center.
How Would a Business Qualify for the New Second Draw PPP Loan?
Businesses hardest hit during the COVID-19 pandemic have been targeted for stimulus funds under the law. In fact, businesses can’t qualify for a PPP loan unless they were in operation by Feb. 15, 2020.
A second draw PPP loan is available to eligible businesses who have previously received an original PPP loan and meet certain requirements, which include:
- Employing fewer than 300 people
- Having used or will use all funds from their first PPP loan
- Showing a reduction in gross receipts of 25 percent or more during any quarter in 2020 when compared to that same quarter in 2019.
How Much Can a Business Borrow Under the New PPP?
For first-time PPP borrowers, the maximum amount is $10 million. For second draw PPP, the maximum is $2 million. For both first and second draw PPP loans, the maximum amount one can borrow generally is 2.5 times the average monthly payroll cost based on defined 12-month periods. However, restaurants and businesses with NAICS codes (accommodations and food services) beginning with 72 are eligible for second draw loans with a maximum of 3.5 times the average monthly payroll cost.
How Will Loan Forgiveness Be Handled?
The loan forgiveness process is simplified for first-time borrowers and second draw PPP loans of up to $150,000. Businesses only have to complete a certification to be established by the Small Business Administration (SBA), which includes:
- Describing the number of employees the employer retained
- Estimated amount of the loan spent on payroll costs
- The total loan amount
For loans of more than $150,000, borrowers need to submit to their lender the documentation currently required by the PPP.
How Do I Apply for a Second Draw PPP Loan?
For loans up to $150,000, businesses would need to submit a certification with their loan application attesting that the business meets the revenue loss requirements (25% or more reduction in gross receipts during any quarter in 2020 when compared to that same quarter in 2019). However, they will be required to provide proof that on or before the time of applying for forgiveness that the business met the revenue loss standard.
Are There Requirements for How PPP Funds Can Be Used?
PPP funds must be allocated for payroll and non-payroll costs — 60% and 40%, respectively. However, the law calls for changes as to what can be considered covered non-payroll costs, significantly increasing what can be included.
- Operation expenditures such as payments for business software or cloud-computing services that facilitate business operations, product or service delivery, processing of payroll, human resources, tracking supplies and inventory, and more.
- Property damage costs related to vandalism or looting caused by public disturbances in 2020 that were not covered by insurance.
- Covered supplier cost are expenditures made by a borrower to a supplier of goods for the supply of goods that; a) are essential to the operations of the borrower at the time at which the expenditure is made; and b) is made pursuant to a contract, order, or purchase order — i) in effect at any time before the covered period with respect to the applicable covered loan; or ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan.
- Worker protection expenditures such as costs related to adaptations of business activities to comply with requirements or guidance from national (OSHA, CDC) agencies, as well as state and local governments from March 1, 2020 to the date the national emergency expires related to standards of sanitation, social distancing and other worker/customer safety requirements. They include:
- Purchase or maintenance of materials to create or expand a drive-through window, a ventilation or filtration system, indoor or outdoor business space, onsite or offsite health screening capability, and more
- Filtering facemask respirators approved for emergency use
- Personal protective equipment (PPE) as determined by the SBA
The law also clarifies the definition of payroll costs, now including employer-provided group insurance benefits such as group life, disability, vision and dental insurance.
What Changes Does the Law Make to the Employee Retention Tax Credit?
One of the more significant changes impacting PPP loan recipients is eligibility for the employee retention tax credit. Originally, if you took a PPP loan in the first round, you were not eligible for this tax credit against 50% of the wages paid to employees during the pandemic. This is no longer the case under the law and recipients of a PPP loan from the inception of the program who meet certain conditions can claim this credit on wages that were not forgiven payroll expenses. Among other changes are:
- An increase in credit amount to 70% on qualified wages paid in 2021
- A safe harbor allowing employers to use prior quarter receipts as a comparison
- An increase on the employee wage limit — $10,000 for the first two quarters of 2021 as compared to $10,000 annually in 2020
The deadline to claim the employee retention tax credit is extended to June 30, 2021.
The law also reverses IRS guidance to allow a tax deduction on PPP forgivable expenses and makes it effective as of the enactment of the CARES Act on March 27, 2020.
What Other Funding Options Are Available?
The new law dedicates $15 billion to the SBA to make grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theater operators, or talent representatives who demonstrate a 25% reduction on revenues. The SBA updated FAQs on Feb. 8, 2020, on this grant program
The priority for awarding grants originally was to eligible entities that have faced 90% or greater revenue loss, then to those eligible who have faced 70% or greater revenue loss.
After those two periods, grants were awarded to all eligible entities. Grants must be used for specific expenses such as payroll costs, rent, utilities and personal protective equipment.
The law also dedicates funds in the form of loans and grants for very small business, community lenders and minority depository institutions.
Funding for grants and other loans included in the bill are:
- $20 billion for new Economic Injury Disaster Loan (EIDL) grants for businesses in low-income communities if they meet certain criteria, including employing 300 or less and had more than a 30% economic loss
- $3.5 billion for continued SBA debt relief payments
- $2 billion for enhancements to SBA lending
Eligible businesses can now apply for emergency EIDL grants through March 31, 2021, and the section of the CARES Act that requires PPP loan recipients to deduct the amount of their EIDL advance from their PPP loan forgiveness is repealed under this law.
The SBA published FAQS on the Targeted EIDL Advance program and announced on Feb. 8, 2020 that applicants must wait until they receive an email invite from the SBA to apply for the new Targeted EIDL Advance. Currently, only two priority groups will be considered for these Targeted EIDL Advance grants.
Businesses should consult with counsel and other financial advisors to determine what course of funding best suits their needs.
What Will Be the Impact to FFCRA and Other Tax Credits?
Throughout the COVID-19 pandemic, businesses also had to deal with other issues that impacted operations and staffing such as a mandate on paid sick leave and expanded family and medical leave.
Businesses were able to take a payroll tax credit on 100% of wages paid for leave provided under the Families First Coronavirus Response Act (FFCRA) provisions — the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act. These credits, originally set to expire Dec. 31, 2020, were extended through March 31, 2021. The American Rescue Plan Act further extended the paid leave credit and it can be claimed through Sept. 30, 2021.
The mandate to provide the leave, however, is no longer being required, but if an employer decides to continue providing the leave under the framework of the FFCRA then they would be eligible for the tax credits.
Employers also had the option to allow employees to take a Social Security Tax Deferral from Sept. 1, 2020 to Dec. 31, 2020, provided in a Presidential Memorandum, with an obligation to ratably withhold and pay the deferred amounts from wages and compensation paid between Jan. 1, 2021 and April 30, 2021. Under the law, this provision extends the repayment period through Dec. 31, 2021 — with interest and penalties on unpaid deferred liability not beginning to accrue until Jan. 1, 2022.
Targeted Expansion of the Paycheck Protection Program
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