To answer your question, no Congress is not done. In the wee hours of December 21st, they passed the Consolidated Appropriations Act 2021 and included an extension of the popular Paycheck Protection Program (PPP) for 2021.
The Small Business Administration has 10 days to issue regulations, and as in the CARES Act, expect the SBA to have several revisions. Here is what we can glean from reading the Act itself. Understand that just because it is in the Act, does not mean it will come out that way in the regulations. Remember that the CARES Act said that the PPP loan forgiveness was not taxable until the IRS came along later in the year and said that it was!
PPP Forgiveness Expenses Deductible
First, and most importantly to most entrepreneurs, the expenses for applying for PPP loan forgiveness are deductible. The IRS had said they were not, which effectively made the loan forgiveness taxable. This Act corrected that. So good news, you do not have a big amount of taxable income from your PPP forgiveness for 2020!
Expansion of Eligible Expenses
This Act greatly expands the definition of what is eligible expenses for forgiveness. The CARES Act limited eligible expenses to payroll, benefits, rent (mortgage interest), and utilities. In addition to those, Congress added Operations Expenditures, Property Damage, Supplier Costs, and Worker Protection Expenditures.
This expansion does not apply to loans that have already been forgiven. You cannot go back and use these expanded expenses to obtain forgiveness if you did not have enough of the original expenses.
Operations Expenditure: “Payment for any business software or cloud computing services that facilitate business operations, product or service delivery, the processing payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses.”
Property Damage: “Cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance”
Supplier Cost: Any expenditure for goods that are essential to the operations of the entity and was under contract/purchase order prior to the “covered period”. This appears very broad in nature.
Worker Protection Expenditure: “Operating or capital expenditure to facilitate the adaptation of the business activities of an entity to comply with requirements.” Again, this is very broad and the Act specifically names things like a drive-through window facility.
Other Terms
- The covered period for measuring expenses remain at either 8 or 24 weeks.
- Simplified forgiveness application for loans up to $150k.
- Employee insurance has an expanded definition and includes group life, disability, vision, or dental insurance.
- Entity has no more than 300 employees
- 25% reduction in gross receipts for any 2020 quarter over 2019.
- Loan amount of 2.5 times average payroll costs up to $2 million.
- Payroll expenses must be at least 60% of the loan forgiveness amount.
A ton of stuff in this Consolidated Appropriation Act, 2021. We will be posting shortly about other aspects of the Act that affect small businesses. Stay tuned!
