On December 21, Congress passed the Consolidated Appropriations Act, 2021, a $2.3 trillion spending bill that includes a $900 billion stimulus package intended to provide additional financial relief to individuals and businesses impacted by the COVID-19 pandemic. The bill was signed...
On December 21, Congress passed the Consolidated Appropriations Act, 2021, a $2.3 trillion spending bill that includes a $900 billion stimulus package intended to provide additional financial relief to individuals and businesses impacted by the COVID-19 pandemic. The bill was signed into law on December 27, 2020.
The Act contains follow-on provisions to the CARES Act and the Paycheck Protection Program enacted in the Spring of 2020. AAFCPAs has highlighted for your convenience the key provisions of Division N, Title III, Continuing the Paycheck Protection Program and Other Small Business Support related to the forgiveness of existing PPP loans and PPP second draw loans.
Key changes to PPP loan forgiveness, summarized below, are effective as if they were included in the CARES Act originally and are thus applicable to both existing and new second draw loans (except in the case of loans that were already forgiven at the time the legislation is enacted, unless otherwise noted):
AAFCPAs suspects that the application Form 3508S (which was previously applicable to only organizations whose loans were under 50k) will be used for this application. However, the SBA has not yet revised their guidance.
A second PPP loan, referred to as a “PPP second draw,” will be made available to certain eligible businesses. The PPP second draw is designed to provide relief to smaller businesses that have been more significantly hurt by the pandemic as compared to the first round of PPP loans. Approximately $275 billion of funding was set aside for PPP2 and the ability to repurpose any previously unused PPP1 funds. The following table outlines key provisions related to the PPP second draw.
| PPP 2 – Second Draw Loans | |
|---|---|
| Spent PPP1 -Eligibility Requirement | The organization must have used or will use the full amount of their first PPP1 loan. |
| Size Limit – Eligibility Requirement | No more than 300 employees (down from 500), or an alternative size standard if applicable. The limitation is per location with eligible employers who have more than one location. Note this is a headcount and NOT an FTE count, same as PPP1. |
| Reduction in Gross Receipts – Eligibility Requirement | Applicants must demonstrate at least a 25% reduction in gross receipts in any quarter of 2020, relative to the same quarter of 2019. For loans up to $150k, the borrower may submit a certification attesting that it meets the revenue loss requirement and then must produce documentation that the revenue loss was met prior to submitting a forgiveness application. Special rules apply to those not in operation for the entirety of 2019. Gross receipts do NOT include EIDL or PPP funds received. NOTE: AAFCPAs advises clients to consider the Employee Retention Credit. |
| Necessity – Eligibility Requirement | Organizations must still attest to the necessity of the loan. (It is unclear whether the two loan amounts will be aggregated for purposes of special rules applying to loans over 2 million.) |
| Application Period | Will be open until March 31, 2021, although no bank is currently accepting for PPP2. This also extends the application period for PPP1. |
| Determination of Loan Amount | Up to 2.5x monthly payroll costs (same as PPP1), payroll costs definitively include payment for group life, disability, vision and dental insurance benefits. For businesses with a NAICS Code 72 (Accommodation and Food Services) the amount is raised to 3.5x monthly payroll costs. This is based on the one year prior to your loan application, or the 2019 calendar year (same as PPP1) up to a maximum of $2M. Special rules apply for seasonal employers, which has now been defined in the Act. Also, a special rule applies if you have taken out a PPP1 within the last 90 days. |
| Affiliation Rules | Waived for PPP2 purposes of determining eligibility. |
| Covered Period | Choose a period not shorter than 8 weeks and no longer than 24 weeks. Certain time limitations moved from Dec 31, 2020 to March 31, 2021. |
| Qualified Expenditures | Same as PPP1 and includes payroll costs, mortgage, rent (special rules if related parties), utilities, and now covered operational expenditures, property damage, covered supplier costs, and covered worker protections. As with the first round, at least 60% must be spent on payroll costs. |
| Reductions in Loan Forgiveness | The reductions of loan forgiveness from PPP1 still apply, i.e., reductions in number of employees and reduction of wages paid greater than 25% will reduce your loan forgiveness. The safe harbors still apply as well. |
| Prioritization of Underserved Communities | The Administrations is directed to issue guidance addressing barriers to access of capital for underserved communities no later than 10 days after enactment. |
| Restrictions on eligibility | Ineligible entities include:
|
Further details on the changes in PPP loan forgiveness and the PPP second draw loans may be found in the House of Representatives’ summary of the provisions of the Coronavirus Response and Relief Supplemental Appropriations Act: https://appropriations.house.gov/sites/democrats.appropriations.house.gov/files/Summary%20of%20H.R.%20133%20Coronavirus%20Relief%20Provisions.pdf
AAFCPAs’ COVID-19 Task Force will continue to provide guidance and valuable insights as more information becomes available about the PPP and other financial relief programs. If you have any questions, please contact Carla McCall, CPA, CGMA, at 774.512.4049, cmccall@aafcpa.com; or your AAFCPAs Partner.
Author Bio
More Articles
California and Colorado will begin taxing many SaaS transactions on January 1, 2027. Software companies should start evaluating the sales tax implications now.
The systems and processes that helped your organization reach one stage of success are not always the ones that support the next.
Beginning in 2026, eligible Massachusetts pass-through entities can elect the new Chapter 63E PTE excise. Business owners subject to the state's surtax should understand how...
