If you are a small business owner, the COVID-19 stimulus package that Congress passed on Monday evening (December 21, 2020), has some very good news.
There is welcome relief for small businesses. In addition to more Paycheck Protection Program funds available, Congress passed tax relief for small businesses. Congress also implemented other aid, including checks of up to $600 to every taxpayer ($1,200 for couples), plus $600 each for children 17 or under.
The 5,000+ page bill was overwhelmingly passed in both the House and Senate. The bill encompasses many things and Congress passed around plenty of pork to special interest groups — a move that is being soundly criticized. But a number of provisions are ones that small business owners and self-employed individuals will want to know about.
PPP2 Aid – Another Round
Another round of PPP loans (called PPP2) is available, both to previous recipients and first time borrowers, and also for community groups. A total of $325 billion is available.
Previous Recipients. Additional loans are available up to $2 million each, for previous PPP recipients, provided they meet these 3 criteria:
- Have no more than 300 employees.
- Used up all prior funds.
- Show a gross revenue decline in any quarter of 25% over the prior year’s quarter.
First Time PPP Borrowers. PPP2 will also permit loans to first-time borrowers of up to $2 million (it was $10 million in the first PPP program). Eligible small business borrowers must fall into one of the following groups:
- Have no more than 500 employees and meet eligibility for SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
EIDL Loans and Low Income Set Asides. More Economic Injury Disaster Loans (EIDL) are being made available as are set asides for businesses in minority and low income communities.
PPP Forgiveness Simplified
PPP2 creates a simplified forgiveness process for loans of up to $150,000.
- Forgiveness is not automatic. You still must apply, but for loans of $150K or less, you can use a one-page certification. It simply describes how many employees you were able to retain and how much you spent on payroll costs.
- You do not need to submit supporting documentation when applying. However, you must retain records for up to four years and make them available should the government ask or audit you for PPP fraud.
- The SBA has to create the simplified form within 24 days of enactment, which would be mid-January.
PPP borrowers are not required to deduct the amount of any EIDL advance from their forgiveness amount. The original provision requiring this was repealed.
Tax Deductibility Clarified
The bill clarifies that qualifying business expenses paid with forgiven PPP funds will still be tax deductible. This is causing owners and accountants everywhere to heave a sigh of relief.
This supersedes IRS guidance saying that if you paid business expenses with forgiven PPP funds, the expenses would not qualify for small business tax deductions as they ordinarily would. The IRS position blindsided small business owners earlier in the year, and the tax situation has now been addressed by Congress.
Use of PPP Funds Expanded
Costs eligible for loan forgiveness continue to include payroll, rent and utilities. PPP2 also adds the following as forgivable:
- Costs of providing facility modifications and worker protection against the virus.
- Essential expenditures.
- Certain operating costs such as cloud software and computing services.
PPP borrowers with NAICS industry codes for hotels and restaurants, starting with 72, can receive up to 3.5 times their average monthly payroll costs (instead of just 2.5 times as other borrowers are limited to).
More Taxpayer Checks
- Individual taxpayers making up to $75,000 annually could receive checks for $600 each. Married couples with income as much as $150,000 could receive $1,200. There’s also $600 for each child who is a dependent.
- Income is determined by adjusted gross income based on your 2019 tax return. Payments start to phase out at certain levels. See this calculator to estimate your amount.
- Treasury Secretary Steve Mnuchin told CNBC that Americans will receive Economic Impact Payments in their bank accounts as early as next week.
Unemployment Benefits Extended
Congress allocated more unemployment aid. Workers will receive $300 per week as an unemployment supplement from December 26, 2020 to March 14, 2021.
- Extends the Pandemic Unemployment Assistance (PUA) program, with expanded coverage to independent contractors, the self-employed and gig workers.
- Extends the Pandemic Emergency Unemployment Compensation (PEUC) program, which provides additional weeks of federally funded unemployment benefits to individuals who exhaust their regular state benefits.
Miscellaneous Tax Relief
The bill offers some tax relief:
- Extends employer tax credits for providing paid sick leave and paid family and medical leave, through March 21, 2021.
- Extends the employee retention tax credit. This credit enables employers to reduce employment tax deposits they are otherwise required to make, and take immediate advantage of the credit. It was set to expire at year end, but is now extended through July 1, 2021.
- Increases the deductibility of business meals from 50% to 100%. This is a temporary deduction increase, starting for expenses in 2021 and expiring in 2022. Clearly intended to help struggling restaurants, the expense must be for food and beverages provided by a restaurant.
No Surprises Act
- This section of the relief bill aims to limit medical providers from “balance billing” patients for amounts in excess of typical in-network rates (so called “surprise billings”) for out-of-network and emergency care.
- The bill also imposes various cost disclosure rules designed for medical cost transparency.
- There’s $25 billion in emergency rental aid.
- Congress extended the national eviction moratorium through Jan. 31, 2021.
There’s much more in the COVID-19 stimulus bill that is sure to come to light as everyone digests the more than 5,000 pages.