The recently passed Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act (“Act”) provides $900 billion in stimulus aid to struggling businesses and individuals along with $284 billion allocated to renewing the Paycheck Protection Program (“PPP”).
Although many aspects of the Act mirror the previously passed CARES Act legislation, such as offering low interest and forgivable loans for specified uses, the new legislation has introduced a variety of new elements and upgrades to the PPP. Certain additions like PPP-recipient tax relief; additional nonpayroll expenses; flexible covered period options; loan availability to 501(c)(6) organizations; and the ability for existing borrowers to have a “second draw” at the PPP create new features aimed at encouraging business participation and support.
For example, the Internal Revenue Service’s stance that taxpayers were unable to deduct wages and other expenses funded by PPP loan was retroactively reversed by the Act and provides that no deduction may be denied, no tax attribute may be reduced, and no basis increase may be denied due to the exclusion from gross income of forgiven PPP funds. Further, the Act makes several key changes to the Employee Retention Tax Credit (“ERTC”), including the following:
- ERTC extension and removal of the restriction on businesses claiming both ERTCs and receiving a loan under the PPP;
- Credit eligibility requires quarter-over-quarter decline in gross receipts of at least 20% (previously 50%);
- “Large Employer” threshold increased to 500 or fewer employees (previously 100 or fewer employees);
- ERTC increase to 70% of qualified costs (previously 50%); and
- Increased limit on per-employee creditable wages to $10,000 each quarter.
Eligible businesses that have received and exhausted a PPP loan under the CARES Act are permitted to apply for a new PPP loan subject to certain requirements as well. Businesses looking to participate in a “second draw” must (1) have fewer than 300 employees; (2) have used or will use the full amount of their first PPP loan; and (3) demonstrate at least a 25% reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter.
Businesses interested in applying for their first or second PPP loans must submit applications by March 31, 2021 to be eligible. Understanding the Act’s impact on the PPP the new benefits under the legislation should remain a top priority both for current borrowers and businesses interested in applying for the program. Please contact your KDDK attorney or any member of the KDDK business law team for additional information and guidance on the new legislation, CARES Act, or any related matter.
This blog post was prepare by these KDDK attorneys: