PPP Loans and Forgiveness Updates

Happy New Year! Congress gave us some additional support at year-end.

The biggest news is that Loan Proceeds Are Not Taxable (forgiven or not). The COVID-related Tax Relief Act of 2020 reiterates that your PPP loan forgiveness amount is not taxable income to you.

The second big news is Expenses Paid with Forgiven Loan Money Are Tax-Deductible. As you may remember from a previous blog post, the IRS took the position that expenses paid with PPP loan forgiveness monies were not deductible. Lawmakers disagreed but were unable to get the IRS to change its position. The IRS essentially told lawmakers, “If you want the expenses paid with a PPP loan to be deductible, change the law.”

And that’s precisely what lawmakers did. The COVID-related Tax Relief Act of 2020 states that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.”

In plain English, the expenses paid with monies from a forgiven PPP loan are now tax-deductible, and this change goes back to March 27, 2020, the date the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted.

In addition to those pieces of good news, Congress also authorized a Second Round of PPP Loan Funding for those who received funding in the first round. This second round or PPP 2.0 is available if you meet the following qualifications:

1. have 300 or fewer employees;
2. have suffered a 25 percent or greater loss in revenue during at least one quarter of 2020 when compared to 2019; and
3. have already used your original PPP money (or be planning to use it soon).

 
Congress kept the same funding requirements as the first round but added a bit more funds available to the hotel or restaurant (NAICS Code 72) industry where they can get 3.5 instead of 2.5 times monthly qualified payroll.
 
They also added a few new categories of expenses to the forgiveness calculation. You still have to use at least 60% for payroll but can now spend the remaining amount on: 

• Payroll
• Rent
• Interest on mortgage obligations
• Utilities
• Operations expenditures (expenses associated with business software or cloud computing that facilitates business operations, product or service delivery, and/or accounting/inventory/payroll systems, etc.)
• Property damage (expenses associated with repairing damage from 2020 vandalism or looting not covered by insurance or other compensation)
• Supplier costs (expenses paid to a supplier for materials or product necessary to remain open)
• Worker protection (COVID-19 Related PPE and barriers, expansion costs to allow proper spacing, health screening capabilities, etc.)

 
So if you qualified for the first round and you had at least 25% reduction in revenue in one quarter of 2020 compared to 2019, reach out to your lender to make sure you apply when they start accepting round two applications.