Small businesses were not left behind in the latest stimulus package. The government again is ramping up “PPP”, the Paycheck Protection Program.
It was revived just before year-end with 284 billion bucks of support for small employers. Among other improvements, Congress managed to clear up a tax dilemma that had troubled many of those companies.
In short, the original PPP has been intended to help businesses reeling from the economic effects of the coronavirus epidemic. It’s a wide-ranging relief measure. The federal government provided $525 billion to fund 5.2 million loans in the first version last spring.
The loans went out at 1 percent interest, with no other fees. But, most of all, they were forgivable. If the business used the money within PPP guidelines, the feds simply wiped away repayment. Of course, a vital use was payroll for employees.
Now, here’s where Congress fixed a tax mess from the initial program. The money from loans that had been forgiven clearly came tax-free, according to the law. But the Internal Revenue Service was not allowing businesses to deduct expenses paid from those forgiven PPP funds. In the improved PPP, Congress explicitly stated that any forgiven funds simply will not appear in gross income on tax returns. Any spending with them also will not affect business deductions and will not reduce workforce-related tax credits.
Let us offer a rundown of some of the more important features of what we will call “PPP2”:
• Sizes of eligible businesses 500 or fewer employees; if it’s an initial PPP loan; 300 workers for businesses seeking second loan.
• Expanded types of businesses: Included in PPP2 are sole proprietors, independent contractors, self-employed workers, seasonal employers, (generally operating no more than seven months a year) and certain types of non-profit organizations not covered in the prior round.
• Financial losses: For a second loan, a 25% decline in gross receipts in any quarter in 2020 compared to the same one in 2019.
• Maximum loan in new round: $2 million. Business still must establish necessity for loan.
• Simplified forgiveness app: Businesses that obtained loans smaller than $150,000 can use a single-page application for forgiveness. The U.S. Small Business Administration is required to produce the application this month (January 2021).
• Types of expenses allowed: Expanded to include business software, unreimbursed expenses to repair property damage from civil unrest that happened in 2020, costs of protecting workers, especially from COVID-19, and some expenses owed to suppliers, experts at National Law Review note.
The new PPP is authorized until March 31, 2021. Like the latest stimulus package, it was part of the enormous Consolidated Appropriations Act of 2021. To decide how PPP2 fits your small business, feel free to contact Eric Buechler, owner of EricJohn Ltd. and an enrolled agent recognized by the IRS.