On Monday, December 21, Congress enacted a $900 billion stimulus package to support American workers and businesses impacted by COVID-19. This summary provides an overview of the business and tax relief measures contained in the stimulus package.
Paycheck Protection Program
Restarting and Expanding the Program
- $284 billion in funds to restart the program and enable borrowers to seek first or second loans, subject to new eligibility restrictions:
- Targeted at very small businesses, the new PPP money includes dedicated funds for borrowers with 10 or fewer employees and for applicants that are newly available for a first round loan, including 501(c)(6) organizations and local newspaper, TV, and radio broadcasters.
- Second draw loans are limited to small businesses with fewer than 300 employees and capped at $2 million. Second draw loan applicants must demonstrate revenue losses of at least 25% in any 2020 quarter compared with the same quarter in 2019.
- Expands the forgivable loan program to nonprofits including 501(c)(6) organizations, business leagues, such as chambers of commerce, and visitor bureaus and destination marketing organizations.
- Enables community lending institutions, including community development financial institutions, to participate in the program.
Clarifying and Expanding Forgiveness
- Most provisions of the loan forgiveness program, including the 60% payroll spend, will continue to apply.
- Clarification that PPP loan proceeds eligible for forgiveness are not included in taxable income, and that eligible business expenses paid using those same PPP funds may be deducted from federal taxable income.
- Expands the types of expenses that may be forgivable to include costs incurred for COVID-19 response measures. This includes personal protective equipment and other covered worker protection and facility modification expenditures, to comply with health and safety guidance, including the addition of drive-thru window facilities and physical barriers such as sneeze guards. Further coverage includes expenditures to suppliers that are essential at the time of purchase, and operating costs including software, cloud computing services, and accounting needs that facilitate the continuing operation of the business.
- Removes the requirement that PPP loan recipients deduct the amount of any EIDL funds from the amount of the PPP loan eligible for forgiveness.
- Provides a streamlined loan forgiveness process for borrowers whose loan does not exceed $150,000.
- Increases to 5% the loan origination fee to banks for PPP loans of less than $350,000. For PPP loans more than $350,000, the origination fee to banks is 3%. This may help small businesses access loans.
Additional Loans and Grants
Emergency Economic Injury Disaster Loan (EIDL)
- $40 billion is allocated to an extended SBA Emergency Economic Injury Disaster Loan (EIDL) grant period that now runs through 2021. The SBA is now given 21 days to review the applicant’s eligibility and either grant disbursement or provide notice of ineligibility.
- $20 billion is set aside for a new targeted EIDL SBA 7(b) loan program created for certain small businesses that: (1) are located in a low income community, (2) have suffered an economic loss of 30%, and (3) have fewer than 300 employees. Advances under the program are to be $10,000 or the difference between a previous advance and $10,000.
- The act creates temporary backing of up to 90% of SBA 7(a) loan guarantees through September of 2021.
- There is now no deduction for an advance under a 7(b) loan when a borrower is approved for a 7(a) EIDL loan under the CARES Act.
- Lenders of SBA 7(a) loans are allowed to defer full payment (including principal and interest) for a year or even longer if the borrower provides justification for additional deferment.
Other SBA and Targeted Relief Programs
- The Secretary of the Treasury is given leave to invest up to $9 billion in low- and moderate-income community financial institutions to provide capital investments for neighborhoods disproportionately impacted by COVID-19.
- Community Development Financial Institutions (CDFI) are allocated $3 billion in the form of grants, assistance, outreach, and program administration to support communities impacted by COVID-19.
- $15 billion in direct funding through grants to live venues, independent movie theaters, and cultural institutions provided through the Office of Disaster Assistance. $2 billion is set aside for small venues as defined in the statute.
- $7.5 billion is allocated to SBA low-interest debt refinancing that does not need to be related to an expansion. Provided specific criteria are met, loans can be made against existing collateral and refinancing is possible for businesses expenses.
Payroll and Employee Retention
- An extension of the time for employees to repay deferred employment taxes under the President’s August executive order. The deferral that previously ran until April 2021 is now extended to December 31, 2021.
- The payroll tax credit for paid sick and family leave under the Families First Coronavirus Response Act is extended until March 31, 2021. The tax credits now apply to nearly any payments made to workers for these purposes.
- The CARES Act employee retention credit has been clarified. This includes changes to the tax treatment of health plan expenses and coordination between the PPP and the employee retention tax credit. Further, the credit has been extended to July 1, 2021, the credit percentage has increased from 50% to 70%, and the per-employee limitation has increased from $10,000 in total to $10,000 per quarter or $40,000 for a full year.
- The qualification to be an eligible employer under the CARES Act is reduced to reflect gross receipts of 80% on a per-quarter basis when compared with the same quarter in 2019 or the immediately preceding quarter.
Other Deductions and Credits
- The deduction for business meals for many years has been limited to 50% of the reasonable cost of meals, with certain exceptions. The bill allows 100% deduction for business meals purchased from a restaurant in 2021 and 2022. The standards for what qualify as business meals do not change.
- The bill provides for extension of the investment tax credit (ITC) and production tax credit (PTC) for certain renewable energy sources, and various other changes largely designed to accelerate the transition to renewable energy resources. Given the breadth of the energy-related provisions in the bill, our Energy Practice Group has sent this alert to address those changes. The Internal Revenue Code contains numerous provisions that expire or sunset, but are nearly always extended. This bill extends many of those provisions, including the look-thru rule for related controlled foreign corporations, the new markets tax credit, the work opportunity tax credit, film and television production tax credits, and empowerment zone tax incentives (though some of these are reduced).