Key Changes in the Latest Round of Paycheck Protection Program Funding

On December 27, 2020, Congress approved an additional $284.5 billion to support businesses during the pandemic with funding from the Paycheck Protection Program (PPP). Administered by the U. S. Small Business Administration (SBA), the PPP was first enacted as part of the federal CARES Act in March, 2020 and later modified in the Paycheck Protection Program Flexibility Act of 2020.  

For information about the federal stimulus bill enacted on December 27, 2020, read Key Features of the December 2020 Stimulus Bill: Paycheck Protection Program, Employee Retention Credit, Stimulus Payments and More. For information about the original Paycheck Protection Program, read CARES Act: The Paycheck Protection Program.

The following are key program changes and rules in this latest round of PPP funding.

Businesses with no more than 300 employees can now apply for a “second draw” PPP loan. To be eligible, during any quarter of 2020 the business must have had a reduction in gross receipts of at least 25 percent compared to the same quarter in 2019. There are some exceptions for seasonal businesses or those that were not operating during 2019, but were operating on February 15, 2020. On or before the disbursement of the second loan draw, the business must have spent the full amount of its first PPP loan proceeds on eligible expenses.

For most borrowers, the maximum loan amount of a second draw PPP loan is 2.5 times the average monthly payroll costs up to $2 million. For borrowers in the accommodation and food services sectors, however, the maximum loan amount is 3.5 times the average monthly payroll costs up to $2 million.  Average monthly payroll costs can be based on calendar 2019 or 2020, or on the 12-month period prior to loan application.

At least $25 billion is being set aside for second draw PPP loans to eligible borrowers with a maximum of 10 employees or for loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods.

Borrowers can select their loan forgiveness covered period. The covered period begins on the date the loan proceeds are disbursed and ends on any date the borrower chooses that is between eight and 24 weeks after the covered period begins. Because of this flexibility in the covered period, the alternative payroll covered period established for prior first draw loans has been eliminated.

Expanded group insurance payments qualify as payroll costs. Payroll costs now include group insurance payments for vision, dental, disability and life insurance.

Additional non-payroll costs are eligible for forgiveness. Eligible PPP expenses now include certain operating expenses (e.g., software and cloud computing expenses), property damage incurred during public disturbances in 2020 that insurance did not cover, certain supplier costs, and certain worker protection expenditures incurred to comply with COVID-19 health guidelines.

One important note: Even though the type of eligible non-payroll costs have been expanded, borrowers must still use 60 percent of the loan proceeds for payroll costs in order to be eligible for full forgiveness of the loan. 

Ordinary business expenses paid with PPP loan proceeds are tax-deductible. For federal income tax purposes, borrowers can deduct ordinary business expenses paid with PPP loan proceeds. This change applies to expenses paid with proceeds from an original PPP loan as well as a second draw PPP loan.

Eligibility for simplified loan forgiveness application increased from $50,000 to $150,000 or less. The new legislation raised the eligibility threshold for a simplified loan application and released the revised loan application Form 3508S on January 19, 2021. Borrowers of $150,000 or less will be required to provide documentation to substantiate loss of revenue when applying for forgiveness of a second draw loan. Even though the loan forgiveness application is less detailed, the SBA may review and audit PPP loans of $150,000 or less and access any records the borrower is required to retain.

EIDL advances will no longer be subtracted from PPP loan forgiveness. The SBA has indicated that any EIDL advance amounts previously deducted from a borrower’s PPP loan forgiveness will be remitted to the lender, along with interest.

PPP borrowers are also eligible for the Employee Retention Credit. Employee Retention Credits (ERC) allow eligible entities to receive a refundable payroll tax credit on qualified wages. This provision is retroactive to 2020. A borrower cannot apply the same wages to both the PPP and the ERC. Borrowers that qualify for full forgiveness of their PPP loan using only payroll costs should consider maximizing the use of non-payroll costs for PPP loan forgiveness (subject to the 60-40 payroll requirement) in order to reserve wages for the ERC.

For assistance with the PPP Loan Forgiveness Application or if you have questions, contact us. We are here to help.

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