In addition to the voluntary extension of the Families First Coronavirus Response Act’s paid leave provisions, which we discussed in our December 22, 2020 E-lert, the Coronavirus Response and Relief Supplemental Appropriations Act (the Act), included in the massive (5593 page) stimulus bill signed into law on December 27, 2020, expands or extends relief benefits under the Coronavirus Aid Relief and Economic Security (CARES) Act, discussed in our March 27, 2020 and March 30, 2020 E-lerts. Specifically, the Act clarifies the tax treatment of Paycheck Protection Program (PPP) loans, permits second PPP loans to certain borrowers, expands eligibility for first PPP loans, adds to the list of forgivable expenses; expands the employee retention credit, and extends enhanced unemployment benefits.
Tax Treatment. The initial PPP provisions provided that forgiven loans did not constitute gross income, but the IRS took the position that borrowers could not deduct business expenses that were covered by a forgiven loan. The Act overrules the IRS’s position. Business expenses that were covered by forgiven PPP loans, including payroll, will be deductible under the usual rules. This applies to initial and second loans.
Second Loans. The Act appropriates funds for forgivable second loans, of up two million dollars, to previous PPP borrowers who:
- Have 300 or fewer employees;
- Had a 25% decline in gross receipts in any quarter of 2020 compared to the same quarter of 2019; and
- Have used or will use the full amount of their first loan prior to disbursement of the second loan.
Expanded eligibility for first loans. The Act will make first loans of up to two million dollars available to additional entities including:
- Hotels and restaurants with fewer than 300 employees per location;
- Sole proprietors, independent contractors, and self-employed individuals;
- Not for profits, including churches; and
- Section 501(c)(6) business leagues, including chambers of commerce, visitor’s bureaus and destination marketing organizations, if they have 300 or fewer employees and do not receive more than 15 percent of their revenues from lobbying or spend more than one million dollars on lobbying.
Expanded costs eligible for loan forgiveness. The Act expands the list of costs eligible for loan forgiveness to include:
- Personal protective equipment and modification of facilities;
- Operating costs including software, cloud computer services and accounting; and
- Payments to essential suppliers.
To receive full loan forgiveness, 60 percent of the loan must be spent on payroll during an eight- or 24-week period.
Employee Retention Credit. Apart from the PPP program, the Act expands the employee retention credit available to employers who have experienced a decline in gross receipts. The credit is increased from 50 to 70 percent and the cap on creditable wages is increased from 10,000 dollars per year to 10,000 dollars per quarter. The amount of the decline in gross receipts necessary to receive the credit is liberalized from 50 percent to 20 percent. The credit expires June 30, 2021.
Enhanced Unemployment Benefits. The Act also includes an extension of two pandemic unemployment programs which were created under the CARES Act and were set to expire at year’s end. The Pandemic Emergency Unemployment Compensation (PEUC) program initially provided an additional 13 weeks of unemployment benefits to individuals who had exhausted their regular unemployment compensation benefits under state law. The Pandemic Unemployment Assistance (PUA) program extended unemployment benefits to workers who are traditionally ineligible for such benefits, such as independent contractors, part-time employees, and self-employed individuals, for up to 39 weeks. Benefits provided under these programs have now been extended to March 14, 2021, allowing workers to receive a maximum of 50 weeks of benefits. Eligible individuals may continue to receive payments through April 5, 2021, assuming they have not met the 50-week maximum.
In addition, the Act provides for a supplemental $300 weekly payment to individuals who are otherwise entitled to unemployment benefits under state or federal law (a prior $600 benefit expired in July 2020). Certain “mixed earners” (i.e., individuals who earn both W-2 wages and self-employed 1099 income) will be eligible for another $100 each week. These enhanced benefits are also available until March 14, 2021.
Federal Contractor Protections. The Act further provides for a three-month extension, through March 31, 2021, of a federal contractor employee retention program
This is obviously a fast-moving and ever-changing situation, and we will continue to send out E-lerts on any significant developments. You may also wish to check our continually-updated FAQs frequently.