At the end of 2020, the federal government passed new legislation designed to provide additional relief related to the COVID-19 (coronavirus) pandemic. Named the Consolidated Appropriations Act, 2021 (CAA, 2021), this new legislation includes a second draw of Paycheck Protection Program (PPP) loans in addition to the ability to deduct ordinary and necessary expenses paid using funds from PPP loans.
The PPP Second Draw Loan is available to certain smaller businesses and other entities who previously received a PPP Loan under the Coronavirus Aid, Relief and Economic Security (CARES) Act and experienced a 25% reduction in gross receipts. Borrowers may take a second draw loan of up to $2 million.
The ALG Group is here to help you understand the PPP Second Draw Loan and how it can benefit your business. We created this PPP resource to help you get started on preparing your application – Below you’ll find information regarding eligibility criteria, loan terms, loan forgiveness details, and the new rules applying to exemption and deductibility of expenses. If you have any questions, please do not hesitate to contact us!
In order to be eligible to receive the PPP Second Draw Loan, prior borrowers must meet the following criteria:
Eligible entities include:
Only a single PPP Second Draw Loan is permitted per eligible entity. Borrowers may receive a loan of up to 2.5 times their average monthly payroll costs in the one year prior to receiving the loan or the calendar year. Borrowers in the food and hospitality industries, however, may receive a loan up to 3.5 times their average monthly payroll costs.
Eligible for-profit entities who borrow no more than $150,000 may submit a certification attesting that they meet the applicable revenue loss requirement. The certification must be submitted on or before the date upon which the loan forgiveness application was submitted. Eligible non-profits and veterans’ organizations may use gross receipts to calculate their revenue loss standard.
Yes. Much like the first PPP loan, the PPP Second Draw Loan may be forgiven if funds are used to cover up to 60% of payroll costs (some exceptions apply), and up to 40% of nonpayroll costs including rent, mortgage interest, and utilities. Furthermore, loan forgiveness is not included in income as cancellation of indebtedness income.
The CAA, 2021 extends current safe harbors pertaining to restoring full-time employees as well as salaries and wages. Specifically, it applies the rule of reducing loan forgiveness for borrowers who reduce the number of employees retained and reducing employee salaries in excess of 25%.
Originally, the CARES Act did not include specific instruction regarding whether expenses paid using PPP Loan funds should be tax-deductible or not. The Internal Revenue Service (IRS) ultimately took the position that such expenses were nondeductible. However, with the implementation of the CAA, 2021, expenses paid using proceeds from the original PPP and PPP Second Draw Loans may now be deducted when filing 2020 federal tax returns.
If you have other questions about the PPP Second Draw Loan or are ready to begin the application process, we’re here to help. Additionally, we can also provide assistance regarding deductibility of expenses paid using your previous PPP loan when preparing to file your 2020 taxes to ensure that you’re getting the most out of your return. Give us a call today!
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