On Monday, December 21, 2020, the House and Senate passed the Consolidated Appropriations Act 2021 which provides for additional Covid-19 relief. The President signed the Act late Sunday, December 27, 2020. Among other relief, the Act provides for a new source of Paycheck Protection Program (PPP) funding for first-time businesses and previous recipients who have used up their first PPP loan proceeds. The program will be open until March 31, 2021. An additional $284 billion in funds is appropriated for the program and is referred to as the “second draw.”
Second draw loans (equal to 2.5 months of payroll or 3.5 months of payroll for restaurants and hotels) will be capped at $2 million. Note that the $2 million cap does not apply to first-time borrowers in the second round. PPP loans to first-time borrowers remain capped at $10 million. Existing PPP borrowers may apply for a second draw loan if they have used up the full amount of their initial PPP loan prior to the disbursement of their second draw loan. Entities applying in the second round must have 300 or fewer employees (with some exceptions) and be able to demonstrate they experienced a 25% decline in gross receipts during a quarter in 2020 compared to the same quarter in 2019 (the revenue reduction is a new requirement). Organizations exempt under Section 501(c)(6) such as business leagues and trade groups can also now apply in the second round if they meet certain other requirements.
Second draw loans will be forgivable if 60% of the proceeds are used on payroll costs. Borrowers can now choose the length of their covered period if it is at least eight weeks and not more than 24 weeks. The Act has expanded payroll costs to include group life, disability, vision, and dental insurance. Forgivable uses have been expanded to include operating or capital expenditures on PPE or physical barriers when complying with CDC, health department, OSHA or state or local government guidance, as well as property damages from public disturbances and supplier costs. EIDL loan advances are also no longer deducted from PPP loan forgiveness.
The Act simplifies forgiveness for loans less than $150,000 to a one-page certification and ensures that PPP loan proceeds will not be included as taxable income and expenses paid with the proceeds of a forgiven PPP loan will be tax deductible. The tax deductibility of the proceeds supersedes previous guidance from the IRS. The Act also provides that any income tax basis increase that results from a PPP loan will remain even if the loan is forgiven.
See full text of the Act here: