After months of negotiation and wrangling over additional coronavirus (COVID-19) pandemic relief legislation, House and Senate leaders struck a bipartisan funding deal over the weekend. Last night the U.S. House of Representatives and Senate overwhelmingly passed H.R. 133, the Consolidated Appropriations Act, 2021, which includes $900 billion in COVID-19 relief.
Included in H.R. 133 are The COVID-related Tax Relief Act of 2020 and The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, which have a number of tax provisions that benefit small businesses and individuals.
The Senate approved the bill with a 92-6 vote at about 11:45 p.m. Monday, December 21, just a couple of hours after the House approved it 359-53. Despite the fact that Former President Trump threatened to veto the bill, he signed it on the evening of December 27, 2020.
Highlights of the bills are summarized below.
1. Paycheck Protection Program Second Draw Loans:
- Eligible borrowers are businesses that have no more than 300 employees and have at least a 25 percent reduction in gross revenues between comparable quarters in 2019 and 2020.
- Maximum loan size is 2.5X average monthly payroll costs, up to $2 million.
- Allows small businesses assigned to the industry NAICS code 72 (Accommodation and Food Services) to use 3.5X average monthly payroll costs
- Maintains existing expansions in eligibility for businesses assigned to the industry NAICS code 72 (Accommodation and Food Services).
- Expands eligibility for 501(c)(6) nonprofits.
- Borrowers receive full loan forgiveness if they spend at least 60 percent of their PPP second draw loan on payroll costs over a time period of their choosing between 8 weeks and 24 weeks.
- Includes set-asides to support first-time PPP borrowers with 10 or fewer employees, second-time PPP borrowers with 10 or fewer employees, first-time PPP borrowers who have been made newly eligible, and second-time returning PPP borrowers. Additionally, provides for a set-aside for loans made by community lenders.
2. Paycheck Protection Program Improvements:
- Allowable and forgivable expenses include:
- Covered supplier costs
- Costs relating to worker protective equipment and adaptive costs
- Technology operations expenditures
- Property damage due to public disturbances that occurred during 2020 that are not covered by insurance
- Enhances borrower flexibility by allowing borrowers to select their loan forgiveness covered period between 8 weeks and 24 weeks.
- Simplifies the forgiveness application process for smaller loans up to $150,000
- Allows borrowers who returned all or part of their PPP loan to reapply for the maximum amount applicable.
- Eliminates the requirement that EIDL advances be subtracted from PPP forgiveness.
3. Emergency Enhancements to SBA’s Lending Program:
- Temporarily enhances the terms of the 7(a) loan program by increasing the loan guarantee to 90 percent and offering reduced or no fees for the borrower and the lender. Additionally, it would temporarily increase the 7(a) express loan limit and loan guarantee to provide access to needed working capital.
- Temporarily eliminates fees for the 504 loan program and favorable terms for refinancing loans.
- Extends the Small Business Debt Relief program, Section 1112 of the CARES Act, which would defer payments of principal and interest on new and existing SBA 7(a), 504, and Microloan programs for eligible entities.
4. Support for Venues:
- Establishes a $15 billion grant program to support shuttered live venues, theaters, museums, and zoos that have experienced significant revenue losses.
- Provides enhanced verification and requires increased transparency of SBA’s oversight plans to ensure funds are directly benefiting eligible entities.
5. Tax Treatment of Covered Loan Forgiveness:
- Allows deductions for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven.
- Tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness.
- EIDL advance (up to $10,000) to not reduce PPP forgiveness amount.
6. Other Tax Provisions:
- Extension of Energy efficient commercial buildings deduction
- Employee retention credit (ERC) and rehiring tax credit
- Extension of the ERC to July 1, 2021
- Increase in the credit percentage from 50% to 70%
- Increased per employee limitation
- Modifications to the definition of eligible employer
- Business meals deduction—a temporary allowance of a full deduction for business meals paid or incurred in 2021 and 2022.
- Direct payments to individuals of $600 for an individual making up to $75,000 a year; $1,200 to a couple making $150,000 a year and $600 for each child dependent.
- An additional $300 a week for individuals receiving unemployment benefits.
As new guidance and clarifications are issued and state announcements are made, we will share them with you to help advise your business during this time. We invite you to subscribe to our MCB Blog, so you will receive an email notification when a new blog article is posted to our website. During this time, it is the fastest way to receive news and announcements. You can also visit MCB Covid-19 page for all our related blog posts. If you have questions about this or related topics contact an MCB Advisor at 703-218-3600 or click here.