Consolidated Appropriations Act of 2021 Passed
Congress has passed the Consolidated Appropriations Act of 2021 (“Act”) and President Trump finally signed the legislation on December 27. There are over 5,000 pages that need to be digested and the law impacts many areas, such as funding the government, to extending unemployment benefits, to additional aid for struggling industries including PPP 2.0. The economic assistance under the Act is estimated at $900 billion.
We wanted to share in this blog posting some thoughts/comments on the Act, including those from our sister Allinial firm, WipFli.
- Deductibility of PPP funded expenses: This provision overturns the IRS ruling that expenses funded with PPP loans were not deductible. Effective date is back to enactment of CARES Act. The AICPA was very proactive in getting this provision enacted and businesses will now be able to deduct expenses paid while also treating any PPP loan forgiven as tax exempt income.
- For any EIDL advances received, the $10,000 is excluded from income and no expenses are disallowed with respect to the income exclusion. In addition, EIDL advances no longer will reduce the amount of PPP loan forgiveness.
- Income exclusion and expense deductions for payments made on Section 7(a) SBA loans – The CARES Act provided that the Small Business Administration (“SBA”) would pay up to six months of principal and interest on certain SBA loans. The new Act provides that the principal paid by the SBA does not result in income forgiveness and no deductions are disallowed as a result of the income forgiveness.
- PPP covered expenses have been expanded and the Act now includes as covered expenses to include payment for any software or cloud computing services, employer personal protection equipment and similar costs, purchases of essential business goods and supplies on contracts entered into before start of the PPP loan covered period. The effective date is back to enactment of CARES Act, but PPP loans on which forgiveness has been determined are not eligible for the expanded costs.
- All PPP borrowers can choose a covered period ending at any point between eight and 24 weeks after the PPP loan origination.
- Within 24 days of the enactment of the Act, the SBA must develop a forgiveness application of no more than one page for loans up to $150,000 that requires the borrower to estimate the number of employees they were able to retain and to provide an estimate of the amount of PPP loan spent on payroll. No additional information will be required to be submitted, but the borrower must retain relevant employment records for up to four years.
- PPP 2.0 (i.e. a second PPP loan) funding (approximately $280 billion) has been approved allowing certain business concerns (including previous PPP borrowers), those with 300 or fewer employees and those who can show gross receipts reductions of at least 25% over a prior year period, are eligible for a new PPP loan of up to the lesser of a) 2.5 times (3.5 times for NAICS 72 businesses) average monthly payroll over a specified 12 months, or b) $2 million. Like the original PPP loan, at least 60% of the loan must be spent on payroll, and second draw loans will be excluded from income and no expenses will be disallowed as result of the loan forgiveness.
- The Act provides for a 100% tax deduction for food and beverage expenses incurred during a qualifying business meal provided at a restaurant for the tax years 2020 through 2022. Under current law, the deduction was limited to 50%.
- The Act provides for direct stimulus payments to qualifying taxpayers, based on the 2019 tax return filed with the IRS. Similar to the first round of stimulus payments, adjusted gross income limits apply and there are phaseouts as well.
We will continue to digest this massive bill and provide additional updates to our blog posting.