Congress is set to pass another COVID relief package that will reauthorize and replenish emergency loan and grant programs for small businesses that continue to endure hardship as a result of the pandemic.
The relief package allocates $325 billion in aid to small businesses, with $284.5 billion of that going to a reauthorized Paycheck Protection Program (PPP). The revised PPP will allow businesses with 300 or less employees to access up to $2 million in forgivable loans to cover essential costs including payroll and rent (down from the 500-employee threshold and $10 million maximum loan in the original version of the program).
Small businesses that took a PPP loan and saw their revenues fall by at least 25 percent will be able to apply for a second loan. Most notably, Congress will also allow PPP borrowers to take tax deductions for covered business expenses, a move previously opposed by Treasury Secretary Steven Mnuchin.
In response to the pandemic this spring, Congress authorized billions in loans guaranteed by the Small Business Administration (SBA). The federal Paycheck Protection Program launched April 3, delivering $525 billion to 5.2 million small business by August 8. The average loan amount was $107,000, according to SBA.
The stimulus legislation in the spring — Coronavirus Aid, Relief, and Economic Security (CARES) Act — said Paycheck Protection loans shall be excluded from gross income for tax purposes. But the Internal Revenue Service said PPP loans were not deductible.
“This senseless tax policy stands both the letter and spirit of the PPP on its head,” said a business- coalition letter sent to Congress December 3, signed by OAAA and allied groups. “The effect of this (IRS) ruling is to transform tax-free loan forgiveness into taxable income, raising the specter of a surprise tax increase of up to 37 percent on small businesses when they file their taxes for 2020.”
Details of Current Stimulus Bill
Here is the full run-down of what is included for small businesses in this latest COVID relief package:
Paycheck Protection Program (PPP)
- Provides $284.5 billion dollars to reopen and strengthen the PPP for first time and second time borrowers
- Develops a process for a small business to receive a second PPP if the small business has less than 300 employees and can demonstrate a revenue reduction of 25 percent
- Maximum loan amount for a second draw PPP will be reduced to $2 million dollars
- Creates a simplified PPP loan forgiveness application for loans under $150,000 dollars whereby the borrower signs and submits a one-page certification that requires the borrower to list the loan amount, the number of employees retained, and the estimated total amount of the loan spent on payroll costs
- Expands list of eligible expenses to include covered operations (software, cloud computing, and other human resources and accounting needs); property damage costs due to public disturbances that occurred during 2020 that are not covered by insurance; covered supplier costs; and covered worker protection expenditures (PPE)