PLEASE BE AWARE, THIS IS A SUMMARY OF A VERY LARGE AND COMPLICATED PIECE OF LEGISLATION. ACCORDINGLY, WE ARE HERE TO ANSWER ANY QUESTIONS YOU MAY HAVE.
In late December of 2020, Congress passed and President Trump signed into law the Consolidated Appropriations Act, 2021 (CAA 2021) which contains key provisions on PPP loans and EIDL grants for businesses. The SBA has rolled out many regulations regarding these loans, which are now being analyzed by CPA practitioners and the AICPA.
If you feel your business has suffered or will suffer financially due to the pandemic and you have not previously applied for PPP funds, you may consider applying for a PPP loan under the rules of the first draw PPP loan program. If you have already received a PPP loan and you meet the requirements listed below, you may apply for a second draw PPP loan. Both loans are eligible for forgiveness if the funds are used according to the terms outlined below. Both loans require you to certify that the loan is necessary to support the ongoing operation of the business.
SOME KEY TAKEAWAYS FROM THE CCA 2021
- Additional funding was provided for the first round of Paycheck Protection Program loans.
- Funding for Paycheck Protection Program Second Draw Loans was provided.
- Allowable expenses paid by PPP loans are now fully deductible for federal income tax purposes. The state of North Carolina does not follow the federal government on the deductibility of expenses, however.
- Employers who received a PPP loan may now also take the refundable Employee Retention Credit (ERC) against the employer’s share of social security taxes. You can qualify for this credit whether or not you took a PPP loan. You may be an eligible employer for 2020 if: (1) the operation of your business was fully or partially suspended due to orders from a government entity OR (2) gross receipts for certain periods of 2020 were less than 50% of gross receipts for the same quarter in 2019. If you were not in business all of 2019, provisions in the rules allow for alternate calculations. To qualify for the credit in 2021 you must have suffered a 20% reduction in gross proceeds for quarters 1 and/or 2. Payroll expenses used for PPP forgiveness may not be used for the credit.
- EIDL Advances will no longer reduce the amount of PPP loan forgiveness.
- A simplified loan forgiveness application has been established for borrowers that received a loan of $150,000 or less.
- The forgiveness of PPP loans is not included in income.
KEY DATES
January 11, 2021 – PPP LOAN APPLICATION PERIOD OPENS FOR APPLICANTS WHO DID NOT PREVIOUSLY TAKE A PPP LOAN
January 13, 2021 – LOAN APPLICATION PERIOD FOR SECOND DRAW PPP LOANS OPENS
March 31, 2021 – DEADLINE TO APPLY FOR EITHER PPP LOAN but remember loan availability is based on a first come, first-serve basis.
ENTITIES ELIGIBLE FOR PPP LOANS
Eligible entities include for-profit businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
ELIGIBILITY FOR 1ST DRAW PPP LOANS
- Your business was operational before February 15, 2020;
- Your business is still open and operational;
- You have no more than 500 employees; and
- You feel that the current economic uncertainty makes this loan request necessary.
ELIGIBILITY FOR 2nd DRAW PPP LOAN
- The entity was in business prior to 2/15/20;
- Your business employs no more than 300 employees per physical location;
- Your business has used or will use the full amount of their first PPP loan; and
- You suffered at least a 25% reduction in gross receipts (do not include the forgiveness amount of your PPP loan in this calculation) in the first, second, third quarter or fourth quarter of 2020 relative to the same quarter in 2019. Alternative calculations are made if you were not in business all of 2019. You may also base your 25% reduction on your annual gross receipts in 2020 as compared to annual gross receipts for 2019.
PPP LOAN MAXIMUM AMOUNTS
- Loan amounts given are calculated based on payroll costs. In general, first- and second-time PPP borrowers may receive a loan amount of up to 2.5 times their average monthly payroll costs (with a cap per employee of $100,000 annualized) in 2019, 2020, or the 12 months prior to the loan.
- PPP borrowers with NAICS codes starting with 72 (such as hotels and restaurants) can receive up to 3.5 times their average monthly payroll costs on second-draw loans.
- If you did not have any payroll: Schedule C filers with no employees will use line 31 to determine their maximum loan amount; Schedule F filers will use line 9, gross income, to determine their maximum loan amount; and partners in a partnership may use their net earnings from their Schedule K with some reductions.
LOAN FORGIVENESS
- A first draw PPP loan and a second draw PPP loan may be forgiven for amounts spent on payroll costs of up to 60% and non-payroll costs of up to 40%. Payroll costs include wages, group life, disability, vision, or dental insurance. Non-payroll costs include rent, mortgage interest, utilities, worker PPE, supplier costs, operations expenditure (for ex: software), and property damage costs related to 2020 public disturbances.
Please contact the office if you have questions regarding PPP loan forgiveness or new PPP loan applications.
