On December 27, 2020, President Trump signed the Consolidated Appropriations Act into law (the “Act”). Included in this relief package is the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act, which provides $284 billion for additional Paycheck Protection Plan (“PPP”) funding. A brief summary of the significant provisions of the Act are as follows:
Second Draw Loans for Small Businesses:
A major feature of the Act is that it will allow eligible small businesses to obtain forgivable second draw PPP loans (“Second Draw Loan”). In order to qualify for a Second Draw Loan, an eligible business must: (i) have no more than 300 employees; (ii) have used or will use the full amount of their prior PPP loan before the Second Draw Loan is disbursed; and (iii) demonstrate a reduction of at least 25% in gross receipts between comparable quarters in 2019 and 2020.
In addition, the Act also makes the following expenses permitted uses of funds received by PPP loans:
- Covered operations expenditures: Payments for business software or cloud computing services that facilitate business operations, human resources needs and accounting operations.
- Covered property damage costs: Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 which were not covered by insurance.
- Covered supplier costs: Expenditures made by entities to suppliers for goods that are essential to the operation of the entity pursuant to contracts, purchase orders, or orders that were in effect prior to the PPP loan.
- Covered worker protection expenditure: Expenditures to facilitate compliance with federal, state and local health and safety requirements and guidance. Such expenditures may include: physical barriers, air ventilation or filtration systems, drive-thru windows, expansion of additional indoor or outdoor business space, and personal protective equipment.
The Act also clarifies that group life, disability, vision, or dental insurance can be included in payroll costs. Under the Act, borrowers will be allowed to utilize these new forgivable expenses even if their PPP loans were disbursed prior to the enactment of the Act. However, borrowers who have already had their loans forgiven will not be able to utilize these new changes.
Tax Treatment:
The Act makes clear that forgiven PPP loans are not considered taxable income. The Act also allows business expenses paid for with PPP funds to be deductible for tax purposes.
Families First Coronavirus Response Act (“FFCRA”):
The FFCRA, which required employers with less than 500 employees to provide up to 80 hours of paid sick leave as well as up to 10 weeks of partially paid family and medical leave to certain employees, was set to expire on December 31, 2020. The Act makes clear that the mandatory leave did expire on December 31, 2020. However, employers who were subject to the FFCRA can voluntarily elect to extend the period in which their employees may take FFCRA qualified leave and continue to claim tax credits for such leave until March 31, 2021. If employers choose to extend the period in which their employees may take FFCRA leave, they cannot retaliate or take any adverse action against an employee for taking such leave.
Please contact us with questions regarding the Act or for assistance with reviewing your company’s eligibility for the abovementioned loan.