The long-awaited stimulus package is finally here! But instead of having you read over 5,000 pages that make up this bill, we thought we’d share the highlights for small business owners.
Two Provisions You Need to Know About
There has long been a debate in Congress about deducting expenses paid with Paycheck Protection Program (PPP) funds. Those expenses are deductible, and the loan amount isn’t included in gross income. That is huge for business owners, not to mention all of the accountants who worry about having to figure out how that all worked.
Another bonus is that the Economic Injury Disaster Loan (EIDL) advances are also received tax-free and, small business owners are allowed to deduct the expenses.
The new stimulus package also simplifies the application process for loans under $150K. New rules make it easier by letting you simply sign and submit to the lender a certification that provides:
- The number of employees the eligible recipient was able to retain because of the covered loan.
- The amount of your loan that you spent on eligible payroll costs.
- Attesting that you accurately provided information and complied with the applicable requirements and plan to retain records for the required period. That is four years for employment records and three years for other records.
- The application will not be more than one page and should be available within 24 days after the bill becomes law. Furthermore, you won’t be required to submit any additional records.
The simplified process will apply to more than 85% percent of PPP loans. Those borrowing over $150K will still need to provide documentation and verification.
Expansion of PPP
Congress expanded the PPP program by making several additional types of expenses eligible for forgiveness. These include:
- Covered operations expenditures: These are payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing of a payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records, and expenses.
- Covered property damage costs: Related to vandalism or looting due to riots that occurred during 2020 and not covered by insurance or other compensation.
- Covered supplier costs: These expenditures were made to a supplier and were essential to the operations of the entity at the time the expenditures were made under a contract or purchase order in effect any time before the covered period or, for perishable goods, any time during the covered period.
- Covered worker protection expenditures: These are operating or capital expenditures made to comply with COVID-related requirements established by the Department of Health and Human Services, the Centers for Disease control the Occupational Safety and Health Administration, or by state and local governments.
- Group life, disability, vision, and dental insurance are included as payroll costs.
- All the original covered expenses, including payroll, interest on covered mortgage obligations, rent, and utilities are still eligible for forgiveness.
A Second PPP Loan?
The other good news is that the new bill offers a second PPP loan for companies with fewer than 300 employees who suffered a 25% drop in any quarter’s revenue from 2019 to 2020.
The maximum loan amount, for most business owners, can still be calculated by multiplying your average monthly payroll by 2.5. But this time, you get to pick 2019 or one year before the date the loan was made. However, the bill allows a multiplier of 3.5 instead of 2.5 for larger loans for the “accommodation and food service” (NACIS 72). The maximum loan is $2M vs. $10M as before.
Employee Retention Tax Credit
The bill also expands the Employee Retention Tax Credit (ERTC). Originally this credit was largely overlooked because it could not be used in conjunction with the Paycheck Protection Program. Additionally, to qualify, employers had to meet one of the following criteria:
- Your business is wholly or partially suspended by government order due to COVID-19 (like a stay-at-home or non-essential business order) during the quarter.
- Your gross receipts for 2020 are below 50% of the comparable quarter in 2019. However, once your gross receipts got above 80% of a comparable quarter in 2019, you no longer qualified after the end of that quarter.
The amount of the credit was originally 50% of qualifying wages paid from March 12, 2020 – January 1, 2021, up to $10,000 in total. The new bill allows the ERTC to be used in conjunction with PPP, as long as it’s used for wages not paid with PPP funds. The credit is increased to 70% of qualified wages each quarter and extends the time frame to July 1, 2021. Finally, the bill increases $10,000 per quarter, rather than in total. All of these adjustments make it very attractive for small business owners.
Now, with the new bill passed, the SBA will have just ten days to implement the new regulations and 24 days for the simplified application. Luckily, they’ve gone through this before, and hopefully, it will be a smooth process.
Many economists think the bill doesn’t do enough to help many small businesses. Negotiations for a third stimulus package are being talked about for 2021. However, if the GOP maintains control of the Senate that will be a tough sell.
But if Small Business owners, like most Americans, exercise patience, more modifications will likely be made as the new bill becomes implemented.