Congress Passes Major New Relief/Stimulus Legislation

Includes Significant Modifications to Paycheck Protection Program, Employee Retention Credit, and Other Tax Provisions

December 29, 2020

Mike Batts, CPA

Congress has passed and President Trump signed into law major new legislation that includes new economic stimulus and relief measures as well as significant tax provisions.  The legislation, given the title “Consolidated Appropriations Act, 2021” (which we will refer to hereinafter as “the CAA”), includes significant modifications to and extensions of the Paycheck Protection Program and the Employee Retention Credit – two provisions in current law of great interest to the nonprofit sector.

Below is a very high-level and greatly abbreviated summary of key provisions of the CAA…as we currently understand them.  (Note that our understanding of the provisions could change as we perform a more in-depth analysis of the legislation.)  The summary provided below is based in significant part on a summary issued by Congressional staff.  We will be further analyzing the provisions of the CAA in the coming days.  We plan to provide a more comprehensive analysis of the legislation in January, as well as a webinar to describe provisions of most interest to nonprofit organizations.

Key provisions of the Consolidated Appropriations Act, 2021:

Existing Paycheck Protection Program Loans

  • Extends the availability of funds under the original PPP loan program through March 31, 2021.

  • Retroactively defines a “seasonal employer” to be an eligible recipient which: (1) operates for no more than seven months in a year, or (2) earned no more than 1/3 of its receipts in any six months in the prior calendar year. (It is unclear to us at this point how or to what extent this retroactive definition might affect borrowers who reasonably deemed themselves to be seasonal employers when originally applying for a PPP loan or applying for forgiveness of a PPP loan in the absence of a legal definition.)

  • Expands the seasonal period for seasonal employers to any 12-week period between February 15, 2019 and February 15, 2020.

  • Makes the following expenses allowable and forgivable uses for Paycheck Protection Program funds:

    • Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.

    • Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.

    • Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.

    • Covered worker protection expenditures. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.

  • Clarifies that other employer-provided group insurance benefits are included in payroll costs. This includes group life, disability, vision, or dental insurance.

  • Allows borrowers of loans made under PPP before, on, or after the enactment of the CAA to utilize funds for forgivable expenses as expanded by the CAA, except for borrowers who have already had their loans forgiven.

  • Allows a borrower to elect a covered period ending at the point of the borrower’s choosing between 8 and 24 weeks after origination of the borrower’s PPP loan.

  • Creates a simplified application process for loans under $150,000 such that a borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the covered loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount. The borrower must also attest that the borrower accurately provided the required certification and complied with Paycheck Protection Program loan requirements. The SBA must establish this form within 24 days of enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements. Additionally, borrowers are required to retain relevant records related to employment for four years and other records for three years. The SBA may review and audit these loans to ensure against fraud.

  • Prohibits eligible entities that receive a grant under the Shuttered Venue Operator Grants (see below) from obtaining a PPP loan.

  • Expands eligibility to receive a PPP loan to include certain 501(c)(6) organizations.

  • Borrowers who previously returned all or part of their PPP loans may reapply for the maximum amount applicable.  While not abundantly clear to us, it appears that this provision applies with respect to the original PPP loan eligibility requirements.  In other words, it appears that a borrower who wishes to avail itself of this provision is only required to meet the eligibility requirements for the original PPP loans and not the requirements for the new “Second Draw” program described below.

Paycheck Protection Program “Second Draw” Loans

  • Creates a second loan from the Paycheck Protection Program, called a “PPP Second Draw” loan for smaller and harder-hit organizations, with a maximum loan amount of $2 million. Loans are available through March 31, 2021, subject to the funding capacity included in the legislation.  (We refer to these loans herein as “PPP2 loans.”)

  • In order to receive a PPP2 loan, eligible entities must:

    • Employ not more than 300 employees;

    • Have used or will use the full amount of their first PPP loan; and

    • Demonstrate at least a 25 percent reduction in gross receipts in any completed calendar quarter of 2020 relative to the same 2019 quarter. Provides applicable timelines for businesses that were not in operation in Q1, Q2, and Q3, and Q4 of 2019.

  • Loan terms. In general, borrowers may receive a loan amount of up to 2.5X the average monthly payroll costs in the one year prior to the loan or the calendar year. No loan can be greater than $2 million.

  • Seasonal employers may calculate their maximum loan amount based on any consecutive 12-week period beginning February 15, 2019 through February 15, 2020.

  • New entities may receive loans of up to 2.5X the sum of average monthly payroll costs.

  • Organizations with multiple locations that are eligible entities under the initial PPP requirements may employ not more than 300 employees per physical location.

  • Waiver of affiliation rules that applied during initial PPP loans apply to a second loan.

  • An eligible entity may only receive one PPP2 loan.

  • Loan forgiveness. Borrowers of a PPP2 loan would be eligible for loan forgiveness equal to the sum of their payroll costs, as well as covered mortgage, rent, and utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and non-payroll costs in order to receive full forgiveness will continue to apply.

  • Lender eligibility. A lender approved to make loans under initial PPP loans may make covered loans under the same terms and conditions as the initial loans.

  • Churches and religious organizations. Expresses the sense of Congress that the SBA’s guidance clarifying the eligibility of churches and religious organizations was proper and prohibits the application of regulations otherwise rendering ineligible businesses principally engaged in teaching, instructing, counseling, or indoctrinating religion or religious beliefs. Codifies that the prohibition on eligibility for religious organizations that normally applies to SBA lending does not apply for initial and PPP2 loans.

Employee Retention Credit (ERC)

  • Now available to PPP borrowers, subject to other eligibility requirements, and with the proviso that wages funded by forgiven PPP loan proceeds cannot be used as a basis for the ERC.

  • Extended through the second calendar quarter of 2021.

  • For calendar quarters in 2021:
    • The credit is increased to 70 percent from 50 percent and applies to a maximum of $10,000 of eligible wages per quarter (the eligible wage limit of $10,000 per employee applies for the year during 2020). The result is a maximum credit of $7,000 per employee per quarter for the first two calendar quarters of 2021 for eligible organizations.

    • Other requirements are modified favorably for 2021.

Grants for Shuttered Venue Operators

  • Authorizes $15 billion for the SBA to make grants to eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25 percent reduction in revenues.

  • There is a set-aside of $2 billion for eligible entities that employ not more than 50 full-time employees, and any amounts from this set-aside remaining after sixty days from the date of implementation of this program shall become available to all eligible applicants under this section.

  • The SBA may make an initial grant of up to $10 million dollars to an eligible person or entity and a supplemental grant that is equal to 50 percent of the initial grant.

  • In the initial 14-day period of implementation of the program, grants shall only be awarded to eligible entities that have faced 90 percent or greater revenue loss. In the 14-day period following the initial 14-day period, grants shall only be awarded to eligible entities that have faced 70 percent or greater revenue loss. After these two periods, grants shall be awarded to all other eligible entities.

  • Such grants shall be used for specified expenses such as payroll costs, rent, utilities, and personal protective equipment.

Other Provisions

  • Extends certain federal unemployment assistance generally through March 14, 2021, including assistance for nonprofit organizations paying their state unemployment obligations under the reimbursement method.

  • Extension of certain deferred payroll taxes. On August 8, 2020, President Trump issued a memorandum to allow employers to defer withholding employees’ share of Social Security taxes from September 1, 2020 through December 31, 2020 and required employers to increase withholding and pay the deferred amounts ratably from wages paid between January 1, 2021 and April 30, 2021. Beginning on May 1, 2021, penalties and interest on deferred unpaid tax liability will begin to accrue.

    • The provision extends the repayment period through December 31, 2021. Penalties and interest on deferred unpaid tax liability will not begin to accrue until January 1, 2022.

  • The provision clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a PPP loan. This provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. The provision is effective as of the original date of enactment of the CARES Act. The provision provides similar treatment for PPP2 loans, effective for tax years ending after the date of enactment of the provision.

  • Extends the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act (FFCRA), through the end of March 2021. Payment of sick and family leave required during 2020 under FFCRA is not required after December 31, 2020, but for employers who voluntarily make such payments in 2021, the credit is available through March of 2021.

  • Charitable contributions to qualifying organizations are deductible in 2021 by individual taxpayers who do not itemize deductions up to $300 per person and $600 for a married couple filing jointly. (Does not change the limit of $300 for a single person or married couple for 2020.)

  • The increased limits on charitable contribution deductions that apply to individual taxpayers who itemize deductions and corporations for 2020 are extended through 2021.

  • Business meals provided by restaurants are fully tax-deductible as business expenses for 2021 and 2022.

 

The contents of this publication do not constitute legal, financial, accounting, tax, or any other type of professional advice. For professional advice regarding the subject matter addressed herein, the services of a competent professional should be obtained.