We can explain the tax implications of COVID-19 relief laws
On December 21, 2020 the U.S. Senate and House of Representatives passed a $900 billion COVID Relief Bill (the Consolidated Appropriations Act, 2021). The measure now goes to President Trump, who is expected to sign it into law.
The bill includes stimulus checks for individuals, unemployment benefits, and additional aid for small businesses. Below are some highlights.
Businesses with an existing Paycheck Protection Program (PPP) Loan:
- Creates a simplified forgiveness application process for loans $150,000 or less.
- Clarifies that business expenses paid with forgiven PPP loans are tax-deductible. This supersedes IRS Rev Rul 2020-27.
- EIDL advances—no longer reduce PPP loan forgiveness.
Forgivable Small Business Paycheck Protection Program Loans, Round 2 (PPP2):
- $284 billion in aid to the U.S. Small Business Administration (SBA) for PPP2
- Eligible to first-time qualified borrowers and to businesses that previously received a PPP loan.
- Previous PPP recipients may apply for another loan of up to $2 million, if they have:
- Less than 300 employees.
- Show a decrease of 25% in gross receipts in any quarter in 2020 compared to 2019.
- Have used or will use the full amount of their first PPP loan.
- First-time qualified borrowers have been expanded to include the following groups:
- Businesses with 500 or fewer employees that are eligible for other SBA 7(a) loans.
- Sole proprietors, independent contractors, and eligible self-employed individuals.
- Not-for-profits (including churches).
- Costs eligible for loan forgiveness:
- Payroll: must use 60% of funds over 8 or 24 weeks.
- Rent, mortgage interest, and utilities.
- Covered worker protection and facility modification to comply with COVID-19 federal health and safety guidelines.
- Covered operating costs: software, cloud computing services, and accounting.
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