Paycheck Protection Program: Round 2
On December 27th, President Trump signed the long-awaited second stimulus bill. While this massive document contains a wide range of provisions, for the purposes of this article, I'm simply going to cover the highlights around the second round of the Paycheck Protection Program.
As many recall, the Paycheck Protection Program (“PPP”) introduced in the first stimulus package back in March 2020 (which feels like a lifetime ago) was intended to provide financial support, in the form of a forgivable loan, to small businesses negatively impacted by the pandemic. The second round of this program attempts to do the same thing with some slight modifications.
Here are the highlights…
Rule Clarifications and Reopening of PPP Round 1
For those businesses that weren't able to get a loan prior to the "original" PPP closing on August 8, 2020, there will be an opportunity to apply under the rules of the original program (with the clarifications listed below).
Expenses that are paid with PPP loan proceeds may still be deducted for tax purposes. While PPP loan forgiveness was never assumed to be included in gross income, there was a period of time where it appeared that expenses paid with forgivable loan proceeds would not be deductible. The new Act made it clear that expenses paid for with forgivable loan proceeds could still be taken as a deduction on 2020 tax returns (this applies to PPP Round 2 loan proceeds as well).
Additional expenses have been approved for use with PPP loan proceeds, including: additional operational expenses (E.g. computer software & systems), property damage expenses (due to public disturbances that occurred in 2020 that were not covered by insurance), supplier costs (E.g. payments to suppliers of perishable goods during the Covered Period), COVID-19 protection expenses (i.e. costs incurred due to safety guidance issued by the CDC, HHS, OSH, etc.)
Group life insurance, group disability insurance, vision and dental insurance now can be counted towards "Payroll Expenses" when calculating the required 60% in Payroll Costs for loan forgiveness.
The requirement that 60% of the forgivable amount of the loan must be used for payroll expenses is STILL applicable.
Similar to the modifications regarding the Covered Period made in June 2020, all PPP borrowers will now have the option between an 8-week or 24-week Covered Period.
For PPP loans under $150,000, there is a simplified forgiveness application (only one-page!)
In the first round of PPP, some borrowers returns funds because they weren't confident that they qualified; for those businesses that now qualify (or realized they qualified in the first place) they have the option to re-apply.
Paycheck Protection Program Round 2
Businesses that received funds from the first round of the PPP may also receive funds under the second round, however, qualifications on Round 2 are more strict.
In order to qualify, businesses must have already received and spent the first PPP loan.
The maximum employee qualification has been reduced from 500 to 300 (although there is an exception for those businesses in the Accommodation and Food Services industry).
The business must have reported greater than 25% drop in revenue for any quarter in 2020 compared to the same quarter in 2019.
While the maximum loan amount remains at 2.5x average monthly payroll costs, the loan maximum has been capped at $2.0M (as opposed to the previous max of $10.0M).
Businesses in the Accommodation and Food Services industry can receive up to 3.5x average monthly payroll costs (with the same $2.0M cap).
Jeffrey Levine from Buckingham Wealth Partners put together a fantastic write-up with more details on the entire stimulus bill. Check it out here!
The Journal of Accountancy has compiled a great list of resources from the SBA and Treasury regarding the second draw PPP loans. You can check that out here.