The Consolidated Appropriations Act, 2021 (CAA) became law on December 27th, 2020. This bill includes $900 billion in stimulus relief for the COVID-19 pandemic. Part of that stimulus relief is an additional $284 billion in funding for Paycheck Protection Program (PPP) loans through the Small Business Administration (SBA).
What does this mean? If your organization did not apply by the August 5th, 2020 deadline for a PPP loan, you now have until March 31st, 2021 to apply for the loan. Organizations that received a PPP loan in 2020 may be eligible for a second loan of up to $2 million. $15 billion is being set aside for First Draw loans to borrowers with a maximum of 10 employees, or loans of $250,000 or less to eligible borrowers in low or moderate income neighborhoods.
While previously the only exempt organizations that could apply had to be exempt under Internal Revenue Code 501(c)(3) or 501(c)(19) (Veteran’s Organizations), the CAA now allows 501(c)(6) organizations—such as professional associations and chambers of commerce—to also apply for the loans.
In addition to more PPP loans, a simplified forgiveness application form (PPP Loan Forgiveness Form 35085) is now available for borrowers that receive a loan of $150,000 or less. This form is available on the SBA website as well as from your lender.
This form is reduced to one page, and the borrower will need to include:
- The number of employees they were able to retain because of the loan
- The estimated amount of the loan spent on payroll costs
- The total loan amount
- Certification that they used the PPP loan proceeds in compliance with the requirements of the program
Borrowers will still need to keep the relevant records related to their payroll and expenses for four years, as the SBA may review and audit loans to check for fraud.
For full PPP loan forgiveness, borrowers will still have to spend at least 60% of the funds on payroll over a covered period between 8 and 24 weeks.
However, in addition to rent, covered mortgage interest, and utilities, borrowers may also spend the funds on:
- Covered worker protection and facility modification expenditures (including personal protective equipment [PPE])
- Covered property damage costs related to property damage and vandalism or looting due to the public disturbances in 2020 that were not covered by insurance or other compensation
- Expenditures related to suppliers that are essential at the time of purchase to the recipient’s current operations
- Covered operating expenditures, which refer to payments for any business software or cloud computing service that facilitates business operations; product or service delivery; the processing, payment, or tracking of payroll expenses; human resources; sales and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.
Finally, the CAA allows for the deduction of the expenses paid with the proceeds of a PPP loan. The IRS and the Treasury Department released guidance in the form of Revenue Ruling 2021-2 on January 6th, 2021. The Revenue Ruling applies to taxable years ending after March 27th, 2020.
If you missed our previous article on the Paycheck Protection Program, you can find it here: What We Know ABout PPP Loans and Forgiveness
For additional information about PPP loans and forgiveness applications, please go to the PPP section of the SBA website.
Does your organization not qualify for PPP loans? Find other options for relief offered by the SBA.
About the author:
Kari Moore, CPA, MST is a Tax Manager with over 10 years of tax and consulting experience, with a Masters in Taxation from Golden Gate University. Kari focuses on providing tax services and QuickBooks help to non-profit organizations, but has a wide breadth of experience including trust, business, and individual tax returns.
*Featured image via Unsplash