Congress Passes Another COVID Stimulus-Relief Package with PPP Expense Deductibility

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PPP or Paycheck Protection Program business loan as coronavirus or covid-19 aid conceptAfter months of haggling, Congress finally moved forward with its latest COVID-19 relief and stimulus package. Congress passed the ‘‘Consolidated Appropriations Act, 2021 (H.R.133)’’ on December 21, 2020, and sent it to President Trump to be signed.

Sikich Update #2, December 28, 2020: On December 27, 2020, President Trump signed the Stimulus and Relief legislation that was combined with a major omnibus spending bill. The President signed the bill, but would still like to see the stimulus payments (rebate checks) increased from $600 to $2,000 per person and urged Congress to do so. Nonetheless, the Stimulus-Relief bill has been signed into law and is now effective.

Sikich Update, December 23, 2020: On December 22, 2020, President Trump indicated he might not sign the stimulus-relief package. This surprised many, as Treasury Secretary Mnuchin represented the Administration in the negotiations with congressional leaders on the bill. The President mentioned yesterday his main concern was that the individual stimulus checks (rebates) were too low. The new bill approved $600 per person, but Trump would like this to be $2,000 per person. The President did not say if he would veto the legislation, nor what his next steps would be. We will keep you posted as developments unfold. 

Initial efforts at a second stimulus package began nearly six months ago, but much of the heavy lifting putting this legislation together occurred in the last few weeks. Congress’ latest effort at pandemic relief offers various provisions to assist individuals, businesses, health care providers and others.

Background

At the onset of the COVID-19 pandemic last March, Congress enacted three pieces of legislation over a few short weeks – the largest being the $2.3 trillion CARES Act. The CARES Act provided relief to individuals and businesses and introduced the popular Paycheck Protection Program (“PPP”) loans.

Congress, since then, passed additional legislation that modified various aspects of the PPP program; however, no further relief packages were implemented. Many legislators wanted to push another major relief package similar in scope to the CARES Act, but these efforts failed to materialize. Negotiations between the House, Senate and Administration on various plans and amounts thus languished since early this summer. Congress exhibited uncharacteristic speed in passing the bills in March, but then reverted to its more typical methodical pace for the balance of the year.

Months passed, and so did the election, and negotiations were delayed until after November. Once we entered the post-election lame duck session, activity picked up.

What helped seal the deal in enacting additional legislation was a major omnibus spending package that needed to be passed in December to fund the rest of the government through September 2021. If this legislation failed, a government shutdown would occur. Thus, this spending bill was determined as “must pass” legislation – and if any COVID relief package was going to be addressed before Congress adjourned for the year, this was the legislation it would be attached to. That’s exactly what congressional leaders decided to do, and they began working earnestly on the relief package. 

Overview

Negotiators agreed on extending unemployment benefits to many workers, as well as another round of PPP loans for businesses and support in implementing vaccine distribution and other health care initiatives. What hindered leaders was the inability to conclude on the amount of funds for state and local governments related to the pandemic, plus whether employers would receive any liability protection. Ultimately, negotiators could not come to an agreement on these issues, and pulled them from the legislation, only moving ahead with provisions where there was a consensus.   

Negotiators agreed to attach a $900 billion relief package to the larger $1.4 trillion spending bill. This produced a massive combined piece of legislation totaling nearly $2.3 trillion (and the legislation ran nearly 5,600 pages). Below are important items contained in the bill:

Individual Relief

  • Unemployment Benefits. One of the key provisions in the CARES Act was unemployment coverage. However, this coverage ran out earlier this year. The new legislation will allow these benefits to be paid for eleven weeks (through March 14, 2021). At that point, Congress will need to address the issue again. Congress will also include $300 of benefits to those on unemployment; less than the $600 included in CARES Act that expired in July.
  • Stimulus Checks (Rebates). Another CARES Act provision was the introduction of stimulus, or rebate, checks of $1,200 per person to middle and lower-income individuals. This legislation offers another round of rebate checks but cuts the amount down to $600 per person. Similar income limitations will apply to these rebates ($75,000 for single taxpayer; $150,000 for married filing jointly). Income is based on 2019 tax returns, and Treasury Secretary Mnuchin indicated some of these rebate checks could be issued as early as next week.

Business Relief

  • PPP Loans. The bill authorizes another $284 billion in new PPP loans (referred to as the “PPP second draw” loan). These loans go up to $2 million (not the $10 million under the first PPP program). An employer cannot have more than 300 employees (down from the 500 employees with the first PPP program), and borrowers need to show a decline of 25% or more in revenue during any one calendar quarter in 2020, compared with 2019. This includes an enhanced list of eligible PPP expenses, including worker protection, supplier costs, software expenses and more. Borrowers can also elect any covered period between eight and 24 weeks for loan forgiveness. The legislation also implemented a simplified loan forgiveness application process for those with PPP loans under $150,000, which applies to all PPP loans – existing loans or new.  
  • PPP Expense Deductibility. The original PPP loans offered the opportunity for a loan to be forgiven. Congress then took this one step further and indicated that the income from the cancellation of debt would not be taxable to the borrower. However, shortly after the CARES Act was enacted, the IRS indicated that while there would be no income on the debt forgiveness, the expenses used by the borrower with the PPP funds would not be deductible. Fortunately, the new law permits expenses used with PPP loans to be deductible. There are no limitations on this deductibility. This is a key development that should assist any borrower with their tax situation in 2020 and 2021.
  • Other Loans. The law clarifies that gross income does not include forgiveness of other types of loans, including emergency EIDL grants and certain loan repayment assistance from the CARES Act. The provision also states that deductions are allowed for otherwise deductible expenses paid with the amounts not included in income by this section, and that tax basis and other attributes will not be reduced as a result of those amounts being excluded from gross income.
  • Employee Retention Credit (ERC). The employee retention credit was one of the key features in the CARES Act for employers. It provides a payroll tax credit of 50% on wages up to $10,000 per year for certain employers that retained their employees. The ERC has been extended until June 30, 2021, and the ERC in 2021 will be 70% of wages up to $10,000 per quarter. Further, the large employer status will jump from 100 to 500 employees. The new law also indicates that PPP borrowers can obtain the ERC as long as the wages used for the credit were not from PPP wages. This revised ERC offers some enhanced opportunities for businesses.

Other Items

  • Meals Deduction. The deduction for business meals jumps from 50% to 100%. This applies only for 2021 and 2022.
  • Charitable Contribution Deduction. The deduction for charitable contributions from the CARES Act applied only to 2020. This bill will be extended to 2021. The non-itemizer deduction of $300 ($600 for married couples) applies in 2021, and the higher limitations for individuals and businesses also applies.

Please click here to view the full text of this legislation.

Click here for a summary of various items from the House Ways and Means Committee.

Click here for a summary of the combined spending and relief package.

This relief legislation is a major bill, but it is unlikely it will be the last one on pandemic relief. Please contact your Sikich advisor with any questions you have.  

About our authors

Jim Brandenburg

Jim Brandenburg

Jim Brandenburg, CPA, has extensive experience and knowledge in corporate and partnership tax law, mergers and acquisitions and tax legislation. His expertise includes working with owners of closely held businesses to identify tax planning opportunities and assist them in implementing these strategies.

Glen Birnbaum

Glen Birnbaum

Glen Birnbaum, CPA, ABV, ASA, CVA, CM&AA, is a partner with over 20 years of experience valuing closely held businesses. Glen provides expert accounting and tax advisory services for a range of entities, including those in the agriculture, manufacturing and construction industries. He excels in delivering tax and succession planning services to his clients, who value his commitment to strengthening their businesses.

Tom Bayer

Tom Bayer

Thomas E. Bayer, CPA, CExP, has more than 25 years of experience providing a broad range of accounting, tax, and business advisory services to commercial clients across various industries and Sikich offices. Tom has specialized expertise in the areas of business succession planning, tax planning and compliance, and business advisory. He puts his business succession planning abilities and knowledge to work firm-wide, serving clients in advisory services across the country.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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