As many of you are aware the Consolidated Appropriations Act of 2021 (CAA), all 5500 pages, had additional COVID stimulus included in the bill. Besides additional relief, mainly additional Paycheck Protection Program (PPP) funding, the bill also corrected a number of problems in the initial PPP encountered by borrowers. Below are highlights for business clients.
PPP Loans which are forgiven will be deductible.
The CAA makes it clear that any qualified expenses funded by a forgiven PPP loan are deductible. While the intent of Congress was to make the PPP a tax-free infusion into qualified businesses, the language of the first relief program did not specifically address the expenses funded by the PPP program. The new stimulus package makes it clear that the PPP loan, if forgiven is not taxable and the qualified expenses funded by the loan are deductible.
Eligible Entities have a second chance to receive PPP loan
The new deadline for applying for a PPP loan is March 31, 2021.The monies are on a first-come, first serve basis. Eligible Entities are dependent on whether you have already received an initial PPP loan.
First-Draw Rule vs. Second-Draw
Eligibility depends upon whether this is your first draw of the PPP.
Special consideration was given to food and accommodation industries. Any business with a NAICS code beginning with 72 is eligible for 3.5 times their average monthly payroll.*
Qualified entities must have used or have plans to use their first-draw loan’s full amount on or before the date of disbursement of the second-draw loan.
Employee Retention Credit (ERC)
Prior to the signing of the CAA, most small businesses did not qualify for the ERC. This was because many small businesses applied for PPP loans making them ineligible. The CCA removed this restriction making a small business potentially eligible for the ERC. The CCA also reduced the eligibility requirements. Under the CARES Act the ERC required one of the following:
- The business was at least partially suspended by the government rule during at least one quarter in 2020 or
- They experienced a 50% drop in gross receipts in any quarter of 2020 relative to the same quarter in 2019.
The CCA expanded the eligibility rules and the amount of credit. These changes are only for the first two quarters of 2021. For 2021, the eligibility rules under CAA requires:
- The business was at least partially suspended by the government rule during at least one of the first two quarters of 2021 or
- They experienced a 20% drop in gross receipts in any of the first two quarters for 2021 relative to the same quarter in 2019. Businesses may elect-for 2021 only-the option to satisfy the gross receipts test by looking at the immediate preceding calendar quarter, and comparing that quarter to the corresponding quarter in 2019. (To illustrate, an employer who could not satisfy the gross receipt test in Q1 of 2021 could use Q4 of 2020 and compare it to Q4 of 2019 to meet the gross receipt test
The calculation of the credit was also enhanced. In 2020 the credited was limited to a maximum of $5,000 per eligible employee. The CAA increases the credit to $7,000 per employee for each of the two quarters in 2021 ($14,000 credit per employee). This is done by providing a $10,000 maximum in each employee’s qualified wages and qualified health expenses for each quarter and by increasing the credit to 70% of the employee’s qualified wages and health expense amounts for that quarter.
The CCA extended many popular tax breaks. One of the surprises was the business meal deduction. For 2021 and 2022, all qualified business meals will be 100% deductible. This effort was to help shore up the dining industry.
There were over 5,500 pages in the CAA. We have briefly outlined items that may benefit you. Please feel free to reach out to us to discuss how this law may apply to your business.