Congress passed a second round of COVID relief last week – what does this mean for small businesses?
Payroll Protection Program (PPP) Loan Forgiveness
Last spring, Congress made the forgiveness of PPP loans tax free. The IRS then misinterpreted the law and made deductions, such as payroll funded by the loans, nondeductible. This essentially made the PPP loan forgiveness taxable in direct conflict with the law Congress passed.
This new round of pandemic aid makes clear that the loan forgiveness is nontaxable. The IRS is not free to misinterpret the law now. This is a big win for small business owners, who faced a nearly 1/3 tax burden on forgiven PPP loans.
In tax planning for our small business clients, we see the non-taxability provisions of the new law creating $100K and more in tax savings for many small business owners.
Second Round of PPP Loans
The other big treat for small businesses is a second round of PPP loans. This time, however, there are some significant restrictions.
First, only businesses with fewer than 300 employees qualify. That isn’t a big deal for most of our clients, as S&K specializes in small businesses from startup to $10 million in revenue
Second, revenue in any quarter of 2020 must have been 25% lower than in the same quarter of 2019. Congress has more carefully designated the loans for companies clearly hurt by the pandemic.
Third, Congress targeted restaurants for extra aid. Restaurants are eligible for 3.5 times their average monthly payroll, instead of the 2.5 times for other industries.
Finally, the PPP loans are again forgivable if used at least 60% for payroll-related expenses, with the remainder spent on rent and utilities. Once again, the loans will be distributed through banks.
Let’s hope the second round of pandemic relief is awarded soon. As vaccines are now being distributed, state governors could lock down portions of the economy until the vaccine is widely available. This could be damaging to many of our small business clients.
If you have questions about the new round of pandemic relief or how we can help you qualify, please contact S&K at firstname.lastname@example.org. We are your small business specialists!