ACA International advocated for additional funding for the Paycheck Protection Program and a simplified loan forgiveness process and tax deductions, all of which are in the latest relief package. Editor’s note: This article is available for members only.
12/22/2020 15:30
After months of negotiations, Congress agreed to nearly $900 billion in COVID-19 relief Dec. 21 with significant areas targeting aid for small businesses under the Paycheck Protection Program (PPP).
On Tuesday President Donald Trump signed the Further Extension of Continuing Appropriations Act of 2021, which provides fiscal year 2021 appropriations to federal agencies through Dec. 28, according to a White House announcement.
Trump is expected to sign the COVID-19 relief package, however it could take a few days for it to be finalized and sent to the White House.
Congress combined COVID-19 relief provisions with the fiscal year 2021 spending bill. The $900 billion bipartisan agreement allocates $325 billion for small-business relief, including $284 billion in funding for PPP loans available to first- and second-time borrowers.
The PPP will be extended through March 31, 2021, with the additional funding, according to a fact sheet on the bill from the House Small Business Committee.
Under the PPP, Congress took steps to ease the financial burdens on businesses by clarifying that cancellation of debt income is tax-free and does not result in a loss of tax attributes. However, since the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March, there was confusion about whether small-business borrowers may deduct expenses that relate to loans forgiven under the PPP.
In November, ACA International sought support from members of Congress to improve the PPP loan forgiveness process and pass legislation clarifying that expenses related to those loans are tax deductible through a grassroots campaign, ACA previously reported.
ACA was also part of a coalition of industry trade groups that submitted a letter supporting legislation to improve the PPP to House Majority Leader Mitch McConnell, R-Ky., House Speaker Nancy Pelosi, D-Calif., and U.S. Sens. Chuck Schumer, D-N.Y., and Kevin McCarthy, R-Calif., in September.
The relief package addresses that issue.
“Deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven. The tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness,” according to the fact sheet. “The provision is effective as of the date of enactment of the CARES Act. The provision provides similar treatment for Second Draw PPP loans, effective for tax years ending after the date of enactment of the provision.”
The relief package also creates a simplified PPP loan forgiveness application for loans under $150,000 dollars whereby the borrower signs and submits a one-page certification that requires the borrower to list the loan amount, the number of employees retained, and the estimated total amount of the loan spent on payroll costs.
The relief package also includes a process for a small business to receive a second PPP if the small business has less than 300 employees and can demonstrate a revenue reduction of 25%.
Additional changes to the PPP, according to the House Small Business Committee fact sheet, include:
- Loan amounts are limited to $2 million for small businesses with multiple locations to ensure the PPP funding is targeted to small businesses
- After gaining access to data and seeing where improvements could be made, the bill immediately requires the collection of voluntary demographic information and for the U.S. Small Business Administration to comply with all oversight requests by Congress and the Comptroller General.
- The Economic Injury Disaster Loan (EIDL) Program was intended to get cash quickly into the hands of small-businesses owners experiencing dramatic cash flow problems due to the pandemic. The funding for the EIDL grant program lapsed on July 11. To ensure small businesses receive economic relief quickly, the bill targets the $10,000 advance to low-income communities and permits small businesses in low-income communities that received an EIDL advance to receive additional funds of up to $10,000. It extends the covered period for emergency EIDL grants through Dec. 31, 2021.
Read more on the relief package in coverage from ACA here: COVID-19 Relief Bill Includes Earmarks, Tax Deductions for PPP.