On Monday, December 21, 2020, Congress passed a $ 900 billion COVID-19 relief bill known as the Coronavirus Response and Relief Supplemental Appropriations Act (the “Bill”) after months of intense negotiations. The 5,593-page legislation, by far the longest in history, is now on its way to the White House for President Donald Trump’s signature and approval. This alert identifies two essential aspects of the bill: aid to small businesses and individual benefits.
Small business assistance
The bill provides the US Small Business Association (“SBA”) with $ 284 billion for the first and second Paycheck Protection Program (“PPP”) forgivable loans to small businesses. It also allocates $ 20 billion to provide Economic Disaster Loan Grants (“EIDL”) to businesses in low-income communities.
PPP eligibility: PPP loans will be available for first-time qualified borrowers and for businesses that have already received a PPP loan. Borrowers can receive a loan up to 2.5 times their average monthly salary costs in the year before the loan or in the calendar year, subject to the new maximum of $ 2 million. In addition, the bill gives restaurants and food businesses a larger loan amount of 3.5 times their average monthly salary costs up to $ 2 million. The SBA will provide instructions on application procedures within days of enactment of the bill.
First-time eligible borrowers include businesses with 500 or fewer employees that are eligible for other 7 (a) SBA loans; sole owners; independent contractors and eligible self-employed workers; non-profit organizations, including churches; and accommodation and food services operations with fewer than 300 employees per physical location.
Former PPP recipients can apply for another loan of up to $ 2 million if they have 300 or fewer employees, have used or will use the full amount of their original PPP loan, and may show a 25% drop in their gross income in any quarter of 2020 compared to the same quarter in 2019. Borrowers who have repaid all or part of a previous PPP loan can reapply for the maximum amount available to them.
Loan forgiveness eligibility: Like the first two rounds of PPP loans, Borrowers must spend at least 60% of PPP funds on salary expenses to be eligible for full loan cancellation, but borrowers can now specify the loan period covered – as short as eight weeks and as long as 24 weeks.
Costs eligible for loan cancellation include payroll, rent, mortgage interest covered, and utilities. This new cycle of PPP loans also makes the following expenses potentially forgivable:
- Covered expenses for worker protection and modification of facilities, including personal protective equipment, to comply with federal COVID-19 health and safety guidelines to make a business safe from COVID-19,
- supplier expenses that are essential at the time of purchase for the beneficiary’s day-to-day operations (as long as the contract to purchase these goods was in place prior to the PPP loan application), and
- covered operating costs such as cloud computing software and services and accounting needs.
Forgiveness application process: The bill creates a simplified forgiveness application process for loans of $ 150,000 or less.
Tax ramifications: Canceled PPP loans will not be taxable for the borrower; however, business expenses paid with canceled PPP loans are tax deductible. In addition, EIDL grants and advances are not taxable either.
Community level loans: In an effort to address the need for additional access to financial institutions, the bill provides $ 15 billion for loans from community development financial institutions (“CDFIs”), minority depository institutions (“MDIs”) and SBA 504 and microlenders. An additional $ 15 billion is earmarked for loans from credit unions and agricultural credit institutions.
The bill targets the most vulnerable small businesses, as well as those most affected by COVID-19 by allocating an additional $ 20 billion for economic disaster relief program advance payments for businesses in the communities minority.
Employer retention credit program: The Employee Retention Tax Credit (“ERTC”) – designed to help employers keep their employees on the payroll despite COVID-19 business opening restrictions – has been extended and extended until as of July 1, 2021.
The bill extends the ERTC in the following ways:
- Makes the credit available to public colleges and universities as well as to public entities whose main function is to provide medical or hospital care,
- increases the credit from 50% to 70% of the eligible salary,
- increases eligible salaries from $ 10,000 in total to $ 10,000 per quarter,
- extends eligibility by reducing the reduction in the gross revenue test from 50% to 20%, and
- increases the delineation of 100 employees to determine allowable wages to 500 employees.
The bill provides for direct payments of $ 600 to people earning up to $ 75,000 per year and $ 1,200 to couples earning up to $ 150,000, with an additional payment of $ 600 per dependent child. The payout amount decreases for people earning more than $ 75,000 per year and is not available for those earning more than $ 99,000.
The bill also includes additional unemployment benefits of $ 300 per week in addition to state unemployment insurance. However, the bill only provides these additional benefits for 10 weeks.
Among other things, the bill provides for emergency rent assistance of $ 25 million and extends the federal national moratorium on evictions until January 31, 2021.