Congress has finally finished bringing the next pandemic relief legislation to completion, and I wanted to share our first analysis of the bill so you have a general understanding of what it means for yourselves and our nation.
The text of the legislation can be found here, as well as on our website, but we expect the actual rules for implementing the law to be promulgated over the next few weeks. We must emphasize that the primary commonality of relief legislation during 2020 has been that no matter what the text of the law states, we should expect material changes as the law is implemented. You are all certainly aware of how many times the Treasury, IRS, and SBA changed the rules related to PPP Loans, Economic Injury Disaster Loans, and Main Street Lending Program loans this year. As always, we will keep you up to date with the rules as they change, we will be standing by to help you get the stimulus money and forgiveness, and we will help clients plan for best utilization of any provisions of the law that might benefit you.
With all of that said, the set of provisions that seem most relevant to our clients are as follows:
DIVISION N, SECTION 201- PANDEMIC UNEMPLOYMENT ASSISTANCE - Pandemic unemployment compensation support has been extended for another 11 weeks (through March 14th), with a $300 Federal supplement to any state level benefits. I am disappointed that the length of time for this extension was cut to such a short amount of time in order to fund direct checks to individuals, however any extension of the Federal unemployment support remains welcome.
DIVISION N, SECTION 221 /286- FFCRA and FFCRA CREDIT EXTENSION - The FFCRA Pandemic leave program and credits for payments made under it are extended through March 31. We remain convinced that this program is an important tool for financially supporting employees when they are quarantining for Covid tests and remind businesses that this support is fully paid for up front by the Federal Government. We can help you if you have questions on how to use it.
DIVISION N, SECTION 301 (et al) - PPP, Second Draw - A targeted 2nd round of the Payroll Protection Program loans is included in this bill and will help our most vulnerable clients survive this winter. Eligibility will be along the following lines:
Who (Section 311) - Any business that has experienced a quarter of sales in 2020 that is more than 25% below sales during the same quarter in the prior year. Example: if your Q2 2020 sales were 74% of your Q2 2019 sales, you will qualify for another round of PPP. This will apply for Q1, Q2, Q3, and Q4 comparisons between 2020 and 2019. The law contains alternative measurement periods for businesses that started in 2020, seasonal employers, and various other options. We expect the actual implementation of this section of the law to matter immensely...to this end, we expect to communicate extensively about the question of ‘who’ is eligible once rules come out.
What (Section 311) - Businesses with NAICS codes starting with 72 (i.e. restaurants, bars, etc.) will be at a multiple of 3.5x 2019 average monthly payroll. Other businesses will be at 2.5x average monthly payroll.
When - Based on the implementation timeline from the first round of PPP loans, we think the applications will be accepted in January and the funds will arrive in February. It is easy to imagine ways for this round of PPP funds to be more efficient (e.g. simply certifying to your lender that your sales have been down by 25% or more and a loan of the same size being issued), but we will communicate further as this is decided. Our team will be ready to assist you as soon as applications are being accepted.
Where - We expect the second round of PPP will come from the same sources that you received loans from during the first round.
How - These funds can be spent on more types of expenses than the first PPP loans. Operating expenses and suppliers can be paid from these loans, as well as payroll, rent, utilities, etc. like before. There is also the ability to spend funds on ‘‘(IV) an expansion of additional indoor, outdoor, or combined business space,” which will certainly garner additional attention. This expansion is now applied retroactively, as well, for anyone who hasn’t received forgiveness. The law is written broadly, so we will see what Treasury allows.
Major Takeaway - If your business has experienced a quarter this year with a sales drop of 25%+ vs last year, you will likely qualify for another loan from the PPP program.
DIVISION N, SECTION 272 - $600 Stimulus Checks - At a projected cost of nearly $168,000,000,000 (that’s right - enough money to build brand new hospitals around the country full of more than 100,000 ICU beds...), Congress included an round of additional $600 stimulus checks to most Americans, regardless of need. You can expect a whole host of sardonic Instagram posts about the practical utility of $600 stimulus checks.
DIVISION N, SECTION 276- Taxability of PPP Forgiveness - Congress has overridden the IRS and made it explicit that the expenses used to generate PPP forgiveness WILL be tax deductible. This is a huge win for taxpayers. If you end up with a tax loss this year, we will conduct tax planning with you to determine whether amendments to prior tax years can help us get you additional funds.
DIVISION N, SECTION 325 - SBA Loan Payments - The Federal government will pay for another 6 payments on existing SBA loans.
Targeted Economic Injury Disaster Loans (EIDLs) - Another round of EIDL loans will be released for entities that meet certain criteria.
SUBTITLE C, SECTION 206- Employee Retention Tax Credit (ERTC) Expansion - In a bill full of headlines, the expansion of the ERTC program will get overlooked, but make no mistake: this sleeper provision is one of the single most important stimulus items contained in this legislation. The Federal government will pay for 70% of your first $10,000 of wages per employee during periods when your business is operating under either partial or full shutdowns through June 30, 2021. The ERTC provides immediate relief - it’s a credit each time you run payroll, not at the end of the year, meaning you get money back up front - and will be accessible immediately. We will coordinate with you as soon as the rules are updated by the IRS and expect this to be a huge help to our clients - especially those who do not qualify for a PPP loan.
We will continue to monitor developments with this law as it goes through the implementation process and you can expect significant further communication over the next couple of weeks. We are standing by to help you apply for the next round of PPP as soon as applications are available and look forward to using this round of Covid relief to help our clients survive the winter and thrive once we exit this wave of the pandemic. Stay safe, keep your heads up, and we look forward to a great 2021.
Matt Hetrick, CPA
President & Owner