Second Round of PPP
The second round of Paycheck Protection Program (PPP) has passed and been signed into law within the past week. The package that passed was just under one trillion dollars with $285 billion allocated to a second round of PPP. The new PPP package is somewhat of an improved and leaner version of the first package.
The differences between the first round and second round of PPP can be summarized as follows: a) Funded amount reduced from $669 billion to $285 billion; b) Maximum loan amount reduced from $10 million to $2 million; c) Second PPP requires that entities meet a “Necessity Test” that requires at least a 25% reduction in gross revenues between comparable quarters in 2019 and 2020; d) Eligible loan amounts will likely be the same as the amount received under the first PPP loan (other than the $2 million cap; e) IRC section 501(c)(6) entities now qualify for the loans; f) The Employee Retention Tax Credit has been expanded and extended through July 1, 2021; g) The number of employees that an entity can have and still qualify for the PPP has been reduced from 500 per location to 300 employees; h) Public companies are not eligible; i) Political lobbying firms are not eligible; j) PPP loan can now be used for Personal Protective Equipment (to comply with health and safety guidelines) and remote work software (cloud, etc.), certain group insurance benefits (dental, vision, etc.), but 60% still has to go towards payroll; k) Restaurants and food businesses can apply for a larger loan in the amount 3.5 times their average monthly payroll costs up to $2 million; l) businesses in bankruptcy will be eligible to apply for PPP loans.
The new round of PPP loans will be available to first-time applicants and businesses that received funds from the first round of PPP. The amount that may be borrowed is the same 2.5 times average monthly payroll costs in the year prior to the loan or calendar year 2019 (up to $2 million). Businesses that received a loan under the first round of PPP can apply for a second PPP draw if: a) they employ no more than 300 employee; b) have used the entire amount of first PPP loan; c) had gross receipts during quarter 1, 2 , 3 or 4 that were at least 25% less than the gross receipts from the same quarter in 2019.
PPP loans will not be included in taxable income. Further, expenses paid with the PPP loan that is forgiven can be deducted for tax purposes. Applications and forgiveness will be simplified for entities that borrow under $150,000. Also, the $2 million cap does not apply to first-time borrowers; the cap for first-time borrowers remain at $10 million. Your PPP loan will not be included in taxable income. Further, expenses paid with PPP funds are deductible for tax purposes.
Bowman Law Firm
Gene M. Bowman
