The following is a summary of key provisions of the COVID-19 Relief provisions that was passed by the House and Senate on December 21, 2020 and signed by President Trump after much suspense. Once signed by the President the bill will be in effect.
- Unemployment Notification: Requires States to provide a method for employers to notify the State of workers who have refused suitable work without good cause.
- Extension of time for Employees to repay deferred social security taxes from 4 months repayment to 12 months repayment terms.
- Overruling the IRS position regarding expenses paid with PPP loan proceeds that have been forgiven may not be deducted for tax purposes. Act clarifies that forgiven PPP loans are NOT taxable as either revenue or as non-deductible expenses.
- Extension of refundable payroll tax credits under the FFCRA program through March 31, 2020.
- Expansion of the type of expenses that are covered by a PPP loan and eligible for forgiveness.
- Expansion of PPP Loans that is eligible to use the simplified application for forgiveness from less than $50,000 to less than $150,000.
- Creates option for eligible businesses to request a PPP second draw of up to $2,000,000.
- Creates ability for existing PPP borrowers to request an increase in loan based on expanded availability due to changes to the rules.
- Clarifies definition of “Seasonal Employer”
- Clarifies that interest on all PPP loans is non-compounding interest.
- Extends the covered period for all PPP loans through March 31, 2021.
Expanded Summary of Key Provisions for Small Business
1. Subchapter V Section 251. Return to Work Reporting for CARES Act Agreements.
Effective 30 days after enactment, requires states to have methods in place to address situations when claimants of unemployment compensation refuse to return to work or refuse to accept an offer of suitable work without good cause including:
- A reporting method for employers to notify the state when an individual refuses employment.
- A plain language notice to claimants about state return to work laws, rights to refuse to return to work or to refuse suitable work and information on contesting a denial of a claim, as well as what constitutes suitable work, including a claimant’s right to refuse work that poses a risk to the claimant’s health and safety.
2. Subtitle B Chapter 1 Sec. 274. Extension of certain deferred payroll taxes.
On August 8, 2020, the President of the United States issued a memorandum to allow employers to defer withholding employees’ share of social security taxes or the railroad retirement tax equivalent from September 1, 2020 through December 31, 2020, and required employers to increase withholding and pay the deferred amounts ratably from wages and compensation paid between January 1, 2021 and April 31, 2021. Beginning on May 1, 2021, penalties and interest on deferred unpaid tax liability will begin to accrue. The provision extends the repayment period through December 31, 2021. Penalties and interest on deferred unpaid tax liability will not begin to accrue until January 1, 2022.
3. Subtitle B Chapter 1 Sec. 276. Clarification of tax treatment of Paycheck Protection Program loans.
The provision clarifies that gross income does not include any amount that would otherwise arise from the forgiveness of a Paycheck Protection Program (PPP) loan. This provision also clarifies that deductions are allowed for otherwise deductible expenses paid with the proceeds of a PPP loan that is forgiven, and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. 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.
4. Subtitle B Chapter 1 Sec. 286. Extension of credits for paid sick and family leave.
The provision extends the refundable payroll tax credits for paid sick and family leave, enacted in the Families First Coronavirus Response Act, through the end of March 2021. It also modifies the tax credits so that they apply as if the corresponding employer mandates were extended through the end of March 2021. This provision is effective as if included in FFCRA.
5. Title III Title 1 Section 304: Additional Eligible PPP Expenses.
Makes the following expenses allowable and forgivable uses for Paycheck Protection Program funds:
- Covered operations expenditures. Payment for any software, cloud computing, and other human resources and accounting needs.
- Covered property damage costs. Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Covered supplier costs. Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan.
- Covered worker protection expenditure. Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration.
- Redesignates Section 1106 of the CARES Act and other subsequent conforming amendments as section 7A. This would transfer section 104 of this title to the end of section 7 of the Small Business Act (15 U.S.C. 631 et seq.). Relevant sections to follow contain this technical redesignation.
- Allows loans made under PPP before, on, or after the enactment of this act to be eligible to utilize the expanded forgivable expenses except for borrowers who have already had their loans forgiven.
6. Title III Title 1 Section 307: Simplified Application.
- Creates a simplified application process for loans under $150,000 such that:
- A borrower shall receive forgiveness if a borrower signs and submits to the lender a certification that is not more than one page in length, includes a description of the number of employees the borrower was able to retain because of the covered loan, the estimated total amount of the loan spent on payroll costs, and the total loan amount.
- The borrower must also attest that borrower accurately provided the required certification and complied with Paycheck Protection Program loan requirements. SBA must establish this form within 24 days of enactment and may not require additional materials unless necessary to substantiate revenue loss requirements or satisfy relevant statutory or regulatory requirements.
- Additionally, borrowers are required to retain relevant records related to employment for four years and other records for three years. The Administrator may review and audit these loans to ensure against fraud.
7. Title III Title 1 Section 311: Paycheck Protection Program Second Draw Loans. • Creates a second loan from the Paycheck Protection Program, called a “PPP second draw” loan for smaller and harder-hit businesses, with a maximum amount of $2 million. • Eligibility. In order to receive a Paycheck Protection Program loan under this section, eligible entities must:
- Employ not more than 300 employees;
- Have used or will use the full amount of their first PPP; and
- Demonstrate at least a 25 percent reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter. Provides applicable timelines for businesses that were not in operation in Q1, Q2, and Q3, and Q4 of 2019. Applications submitted on or after January 1, 2021 are eligible to utilize the gross receipts from the fourth quarter of 2020.
- Eligible entities must be businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives.
8. Title III Title 1 Section 312: Increased Ability for Paycheck Protection Program Borrowers to Request an Increase in Loan Amount
Due to Updated Regulations.
- Requires the Administrator to release guidance to lenders within 17 days of enactment that allows borrowers who returned all or part of their PPP loan to reapply for the maximum amount applicable so long that they have not received forgiveness. Additionally, this section allows borrowers whose loan calculations have increased due to changes in interim final rules to work with lenders to modify their loan value regardless of whether the loan has been fully disbursed, or if Form 1502 has already been submitted.
9. Title III Title 1 Section 315: Definition of a Seasonal Employer.
- Defines a seasonal employer to be an eligible recipient which:
- (1) operates for no more than seven months in a year, or (2) earned no more than 1/3 of its receipts in any six months in the prior calendar year.
- Applies to any loan made before, on or after enactment including the forgiveness of the loan.
10. Title III Title 1 Section 339: Interest Calculation on Covered PPP Loans.
- Clarifies the interest rate on PPP loans is non-compounding and non-adjustable for all new initial Paycheck Protection Program loans and second draw loans.
11. Title III Title 1 Section 343: Covered Period for New PPP Loans.
- Extends the covered period for all PPP loans through March 31, 2021.
- Applies to loans made before, on, or after the date of enactment, including the forgiveness of such loan.