Editor’s note: On February 22, President Biden announced changes to the Paycheck Protection Program which we cover in our short video below. We will be updating our content once the SBA releases guidance on these changes.
In the last days of 2020, the US government passed a stimulus bill packed with benefits for small businesses. You could boil a cup of tea, sit down, and enjoy a read through the 5,000 plus page bill. But if that’s not your thing, we’ve done that for you.
Here’s a guide to what you need to know.
Second round of PPP loans
A second Paycheck Protection Program (PPP) loan will be made available. Businesses will have to use up their initial PPP loan and have a loss of revenue in 2020 to be eligible to apply.
A loss of revenue will be proven by showing a 25% (or more) reduction in gross receipts from any quarter in 2020 relative to that same quarter in 2019.
Further guidance from the SBA will be made available in the new year to clarify what the application will look like and what documentation will be required. The SBA has been given 10 days from the passing of the bill to issue guidance.
In the meantime, read up on everything to know about the second round of PPP loans.
PPP loan changes and clarifications
The new stimulus bill changes the rules for both past and future PPP loans. Here are the changes and how they will affect you.
PPP expenses are now tax deductible
Previously, the IRS stated that expenses covered by a PPP loan would not be tax deductible —even if you haven’t applied for forgiveness. It was also unclear whether the forgiven amount would be considered taxable income.
The new bill amends and simplifies the program. Now, any expenses covered by a PPP loan can be claimed as tax deductible. The forgiven amount of a PPP loan will not be included as taxable income.
The list of PPP eligible expenses are expanded
PPP loans need to be spent at least 60% on payroll with the remaining 40% spent on other eligible expenses. In the original PPP program, these eligible expenses were rent, utilities, and the interest portion of any mortgage payments.
In the second stimulus bill, it’s stated that businesses can now spend their PPP loan on the following additional expenses:
Operations expenditures: Any software, cloud computing, or other human resources and accounting needs (like Bench).
Property damage costs: Any costs from damages due to public disturbances occurring in 2020 and not covered by insurance.
Supplier costs: Any purchase order or order of goods made prior to receiving a PPP loan essential to operations.
Worker protection expenditures: Any personal protection equipment or property improvements to remain COVID compliant from March 1, 2020 onwards.
New applications to request an increase to a previous PPP loan amount
In the first round of the PPP, some businesses received a loan offer for an amount they did not feel comfortable taking. They gave back a portion of the loan to the lender or took a smaller amount.
Businesses that did not take the maximum loan amount will be eligible to apply for the amount they opted not to take. For example, if a business was offered a maximum loan amount of $20,000 but only took $15,000, they can apply for the $5,000 they didn’t originally take.
The SBA has been given 17 days from the president’s signing of the relief bill to release guidance on this process.
The EIDL advance no longer reduces your PPP forgiveness amount
Many small businesses were surprised to hear they were not receiving full PPP forgiveness because they received an EIDL advance grant. This grant—worth up to $10,000—meant a lot of businesses were now on the hook for a portion of their PPP loan despite following every rule. Fortunately, there will be no more surprises.
Receiving an EIDL advance grant no longer reduces your forgiveness amount.
It’s still unclear what this means for businesses that have already applied for forgiveness and received their verdict. We expect to hear more in the new year about how this will be handled.
Additional EIDL (and grant) funding
An additional $20 billion in funding will be added to the Economic Injury Disaster Loan (EIDL) program. In particular, the $10,000 EIDL advance grant is opening up again on a limited basis. The bill states that these grants will be made available to businesses in “low-income communities.”
For eligible businesses that received an EIDL advance but did not receive the full $10,000, they will have the opportunity to apply for the difference. So if a business previously received $1,000 as an EIDL advance, they can now apply for a $9,000 grant.
For eligible businesses that received a loan through the EIDL program—but no advance due to the program running out of funding—there will now be a chance to apply for the full $10,000 grant.
In the CARES Act, these grants were promised to be disbursed in three days. In the new bill, the timeline has changed. Now, grant funds will be disbursed by the SBA within 21 days.
Expanded unemployment benefits (known as Pandemic Unemployment Assistance or PUA) provided unemployment recipients with an extra $300 per week. PUA coverage has been extended through March 14, 2021.
Additionally, the maximum number of weeks an individual can receive PUA has been extended from 39 weeks to 50. If an individual is receiving PUA before March 14, 2021 but has not received the maximum weeks of PUA, their coverage extends to April 5, 2021.
PUA made unemployment benefits available to sole proprietors, independent contractors, and the self-employed. They will continue to be eligible for unemployment benefits in this new bill.
Deferral of payroll taxes
Starting September 1, 2020, businesses were given the ability to defer the collection and payment of the employee portion of Social Security taxes until 2021. This meant employees kept a bigger chunk of their paycheck, but the deferred amounts would have to be paid back between January 1 and April 30, 2021.
The repayment deadline has now been extended from April 30 to December 31, 2021. This gives businesses and employees a full year to pay back these deferred Social Security tax amounts. Penalties and interest on owed amounts won’t start accruing until January 1, 2022.
Further reading: What’s Going On with Payroll Tax Deferrals?
Employee retention credits
The employee retention credit is being extended from January 1, 2021 to June 30, 2021. But it’s not just being extended, the amount you can receive is being increased.
The expansion of the program includes:
Credit rate increase: from 50% to 70% of an employee’s qualified wages
Increased limit on creditable wages: from $10,000 for the year to $10,000 per quarter
Reduction in the revenue loss requirements: from a 50% year-over-year decline to 20%
An increase in the number of employees counted: from 100 employees to 500
How Bench can help
Get ready for your next PPP loan application by having your bookkeeping up to date. Use the financial reports we provide to prove a 25% reduction in revenue. Our expert bookkeepers can answer any questions you have about the relief programs ensuring you’re getting the support you need to keep your business thriving. Then, once it’s time to file your taxes, you’ll have access to everything you need for a stress-free tax season.
- Paycheck Protection Program (PPP) Loans Resource Hub for Small Business
- Owner Compensation Replacement and Full PPP Forgiveness
- The PPP, EIDL, and PUA: Everything You Need to Know
- Recordkeeping for Your EIDL Loan
- EIDL vs Paycheck Protection Program: The Breakdown
We’re an online bookkeeping service powered by real humans. With Bench, you get a dedicated bookkeeper and powerful reporting software for a crystal clear view of your financial health. All of our services are eligible expenses for PPP forgiveness, and we’ll even provide support in applying for the PPP (or getting that loan forgiven). Whatever happens next, we’re right there with you. Get started on a free trial today.