On December 27, 2020, President Trump signed into law the second stimulus bill, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. This new bipartisan bill offers as much as $284 billion more for the Paycheck Protection Program (PPP), tax relief, and Economic Injury Disaster grants to small businesses that are struggling because of the ongoing COVID-19 pandemic. For some, this second round of money could be the difference between staying afloat and closing their doors for good. You may be wondering how this new bill affects your small business and if you can take advantage of it, we’re sharing the highlights and some guidance for your situation.
Your Small Business May Be Eligible for a Second PPP Loan
The new funds for PPP loans are available through March 31, 2021. Owners who did not receive a loan in the first draw can apply. Those who did receive a loan and have either used or plan to use it may also be eligible to apply, but with limitations. Borrowers can receive one first draw and one second draw PPP loan as part of the new stimulus package. Second draw loans will be calculated similarly to the first draw at 2.5 times the average monthly payroll of the prior year or, for the Accommodation and Food Services sector (NAIS Sector 72), 3.5 times the average payroll. No loan amount may exceed $2 million. Second draw applicants also:
- Must be a small business with 300 employees or fewer
- Have had at least a 25% reduction in gross revenue in one or more quarters of 2020 when compared to the same quarters of 2019
If your business continued to struggle throughout 2020 and into the new year, you might be eligible and can apply for this loan.
You May Be Paying Fewer Taxes
Probably the most welcoming change, small business owners who received PPP loans – whether through the first round or the new round, the act clarified certain tax positions whereby, if you used your PPP to pay business expenses that are normally deductible, you can take those deductions just like you would during a normal, COVID-free year. This means as a small business owner, you will likely have fewer taxes to pay in 2020. Neither the forgiveness in the PPP loans nor Economic Injury Disaster grants will be taxed in the 2020 season.
More Expenses Included
The first PPP loan allowed small business owners to use the funds to cover many critical expenses including payroll costs, mortgage interest, rent, and utilities. With the new legislation, more expenses are included in loan forgiveness including operations, property damage cost, supplier costs, and worker-protection expenditures (PPE).
Nonprofits are Now Eligible
Many nonprofits who didn’t qualify for the first round of PPP are now eligible for the second round of relief. The new requirement for 501(c)(6) nonprofit organizations includes:
- Must have 300 employees or fewer
- No more than 15% of their gross revenue most come from lobbying
- The organization must plan to or have used its full PPP amount
If you need help applying for forgiveness or the application in the second round or just have more questions on the new relief bill that was passed, reach out to our team today. We provide affordable tax services throughout the Tri-State area, offering the highest quality of personalized service to our clients.