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Federal Stimulus Bill Highlights

December 28, 2020
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PPP: Loans are Tax-Free and Forgiven Expenses are Now Deductible 

  • The new bill clarifies that deductions are allowed for expenses covered by PPP loans that are or will be forgiven. This overrides the previous interpretation issued by the IRS and could significantly reduce your taxable income in 2020 if you have a PPP loan. 
  • It also specifies that PPP loans will not be included in taxable income. 

PPP: Another Round 

  • The bill contains $284 billion for another round of forgivable PPP loans. 
  • Small businesses (less than 300 employees) may be eligible for a second PPP loan if they can show a revenue reduction of at least 25% in any quarter of 2020 relative to the same quarter in 2019. 
  • More non-payroll expenses are eligible for forgiveness. 
  • The second round would allow borrowers who returned all or part of their PPP loan to reapply for the maximum applicable amount. 
  • Other nonprofits, including 501(c)(6) Organizations, may be eligible in the second round. 
  • The new PPP loans will be based on either 2.5 times average monthly payroll costs for either the trailing 12 months or 2019 payroll; restaurants and hotels (NAICS code 72) may be eligible for 3.5 times payroll. 
  • The bill calls for a simplified forgiveness request process for existing loans of $150,000 or less. 
  • S corporation and partnership owners should note that the new bill states that no basis increase will be denied because of the PPP loan exclusion from gross income. 
  • The new bill also provides more funding for the EIDL program. 
  • The bill clarifies that EIDL advances do not impact PPP forgiveness. 

Tax Credits and Other Provisions 

  • The bill expands the Employee Retention Tax Credit (ERTC) by increasing to 70% the credit on up to $10,000 of wages per quarter and allows access to both ERTC and PPP for wages not covered by forgiven PPP proceeds. 
  • It also extends the Work Opportunity Tax Credit for five years and the tax credit reimbursement for paid sick and family leave due to the pandemic for three months. 
  • Certain deferred payroll taxes are extended. 
  • The bill contains $3 billion in additional grants for hospitals and healthcare providers to be reimbursed for healthcare-related expenses or revenue lost due to the pandemic. 
  • Other programs have been expanded, extended, or made permanent.