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Article updated Jan. 5 to reflect that President Trump signed the bill into law.
After months of negotiations, both the House and Senate approved on Monday a sweeping COVID-19 aid package that includes $900 billion toward relief efforts. President Donald Trump signed the bill into law Dec. 27. CDA has been advocating for these changes, including new loans for small businesses, grants for health care providers suffering economic losses due to the pandemic and extensions of several unemployment benefit programs.
Businesses eligible for second round of PPP loans
The bill adds $284 billion in new funding to the Paycheck Protection Program and allows both new and returning borrowers to apply. This is being called a “PPP second draw” loan, targeted specifically to smaller and harder-hit businesses. In order to receive a PPP second draw loan, eligible businesses must:
Additionally, Congress added new expenses to the list of allowable expenses and forgivable uses for the funds. These include costs related to operation expenditures such as payment for any software, cloud computing and other human resources and accounting needs, costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance and purchasing personal protective equipment.
Borrowers of a PPP second draw loan are eligible for loan forgiveness equal to the sum of their payroll costs as well as covered mortgage, rent, utility payments, covered operations expenditures, covered property damage costs, covered supplier costs and covered worker protection expenditures incurred during the covered period. The 60/40 cost allocation between payroll and nonpayroll costs in order to receive full forgiveness will continue to apply.
Small businesses may receive a loan amount of up to 2.5 times the average monthly payroll costs in the one year prior to the loan or the calendar year. Loan amounts cannot exceed $2 million. The legislation mandates the Small Business Administration (SBA) to create a simplified PPP forgiveness application for small businesses whose PPP loans were less than $150,000.
SBA has not announced when applications will open, but likely very early in 2021. The bill requires the SBA to establish regulations on small-business support no later than 10 days after the legislation is signed into law.
Expenses with PPP money are tax-deductible, Congress reverses IRS
Previously, borrowers were informed by the IRS that expenses paid with forgiven PPP loans could not be claimed as regular tax-deductible expenses. The tax agency previously stuck by traditional tax principles, saying that it would be an impermissible double tax benefit to have income on debt forgiveness not taxed as income and then to also allow tax deductions for the expenses paid with the forgiven loan money. The new legislation makes clear that businesses that received PPP loans and had them forgiven will also be allowed to deduct the costs covered by those loans on their federal tax returns.
Additional grants for the Provider Relief Fund
The legislation provides new relief to health care providers by allocating $3 billion in additional grants to grants to the Provider Relief Fund to cover expenses related to coronavirus and financial losses incurred in 2020. Details are not yet available on which providers will be eligible to request new PRF funding, but CDA will update members when there is more information from HHS.
The bill extends the Pandemic Unemployment Assistance program to March 14, 2021, and allows individuals receiving benefits as of March 14, 2021, to continue through April 5, 2021, so long as the individual has not reached the maximum number of weeks. This bill provides an additional $300 per week (down from the $600 per week in the previous aid package) for enhanced unemployment benefits.
The legislation extends through March 14, 2021, the provision of the Families First Coronavirus Response Act that provided temporary, full-federal financing of extended benefits for high-unemployment states. The provision prevents unemployed individuals who stand to lose benefits at the end of the year from hitting that benefit cliff, and it contains benefit phase-outs to prevent another benefit cliff from occurring in the future. Additionally, the employee retention tax credit established by the Coronavirus Aid, Relief and Economic Security Act would be extended through July 1, 2021. The bill would increase the fully refundable portion of qualified wages from 50% to 70%, among other changes.
The bill also adds program integrity, antifraud measures to unemployment assistance and return-to-work type of requirements for states to have a method for employers to report when someone turns down suitable work.
Rollover of funds in Flexible Spending Arrangements
The legislation provides relief for individuals with health and dependent care FSAs, ensuring workers and families do not unfairly lose out on these employer-sponsored benefits at the end of the year, through no fault of their own. Specifically, it allows individuals to carry over any unused health and dependent care FSA benefits from 2020 into the 2021 plan year, along with other FSA plan flexibilities that were dictated in previous COVID-19 relief bills.
The last-minute agreement falls short of many top Democratic and Republican priorities, however. The legislation does not include relief for teachers and first responders who have come under financial distress during the pandemic. Republicans pushed for liability protection from COVID-19-related lawsuits for businesses, universities and health care centers, but that was also left out. The bill does not extend federal student loan forbearance past the current Jan. 31, 2021, endpoint.
Be sure to check cda.org/covid19 for the latest information on CDA’s response to the COVID-19 pandemic.