In a rare act of compromise, Congress came together at the end of December to pass the Consolidated Appropriations Act, which provides long-awaited and much-needed economic relief to businesses and individuals.
For the business community, the legislation's centerpiece is a major expansion and extension of the Paycheck Protection Program (PPP) included in the original CARES Act. In addition to offering loans to qualified companies that did not receive PPP funding last year, the new bill makes a second round of PPP loans available to certain companies that did receive assistance in the initial program. These "second draw" loans are limited to companies that have no more than 300 employees who experienced a 25% reduction in gross revenue during any quarter of 2020 compared to the comparable quarter of 2019.
All of these new loans for the most part follow the same rules as the initial PPP program and can be fully forgiven if the funds are used for qualified expenses of the business. The SBA (Small Business Administration) has already begun taking applications, so interested small businesses should reach out to their local financial institutions to start the process.
The new bill also clarifies that the forgiveness of PPP loans will have no income tax consequences to taxpayers. While the original CARES Act stated that forgiveness of PPP loans was nontaxable income to taxpayers, the IRS subsequently issued instructions that taxpayers could not deduct certain expenses paid for with money from their PPP loans, resulting in significant tax consequences for many. Congress responded directly by making these expenses tax-deductible in the new law.
The act also provides for a simpler process for businesses that had loans under $150,000 to obtain forgiveness. And in an about-face, businesses who received both a PPP loan and a $10,000 Economic Injury Disaster Loans (EIDL) can now have both loans forgiven, provided they meet all guidelines.
There's also relief for businesses beyond the PPP program. The original CARES Act allowed some companies that did not qualify for or receive a PPP loan to claim the Employee Retention Tax credit, which reduced the employer's share of payroll taxes. In addition to extending that credit through June 30, the new bill allows certain businesses who received a PPP loan to claim the ERC credit retroactively for 2020. Companies interested in pursuing this opportunity should contact their tax advisers to see if they qualify, and they should do so ASAP, as any 2020 credit must be claimed by Jan. 31.
Of course, the new bill offers direct relief to individuals as well. Single taxpayers making under $75,000 and married couples earning up to $150,000 are eligible for direct payments of $600 for individuals, $1,200 for married couples, and an additional $600 for each qualifying child. Payments are already being issued via direct deposit; you can check your payment status or make corrections to your contact and banking information by visiting IRS.gov and clicking on the "Get my payment" tool.
• Steve Goluch is a partner at Weiss & Company.