By: Adam Glassman
Just in time for the holiday season, the much anticipated second round of COVID-19 relief has been approved by the Senate and House and is expected to be signed by the President. Below are some of the key provisions from the new relief package that will be applicable to small businesses:
Favorable Tax Provisions – Recently, the IRS published its position denying businesses a deduction for expenditures covered by PPP loan proceeds that had a reasonable expectation of being forgiven. Congress, however, has essentially overruled the IRS by legislating that business expenses paid by PPP loan proceeds will be deductible, despite the underlying loan being forgiven, or eligible for forgiveness. This is welcomed news for businesses!
In addition, taxpayers may now obtain a 100% (as opposed to the previous 50% limitation in place) deduction for business meals that will be paid or incurred between January 1, 2021 and December 31, 2022. This increased deduction only applies to business meals, whether dine-in or carry-out, provided by a restaurant.
Congress has also extended, for one more year, the increased limit from the CARES Act on deductible contributions to charity for corporate taxpayers and individuals who do not itemize their deductions. The limit on such deductions was increased to 100% under the CARES Act and shall now stay in place for charitable gifts made in 2021. Taxpayers must maintain documentation to substantiate any gifts made.
Employee Retention Credit – When Congress first passed a COVID-19 relief package, businesses had the ability to take advantage of a refundable payroll tax credit for retaining employees during the pandemic. Notably, businesses could not take advantage of this tax credit and also obtain a PPP loan. However, in this latest relief bill, Congress expanded eligibility for the refundable payroll tax credit to PPP loan borrowers, allowing both future and past borrowers to obtain the credits. Retroactive application of the credits to prior PPP borrowers is permitted.
Second Round of PPP Loans and EIDL Grants – Businesses that previously received a PPP loan may now be eligible to receive another forgivable loan based on the new relief package, provided that they meet the new eligibility criteria. A business is only eligible for a second PPP loan if they have 300 or fewer employees and had at least a 25% reduction in gross receipts for a single quarter in 2020 as compared to that same quarter in 2019. For bars and restaurants in particular, loan amounts must be calculated based on 3.5 times average payroll as opposed to the 2.5 multiplier for other business types. Regardless of the type of business, all PPP loans from the second round are capped at $2 million.
Congress has also mandated a new round of Emergency Injury Disaster Loan grants, for eligible applicants.
Streamlined Forgiveness – The new legislation includes provisions to simplify filing procedures for borrowers to obtain forgiveness for PPP loans for $150,000 or less. This is very good news for borrowers and loan processers alike, as it should save time and stress on obtaining forgiveness.
Sick and Family Leave Tax Credit Extensions – Family and medical leave tax credits provided under the Families First Coronavirus Relief Act will be extended through March 31, 2021, constituting a 90-day extension from the original expiration date of December 31, 2020.
Stimulus Checks – Finally, the new recovery bill provides stimulus payments to individuals, including children, of $600.00, subject to phaseout, similar to what was originally written into the CARES Act. Therefore, if you received a stimulus check during the first round of payments, you will likely be getting another, soon.
Please Consult a Professional Advisor – The first Coronavirus relief package was very complicated and changed very quickly in the weeks and months following its enactment. The second relief bill is nearly 5,600 pages long. It too shall be subject to scrutiny and may change or otherwise be refined as it is rolled out. Businesses are urged to consult with a professional advisor who can help them navigate the complexity ahead and maximize benefits available under the relief bill. Please contact your attorney at McCarthy Lebit to discuss your options and develop a plan that is right for your business.
Adam Glassman is an attorney at the Cleveland, OH-based law firm McCarthy, Lebit, Crystal & Liffman.