New Legislation Allows Tax Deductibility for Business Expenses Paid with Forgiven PPP Loans

Published by BradyRenner CPAs | December 28, 2020

On December 21, 2020, the U.S. Senate and House of Representatives passed a $2.3 trillion COVID-19 relief bill that was signed into law by President Trump on December 27th. The law provides additional funding for those affected by the pandemic, as well as tax deductibility for business expenses paid with forgiven PPP funding. They are also rolling out a new round of PPP funding, called PPP2.


What does the bill include?

There are a few different categories amongst which the relief funding will be allocated.


Small businesses

  1. Congress will provide more than $284 billion to the U.S. Small Business Administration (SBA), specifically for the first and second PPP forgivable small loans.
  2. There will also be $20 billion allocated to fund the Economic Injury Disaster Loan (EIDL) funds for businesses in low-income and other impacted communities. They, along with minority communities, will receive an additional $12 billion.
  3. Live venues, independent movie theaters and cultural institutions will be provided with $15 billion.


Individuals and families

  1. $166 billion has been allocated for economic impact payments, meaning individuals making up to $75,000 per year will receive $600, and couples making up to $150,000 per year will receive $1,200. In addition, $600 will be paid for each child dependent.
  2. A total of $1.2 billion will be spent for workers receiving unemployment benefits; they will receive $300 per week from December 26 until March 14, 2021.
  3. The Pandemic Unemployment Assistance (PUA) program will expand coverage for those who are self-employed, gig workers or in non-traditional employment.
  4. The Pandemic Emergency Unemployment Compensation (PEUC) program will also be expanded so it can continue paying unemployment benefits to individuals whose regular benefits have run out.
  5. $13 billion for emergency food assistance. The Supplemental Nutrition Assistance program will increase by 15%.


Business, transportation and higher education

  1. $45 billion has been allocated for transportation. The breakdown is as follows: $16 billion for airlines; $14 billion for transit; $10 billion for state highways; $2 billion for airports and intercity buses each; $1 billion for Amtrak.
  2. Colleges and schools will receive $82 billion in funding. This includes support to reduce COVID-19 transmission, such as HVAC repair and replacement.
  3. The bill is temporarily allowing all businesses to deduct 100% for meals, instead of the current 50%. The food or beverage needs to be provided for a restaurant, and applies for expenses incurred between December 21, 2020 until the end of 2022.


Healthcare and technology

  1. $22 billion for health-related expenses for state, local, territorial and Tribal governments.
  2. Broadband expansion will receive $7 billion.


Am I eligible for PPP2 and what are the terms?

First-time qualified borrowers and businesses that previously received a PPP loan can apply. First time borrowers must have a business with a maximum of 500 employees and who are eligible for other SBA 7 (a) loans. The bill extends to sole proprietors, independent contractors and self-employed individuals; churches and nonprofits also qualify.

Businesses who received a PPP loan earlier this year may apply for another loan up to $2 million dollars, as long as they have a maximum of 300 employees, have used or plan on using their first PPP loan in full, and can prove their revenue declined 25%. They may provide proof from any 2020 quarter in comparison with the same quarter in 2019.

All basic eligible expenses from PPP1 will transfer to PPP2. A few exceptions might include forgiveness for worker protection and PPE, and other necessary expenses such as software and account services.

Just like in PPP1, PPP2 borrowers must spend no less than 60% of funds on payroll over a period of eight or 24 weeks in order to qualify for full loan forgiveness. They might be eligible to receive a loan for up to 2.5 times their average monthly payroll costs. The costs must be calculated in the year prior to receiving the loan, or the calendar year.


How do I apply?

Qualifying businesses must sign and submit a certification with all the necessary information. The SBA will create an application form within 24 days of the bill’s enactment.

The COVID-19 bill clarifies that the U.S. government will accept all deductions and will not reject any tax attributes.


Questions? Ask our team at BradyRenner CPAs today >>


Image credits: @ Creative Commons at Flickr