On December 27, 2020, the President of the United States signed The Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act (the “Act”) into law. Among other things, the Act makes major changes to the Paycheck Protection Program (“PPP”). The Act requires the Small Business Administration (“SBA”) Administrator to establish regulations to enact the legislation within 10 days of the Act being signed into law.
The Act includes the following:
- Second Draw PPP Loans will become available. The Act permits businesses that already received a PPP loan to apply for a second loan for up to $2 million. Businesses eligible for a Second Draw PPP Loan are those with 300 employees or fewer that can demonstrate a 25% decline in gross receipts in a quarter in 2020 compared to the same quarter in 2019. The amount of Second Draw PPP Loans will be determined by multiplying average monthly payroll costs by 2.5, up to $2 million. Restaurants and hotels are eligible for 3.5 times average monthly payroll costs, up to $2 million. In addition to the existing categories of permissible uses, the permissible uses of PPP Loan funds, including Second Draw PPP Loan funds have been expanded to now also include covered operating expenditures (such as software, human resources, and accounting), covered property damage (repairs related to public disturbances occurring in 2020), covered supplier costs, and covered worker protection expenditures (personal protective equipment and other similar expenditures).
- PPP Loan expenses will be tax deductible; this officially reverses the IRS’ Revenue Ruling 2020-27.
- The Economic Injury Disaster Loan (“EIDL”) advance deduction has been repealed, and expenses paid with the forgivable loan are now deductible. The SBA will be issuing guidance to ensure that businesses that received forgiveness from which the EIDL advance was deducted are reimbursed for the deducted amount.
- Increases the Employee Retention Credit from 50% to 70% for wages of up to $10,000 per quarter beginning January 1, 2021.
- The Work Opportunity Tax Credit is extended for five years.
- The so-called “Three-Martini Lunch Deduction,” which allows businesses to deduct corporate meal expenses, will be permitted for two years.
- Businesses will be entitled to tax deductions under the Family First Coronavirus Response Act for qualifying leave given through March 31, 2021.
- Eligible individuals will be provided with a one-time $600 stimulus check, and $300 per week of unemployment assistance.
- Mandatory payments for emergency paid sick leave and emergency FMLA were not extended and will end December 31, 2020; however, covered employers may voluntarily provide those paid leave benefits and receive a corresponding tax credit through March 31, 2021.
- The Act also provides:
- $35 billion for wind, solar, and other clean energy projects
- $25 billion in rental assistance
- $15 billion for movie theaters, entertainment venues, music clubs and cultural institutions
- $13 billion in food assistance
- $12 billion for minority-owned businesses
- $7 billion to increase access to broadband