The Consolidated Appropriations Act (CAA), signed into law in December 2020, is known for authorizing the second round of direct stimulus payments to individuals and extending enhanced unemployment benefits. But the law also provides tax relief and new financing opportunities for businesses affected by the COVID-19 pandemic. The following are highlights of key provisions that are most relevant to manufacturers.
New PPP financing available
Eligible small businesses that previously received forgivable Paycheck Protection Program (PPP) loans may apply for a "second draw," provided they have used or will use all of the proceeds of their original loans by the time a second draw is disbursed. Generally, to qualify for an additional loan, you must have 300 employees or fewer and demonstrate a 25% or more decline in gross receipts in any quarter of 2020 compared to the same quarter in 2019. (Special eligibility rules apply to businesses that did not exist during some or all of 2019.)
Like the first round of PPP loans, you may receive up to 2½ times your average monthly payroll costs in 2019 (or in the one-year period preceding the date of the loan), but new loans are capped at $2 million. Businesses that are ineligible for a second draw may be able to increase the amount of their original PPP loans. Also, the CAA permits certain businesses that did not previously receive PPP loans to apply for them. But, you will have to act quickly: Applications are due by March 31, 2021.
PPP expenses deductible
The CARES Act, which established the PPP program, provided that the amount of PPP loan forgiveness is not included in a borrower's gross income for tax purposes. But last year, the IRS essentially erased this tax benefit by ruling that borrowers may not deduct expenses paid with the proceeds of loans that have been (or likely will be) forgiven.
The CAA restores the tax advantages of loan forgiveness by overruling the IRS and providing that otherwise deductible expenses remain deductible regardless of whether a loan is forgiven.
Allowable loan uses expanded
As before, to qualify for forgiveness, applicants must use at least 60% of a PPP loan's proceeds for payroll. But the CAA expands the allowable nonpayroll uses beyond mortgage, rent and utility expenses, to include:
- "Covered operations expenditures" for software or cloud computing services that facilitate business operations;
- "Covered property damage costs" related to vandalism or looting due to public disturbances in 2020 and not covered by insurance or otherwise reimbursed;
- "Covered supplier costs" for goods that are essential to business operations and meet certain requirements; and
- "Covered worker protection expenditures" to comply with health guidelines, such as expenses for creating drive-through window facilities or air filtration systems.
The CAA also clarifies that payroll costs, for PPP purposes, include employer-provided group life, dental, vision or disability insurance.
More CAA provisions
Other PPP updates of interest include:
- Modified Covered Period
The "covered period" is the one during which PPP loan proceeds must be spent on eligible expenses in order to qualify for forgiveness. Originally, the covered period was eight weeks from the time the loan is made. Later, it was extended to 24 weeks, although borrowers that received loans before June 5, 2020, could choose either an 8-week or 24-week period. Now, borrowers can choose a covered period of any length between 8 and 24 weeks.
- Simplified Forgiveness Application Procedures
The CAA allows businesses that borrow less than $150,000 to simply certify that they meet the 25% revenue loss requirement. However, they must substantiate compliance with this requirement when (or before) they submit a forgiveness application. Finally, the CAA simplifies the forgiveness application for PPP loans under $150,000.
That Is not all
In addition to the above, the CAA contains several other changes of interest to manufacturers: It makes the Section 179D commercial buildings energy-efficiency tax deduction permanent, extends the time for repaying deferred employee payroll taxes through the end of 2021, expands the employee retention credit and extends the work opportunity credit and empowerment zone incentives through 2025. To ensure that you are making the most of these and other benefits, please contact ORBA.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.