In January 2021, the U.S. Small Business Administration (SBA) and Treasury released guidance, in the form of two interim final rules, outlining and detailing guidelines for the revived Paycheck Protection Program, or PPP. The guidelines also specified updates for new PPP loans, for previous recipients.
Most notably, applicants were previously tasked with deciding between a PPP loan or claiming the Employee Retention Credit (ERC) among other forms of stimulus opportunities; the latest update, the “Consolidated Appropriations Act,” allows applicants to receive both a PPP loan (first and second-draw) and claim the ERC, under the CARES Act relief.
Employers who qualify in 2021, including PPP recipients, the new law expands the credit and allows them to claim a credit against 70% of qualified wages paid. Additionally, the amount of wages that qualifies for the credit is now $10,000 per employee per quarter for the first two quarters of 2021. So, an employer could claim $7,000 per quarter per employee or $14,000 for 2021.
The IRS does have guardrails in place to prevent wage increases that would count toward the credit once the employer is eligible for the employee retention credit.
- There is no double-dipping for credits. Employers who take the employee retention credit cannot take credit on those same qualified wages for paid family medical leave.
- If an employee is included for the Work Opportunity Tax Credit, they may not be included for the employee retention credit.
When can nonprofit organizations and businesses begin applying for PPP?
The new PPP is open to all participating lenders and will remain open throughout March 31, 2021 or until funding is exhausted or Congress acts to approve additional funding.
What are the largest updates to the revised program?
The original PPP provided $525 billion in forgivable loans, which formally ended in August of 2020. After the COVID-19 relief bill was signed into law on December 27, 2020, the Payroll Protection Program was additionally funded with $284.5 billion for first and second time borrowers, including $35B assigned for first-time borrowers.
Within the relief bill, Congress made funding available for previous recipients of the PPP loan through a second draw. Borrowers are eligible for a second round if they meet specific requirements (up to 300 employees, on-track to spend the full amount of the first PPP – on eligible expenses, and experience a gross receipts decline of 25% or greater in any calendar quarter in comparison to the same calendar quarter in the year prior – 2020 versus 2019). Gross receipts should be calculated by your company’s applicable annual tax return accounting methodology (accrual, cash, or modified cash basis).
As a first-time PPP applicant, what do I need to know?
The Economic Aid Act makes first-draw PPP loans available to borrowers that were in operation on Feb. 15, 2020 – business with 500 or fewer employees (eligible for other SBA 7(a) loans), sole proprietors, independent contractors, eligible self-employed individuals, nonprofits, churches, accommodation, and food service operations, among others.
What documentation does my organization need to apply for a PPP loan?
Nonprofit PPP applicants must submit documentation to establish eligibility and demonstrate the qualifying payroll amount (payroll records, state and federal tax filings, benefits bills, proof of payment, etc.). Applicants will need to provide Form 941/944 and state quarterly wage unemployment insurance tax reporting forms for the year used to calculate the loan amount.
What are eligible expenses/costs under the second round of PPP loans?
Borrowers are able to have first and second-draw loans forgiven, if funds are used for expenses payroll, rent, covered mortgage interest and utilities. The following costs are now eligible in addition to the previous list: covered worker protection, facility modification expenditures (i.e. personal protective equipment when complying with COVID-19 federal health & safety guidelines), covered property damage costs (due to public disturbances in 2020 not covered by insurance or compensation), covered operating expenditures and more. PPP borrowers will need to spend 60% or more on payroll over a specific period to be eligible for full loan forgiveness.
For loans under $150,000, the SBA will create a “simplified application form” for applicants to utilize, track and submit.
If we are a minority, underserved, veteran and/or women-owned business, what do we need to know?
The Economic Aid Act ensured that loans would be set aside for new and smaller borrowers, borrowers in low and moderate income communities, and for community and smaller lenders. The SBA announced the commitment to ensure increased access and availability for minority, underserved, veteran and women-owned businesses.
With the new changes and updates, there is an increased ability for nonprofits and small businesses to apply for and receive PPP loans, whether a first- or second-time recipient.
To learn more, or receive additional support regarding the newest guidance and program updates, contact us today.