Show me the money…again! Congress agrees to $900B Emergency Coronavirus Relief Act of 2020

By Nicole DeRosa, CPA, MAcc, Senior Tax Manager

Congressional leaders are close to finalizing the next round of stimulus, referred to as the Emergency Coronavirus Relief Act of 2020 providing for $900 billion in government funds aimed at supporting small businesses and the ailing economy. The coronavirus relief bill is expected to pass with bi-partisan support, and the President is expected to sign the bill into law quickly. The relief bill is being coupled with a $1.4 trillion spending bill and voting is expected to commence any hour. The bill provides assistance in a few key areas including: Allocation of $300 billion to a 2^nd funding round of the Paycheck Protection Program (PPP), direct stimulus payments of $600 to individual taxpayers, and extension of unemployment benefits providing for an additional $300 to eligible recipients. While the bill is still being negotiated and there could be substantial changes to the final bill, below is a summary of key updates based on information released to date.

$300 Billion Allocated to PPP 2.0

One of the most significant components of the emergency relief bill is the inclusion of $300 billion in funding for a 2^nd round of the Paycheck Protection Program. $284 billion will be allocated to struggling small businesses, while $15 billion in PPP funds is being allocated for direct support to “live venues, independent movie theaters, and cultural institutions”. The EIDL grant program will also receive an infusion, with $20 billion being earmarked for businesses in low-income communities. The bill also includes a few key fixes for loans approved in the 1^st funding round. The loan program will be open to initial applicants as well as 2^nd time borrowers, as long as they meet certain criteria.

Loan Amount: Maximum loan amount during the 2^nd round will be $2million, a decrease from the first round of $10,000,000. The loan amount will be determined by the 2.5x average monthly payroll calculation we used during the first round, and it appears borrowers will be able to calculate their loan using 2019 payroll.

Eligibility: Funding during the 2^nd round is being targeted to the hardest hit businesses, so borrowers will have to meet strict eligibility criteria including:

• Borrower must be able to prove a 30% revenue decline in any quarter in 2020 compared to the same period in the prior year
• Maximum employee headcount is 300 during the 2^nd round, a decline from 500 during the first round
• Inclusion of 501(c)(6) businesses with 150 or fewer employees
• Safe harbor on necessity may also be required

Costs Eligible for Loan Forgiveness: The 2^nd round of PPP will allow borrowers to spend their funds on the same payroll and nonpayroll costs as the first round, but there are a few beneficial additions to eligible expenses including:

• PPE (personal protective equipment) purchased by the business to protect workforce including facility modification costs
• Supplier costs which includes any expenditure to a supplier that is considered essential to the borrower’s current operations
• 60/40 cost allocation between payroll and non-payroll costs

Deductibility: The Emergency Relief bill includes a fix to the deductibility issue, which means PPP borrowers in both the 1^st and 2^nd round will be able to deduct eligible expenses on their 2020 corporate return. This is welcome news and comes at a cost of $200 billion in forgone tax revenue. There may be some limitations regarding what expenses can be deducted.  Stay tuned, there was some Congressional back-and-forth over the weekend regarding inclusion of this provision,  but we do expect it to pass as Congress intended to provide for tax-free loan forgiveness in addition to deductibility all along.

Simplified Loan Forgiveness: There has been a tremendous push over the last few months to provide for a streamlined forgiveness process for borrowers that received a PPP loan with an original principal balance of $150,00 or less. The Emergency Relief bill includes this provision with the following requirements:

• Sign and submit 1-page form
• Good faith attestation borrower complied with PPP rules
• Must report total amount of the loan spent on both payroll costs and non-payroll costs
• Retain records related to employment for 4 years and other records for 3 years

Round 2 of Stimulus Payments (approximately $166 billion)

Individuals making up to $75,000 a year will receive a $600 payment, while married taxpayers filing jointly making up to $150,000 a year will receive a $1,200 payment.  Similar to the first bill, taxpayers earning too much money will be phased out and not eligible for the stimulus payments.  Unlike the March bill, payments will be up to $600 per dependent child and will also allow more accessibility for U.S. citizens in households married to non-citizens.  The calculation for eligibility on this second round of checks is to be based on 2019 income amounts and according to Treasury Secretary Steven Mnuchin, taxpayers are expected to see direct payments as early as next week.

$300 Enhanced Unemployment (approximately $286 billion)

Since the $600 Pandemic Unemployment Assistance (PUA) benefit expired back in July, Congress has been searching for a way to include additional funding for the program in the next bill. The emergency relief bill would provide for $300 per week in direct federal assistance, for up to 11 weeks or at least until March 14^th. Unemployment insurance for contract and gig workers set to expire by the end of this year would also be renewed for an additional 11 weeks, providing additional assistance to those individuals who would not typically qualify for unemployment insurance. Eligible self-employed taxpayers earning at least $5,000 a year in self-employment income would be entitled to $100 per week under the expansion.

Ancillary Tax Provisions

Earned Income Credit & Child Tax Credit:  Changes in the calculation have been made to enable taxpayers who lost wages or jobs during the pandemic to still qualify for the credits.  The bill would allow taxpayers to use their 2019 income for purposes of claiming these tax credits which would potentially receive larger credits because the credits “phase in” with income.

Employee Retention Credit: Extension and enhancement of the employee retention credit would encourage businesses to keep employees on payroll.

“Three Martini Lunch” Tax Break:  Included in the bill is a tax provision allowing full write-offs of business meals (which are currently 50% tax deductible) through 2022.  This tax incentive would benefit taxpayers being that they would receive a 100% tax write off for business meals in the hopes that the restaurant industry would indirectly benefit from the increased spending on such meals, a win-win!

Tax Extenders:  The bill extends a mélange of expiring tax breaks including (but not limited to) lower excise taxes for craft breweries and distilleries, renewable energy sources, motorsport facilities, and those making charitable contributions.

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