Congress passed, and President Trump signed, the Consolidated Appropriations Act, 2021. Included in its approximately 5,600 pages is a second draw of forgivable Paycheck Protection Program (PPP) loans.
Like the first PPP loan, full loan forgiveness is available if the borrower spends at least 60% of the second draw on payroll costs (this time including additional group insurance payments, including vision, dental, disability and life insurance), with allowable nonpayroll costs of 40%.
The allowable non-payroll expense category – which was originally limited to rent, mortgage interest, and utilities – has been expanded to include the following:
Operational costs – Payment for any business software or cloud-computing service that facilitates business operations; product or service delivery; the processing, payment, or tracking of payroll expenses, human resources, sales, and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.
Property damage costs – Include costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation.
Supplier costs – Costs from existing contracts that are essential to the recipient’s operations, including the cost of perishable goods at any time.
Protective materials and facility modifications – An operating or a capital expenditure made to facilitate the adaptation of an entity’s business activities to comply with requirements established or guidance issued by federal, state, and local governments during the period beginning on March 1, 2020, and ending on the date when the national emergency related to COVID-19 declared by the president expires.
A borrower may choose either an 8-week or a 24-week covered period.
Generally, a reduction in the number of employees or the rate of pay affects the forgiveness of the loan.
If a borrower decreases salaries and wages by more than 25% for any employee who made less than $100,000 annualized in 2019, loan forgiveness will be reduced.
If the number of FTEs decreases, loan forgiveness will be reduced.
Safe harbors and exceptions are available in some circumstances.
There are detailed provisions regarding these forgiveness reduction items that are reviewed in other resources available here.
Please contact us if you'd like to discuss how this applies to your situation.
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