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2021 Tax Planning Guide
Paycheck Protection Program
The Paycheck Protection Program (PPP) reopened in January 2021 to new participants. Eligibility requirements generally remain the same as under the CARES Act.
A second PPP loan is available for qualified businesses that have received and exhausted their first loan. However, second PPP loans are more restrictive, with loans capped at $2 million and limited to companies with fewer than 300 employees that experienced a 25% drop in gross receipts during a quarter in 2020 relative to the same quarter in 2019.
First PPP loans are generally equal to 2.5 times the average 2019 or 2020 monthly payroll costs. However, for second loans, hospitality businesses will be able to use a multiple of 3.5.
PAYCHECK PROTECTION PROGRAM LOAN FORGIVENESS
Businesses that obtained a Paycheck Protection Program (PPP) loan may qualify to have all or part of their loan forgiven if the loan proceeds were used for eligible payroll, business mortgage interest, rent or other eligible non-payroll expenses during the period covered by the loan. Payroll-related expenses also qualify now, such as specific health and disability insurance premiums and additional categories of non-payroll costs.Forgiven PPP loans are tax-exempt and the forgiven expenses are tax deductible. There are limits on the amounts paid to employees and business owners and on the types of payroll and benefit costs that will be forgiven. There is a streamlined forgiveness process for loans under $150,000.
Borrowers can apply for forgiveness as soon as all the loan proceeds are used and as late as the maturity date of the loan. Payroll records and bank documents that prove compliance need to be included with the loan forgiveness application.
If a borrower hasn’t applied for forgiveness within 10 months after the last day of the loan’s covered period, then the PPP loan is no longer deferred and the borrower will have to start making loan re-payments to the lender.
PPP loans are complicated, so speak with your tax professional to ensure you follow all the requirements.
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