Round Two of the COVID-19 Stimulus PlanDecember 22, 2020

Monday night Congress approved the new COVID-19 related stimulus package. A major development that many contractors have been anticipating, arrived for the holiday season. Under the Consolidated Appropriations Act, 2021 expenses paid with forgiven Paycheck Protection Program (PPP) loans are 100% tax deductible.   Businesses who received funding under the Payroll Protection Program (PPP) will now get the benefits intended when the program was introduced under the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The new law provides that “no deduction shall be denied or reduced, no tax attribute shall be reduced and no basis increase shall be denied, by reason of the exclusion from gross income provided by Section 1106 of the CARES Act”.

These new regulations override recently issued Internal Revenue Service Notice 2020-32 and Notice 2020-27.   The IRS position would have required contractors to reduce their deductible expenses by amounts used in applying for loan forgiveness with the Small Business Administration. Year-end tax filers faced the likelihood of higher taxable income with the loss of those qualifying expenses identified in its 24-week PPP program spending window. 

In addition, the Consolidated Appropriations Act, 2021 has some additional key provisions extending programs previously in place:

• The bill provides a second round of PPP loans that will be available for first time qualified borrowers and borrowers who received a previous loan but have fewer than 300 employees, have used or will use the full amount of their first loan and can show a 25% gross revenue decline in any 2020 quarter compared with the similar quarter in 2019. Loans will be capped at $2,000,000.
• $166 billion for economic impact aid. $600 to an individual who makes less than $75,000 and $1,200 to a married couple earning under $150,000 a year and a $600 payment for each child dependent.
• $120 billion in new funding for Pandemic Unemployment Assistance benefits. The bill provides a $300 supplement from December 26, 2020 to March 14, 2021.

We will provide further analysis as the provisions are published and complete language of the Act is posted.