By Julie Pace, Heidi Nunn-Gilman, & Tim Forsman
On Sunday, December 27th, President Trump signed into law the Consolidated Appropriations Act of 2021 (the “Act”) which enacts many important changes to the Payroll Protection Program (“PPP”). Key changes brought about by the Act include:
- Families First Coronavirus Response Act Leave Mandate Expires December 31, 2020, but Tax Credits Continue: The Emergency Paid Sick Leave and Emergency Family and Medical Leave Expansion mandate expires December 31, 2020. After December 31, 2020, employers with fewer than 500 employees will no longer be required to provide paid leave to employees for COVID-19 related reasons. Section 286 of the COVID-Related Tax Relief Act of 2020, however, allows employers to continue to provide leave under the same terms and conditions as under the Emergency Paid Sick Leave Act and the Emergency Family and Medical Leave Expansion Act and receive the benefit of the dollar-for-dollar tax credit for leave granted through March 31, 2021. The tax credits are available through March 31, 2021 provided the employer paid leave is available as “would be so required to be paid if [the FFCRA] were applied.”
- Unemployment Benefits Increase $300 per Week Through March 14, 2021: The Act reinstated the supplemental federal unemployment benefit provided under the CARES Act at the rate of $300 per week, rather than the $600 per week previously provided. Unless extended by Congress, the supplemental federal unemployment benefit will expire on March 14, 2021.
- Deductibility of Forgiven PPP Amounts: In what will be welcome news for PPP borrowers, the Act allows borrowers to deduct business expenses that were paid for with PPP loan monies and which are forgiven.
- Second Round of PPP Loans: The Act provides for a new round of PPP loans, which are available to both first-time PPP borrowers and those that already received PPP loans. PPP borrowers may apply for a new loan of up to $2 million, provided they meet certain eligibility criteria, which among other things, require that the borrower can demonstrate a twenty-five percent (25%) gross revenue decline in any fiscal quarter of 2020 compared to the same quarter in 2019.
- New Expenses Eligible for PPP Forgiveness: The Act adds four categories of expenses the list of forgivable PPP loan expenses. The new categories added by the Act are as follows:
- Covered operations expenditures, including business software or cloud computing services;
- Covered property damage costs, including costs related to property damage and vandalism or looting (subject to certain exclusions);
- Covered supplier costs, which consist of expenditures to suppliers for goods that are essential to the operations of the PPP borrower; and
- Covered worker protection expenditures, including personal protective equipment (PPE) and certain other expenditures made to comply with COVID-19 federal health and safety guidelines.
- Expansion of Employee Retention Credit (“ERC”): The Act expands the ERC, which is a tax credit based on qualified wages paid to employees. The Act provides that recipients of PPP loans may take the ERC, but only to the extent of wages that were not paid with forgiven PPP amounts.
- Expansion of Economic Injury Disaster Loan (“EIDL”) Program: The Act allocates new funding to the EIDL loan program. In addition, the Act repeals the previous requirement that PPP borrowers deduct the amount of any EIDL advance from their PPP forgiveness amount. These changes offer a new opportunity for businesses to apply for an EIDL grant, and allow existing recipients of an EIDL advance to receive expanded PPP loan forgiveness. In order to qualify for the new round of EIDL grants, a business concern must meet certain criteria, which include a requirement that the borrower have no more than 300 employees.
- 501(c)(6) Eligibility for PPP Loans: Under the Act, 501(c)(6) organizations and destination marketing organizations are eligible to receive a PPP loan with the second round of funding, subject to limits on the potential borrower’s lobbying activities and also provided that the organization does not have more than 300 employees.
- New Forgiveness Application for PPP Loans of $150,000 and Under: The Act creates a new, streamlined forgiveness process for PPP loans of $150,000 or less. On the new one-page application, borrowers will only be required to provide the amount of the loan, the estimated amount spent on payroll costs with the loan, and the number of employees retained as a result of the PPP loan. Although eligible borrowers will not be required to submit any supporting documentation with the new application, the Act requires that borrowers maintain relevant supporting documentation for either three or four years, depending on the type of documentation. The SBA has not yet released this new application, but is required to do so by January 20, 2021.
Companies are beginning to receive the SBA’s new Form 3509 (regarding PPP loan necessity), which will be sent to all for-profit PPP borrowers who apply for loan forgiveness and who have borrowed $2,000,000 or more in PPP funding. We strongly recommend that all PPP borrowers who are required to submit a Form 3509 have their legal counsel review the draft form before it is submitted. We also recommend that PPP borrowers work with their counsel to prepare a substantiation memorandum to provide a narrative explanation and supporting documentation in case the SBA or the Special Inspector General for Pandemic Recovery (“SIGPR”) requests more information about a borrower’s PPP loan. We recommend companies who received over $2 million in PPP monies to prepare now for the SIGPR audit.
Please remember that the guidance for the Paycheck Protection Program is evolving rapidly, and it is critical to stay on top of new changes in the law. Additionally, courts have generally not yet had the opportunity to interpret the guidance and laws implementing the PPP, which introduces additional uncertainty into this complex and rapidly-changing area of the law. And, there can be no guarantees as to how any specific lender or governmental auditor will treat a borrower’s individual situation, regardless of how well prepared the borrower may be for an audit.
The dedicated COVID-19 response team at Gammage & Burnham is here to help you and your business get the most of the Payroll Protection Program and to navigate the evolving federal and state efforts to provide relief to businesses during these unprecedented times. Please contact Julie Pace, Tim Forsman or Heidi Nunn-Gilman for more information.
DISCLAIMER: This email is intended for informational purposes only and is not legal advice. We recommend that you seek the counsel of a licensed attorney regarding any legal issues that you or your company are facing. This email does not create an attorney-client relationship.