Paycheck Protection Program Updates and Overview of The Paycheck Protection Program Second Draw

PPP Clarifications

Costs Eligible for Loan Forgiveness

• Group insurance payments for life insurance, disability, vision, and dental insurance are included in payroll costs.

Deductibility

• PPP borrowers can deduct the payroll costs and other eligible expenses covered by forgiven loans, even though the loans themselves are tax-free income.

Simplified Loan Forgiveness Applications for Loans $150,000 and Below

• Borrowers of loans $150,000 or less must sign and submit a one-page form and attest to complying with PPP requirements. The SBA must produce the form no later than 24 days after the signing of the act. Borrowers are required to retain employment records for four years and other records for three years.

Employee Retention Tax Credits

• Tax credits are extended through July 1, 2021, for PPP borrowers.

PPP2 Overview

Eligibility

• Businesses, certain nonprofits, housing cooperatives, veterans’ organizations, tribal businesses, and small agricultural cooperatives with not more than 300 employees
• 501(c)(6) organizations and destination marketing organizations with 300 or fewer employees subject to the lobbying threshold (15% or receipts, 15% of business activity, costs cannot exceed $1M)
• Self-employed individuals, sole proprietors, independent contractors
• Borrowers whose gross receipts during the 1st, 2nd, 3rd, or 4th quarter of 2020 (only if submitted after 1/1 for the 4th quarter) demonstrated a 25% reduction from the same quarter in 2019. If the entity was not in business during the first or second quarter of 2019, but was in business during the 3rd and 4th quarter of 2019, they must have gross receipts in the 1st, 2nd, and 3rd quarter that demonstrate a 25% reduction from Q3 or Q4 of 2019.

Covered Period

• Borrowers can choose a period between 8 and 24 weeks.

Maximum Loan Amount

• $2 million or 2.5 times the average total monthly payroll costs on which the loan is made or during 2019.
• For entities in NAICS Code 72 (restaurants, bars, and hotels), $2 million or 3.5 times the average total monthly payroll costs on which the loan is made or during 2019.
• For seasonal employers, average monthly payroll for any 12-week period between 2/15/19 and 2/15/20.
• For new business entities that did not exist for the one year preceding 2/15/20, an amount equal to the quotient obtained by dividing the sum of the total monthly payroll costs by the number of months in which the payroll was incurred.

Costs Eligible for Loan Forgiveness

The expenses below are eligible for PPP1 loan forgiveness if you have not yet filed for forgiveness.

• Payroll costs, mortgage interest, rent, utility payments
• Group insurance payments for life insurance, disability, vision, and dental insurance are includable as payroll costs
• Covered worker protection expenditures and facility modifications to comply with COVID-19 federal and safety guidelines
• Covered property damage cost related to property damage and vandalism or looting due to public disturbances that occurred in 2020 and was not covered by insurance.
• Covered suppliers’ costs that are essential to the borrower’s current operations
• Covered operating costs include software or cloud computing services
• 60/40 cost allocation between payroll and nonpayroll 

Deductibility

• PPP borrowers can deduct payroll costs and other eligible expenses covered by forgiven loans, loans themselves are tax-free income.
• For partnerships and S corps, any amount excluded as income shall be treated as tax-exempt income.

Additional details to come

This is a high-level overview of the latest PPP1 and PPP2 developments. Help is on the way. We continue to monitor the situation closely and encourage qualifying entities to start preparing their documentation now.

Contact your Whittlesey Advisor with any questions or concerns. We’re here to help.