December 22, 2020
Dear Clients, Colleagues and Friends,
On Sunday night, it was announced that a deal was reached on a $900 billion COVID aid bill, which includes financial assistance and provisions for households and businesses. At the time of this email, the final version of the bill has passed in the House of Representatives and in the Senate and is expected to be signed into law by the President in the coming days. Based upon information made public thus far, highlights of the bill include:
- Direct payments in the amounts of $600 for each adult and $600 for each qualifying child in a household. These payments would be based on 2019 income and adjusted gross income phaseouts start at $75,000 for single filers and $150,000 for married couples. Treasury Secretary Steven Mnuchin announced Monday that payments could start as soon as the beginning of next week. These payments, along with the direct payments issued earlier in 2020, represent an advance against a credit that taxpayers will claim on their 2020 tax return. If the credit a taxpayer is owed on their 2020 tax return exceeds the advance payments received during 2020, the taxpayer will claim an additional refundable credit for the balance. If the advance payments exceed the actual credit, the taxpayer is not required to repay the excess amount.
- Enhanced Federal unemployment subsidies in the amounts of $300 per week through March 14th will be available. As with the prior Federal package passed in March of 2020, most individuals who would not ordinarily qualify, such as “gig” workers or self-employed may qualify.
- For small businesses, $284 billion has been allocated for a second round of Paycheck Protection Program (PPP) Loans. According to the bill, an eligible borrower must be able to show a 25% reduction in gross receipts for any quarter in 2020 as compared to the same quarter in 2019. Similar to the initial PPP Loan, borrowers will be eligible to receive 2.5x their 2019 average monthly payroll expenses. Receipt of an initial PPP Loan in 2020 does not disqualify an applicant from receiving a second PPP Loan. This new round of PPP Loans will have changes including, but not limited to:
- Certain Hospitality industries, like Bars, Restaurants and Hotels, can qualify for 3.5x their 2019 average monthly payroll expenses.
- Businesses with 300 or less employees qualify (previously 500 or less).
- There is an expanded list of ineligible entities, such as entities involved in political and lobbying actives, entities affiliated with entities in the People’s Republic of China; registrants under the Foreign Agents Registration Act; and entities that receive a grant under the Shuttered Venue Operator Grant program.
- The covered period for forgiveness can be any stretch of time between, 8 and 24 weeks.
- Like the first round of loans, proceeds can be used on payroll costs, rent, utilities, mortgage principal interest, but adds certain operation expenses, property damage costs, supplier costs, and worker protection costs.
More information on the application process is expected to be released by the Small Business Administration and participating lending institutions by the end of the year. Presti & Naegele understands how imperative a prompt and accurate application submission is to you and your business. We are here to assist you with your application process and will keep you informed of the latest developments.
- For businesses that received PPP Loans earlier in the year, the recent guidance on tax deductibility released by the IRS has been reversed. This bill allows businesses to deduct the expenses they used to qualify for loan forgiveness. With this significant change occurring, businesses should review their year-end planning once more and adjust as necessary. Your Presti & Naegele team is here to assist you with this process.
- Due to the expanded 24 week covered period, most businesses that received a PPP Loan should have enough qualified expenses to obtain 100% PPP Loan forgiveness. For those businesses who do not have enough qualified expenses under the current PPP Loan program provisions, this bill expands the qualified expense categories to include certain operation expenses, property damage costs, supplier costs, and worker protection costs. At this time, these expanded categories only apply to businesses that have not yet submitted a PPP Loan forgiveness application.
- The long-awaited streamlined forgiveness for PPP Loans under $150,000 is now available. This change is anticipated to simplify the PPP Loan forgiveness process with less disclosure required. It appears PPP borrowers in this category will not be subject to the required reductions in forgiveness generally caused by salary or headcount reductions.
- Repeals the requirement that Economic Injury Disaster Loan (EIDL) advance payments reduce the amount of eligible PPP Loan forgiveness. The bill also clarifies that the EIDL advance payments will not be considered taxable income, and expenses paid with the advance remain deductible.
- Temporary increase from 50% to 100% deduction for business meals for expenses incurred in 2021 & 2022.
- The Charitable Contribution deduction for non-itemized filers is extended to 2021 and increased to $600 for Married Taxpayers.
- SBA grants up to $10 million to the following industries – eligible live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, or talent representatives who demonstrate a 25% reduction in revenues quarter-over-quarter comparing 2020 to 2019. The taxpayer had to be fully operational as of February 29, 2020. The grants will not be included in taxable income and must be used to pay the following expenses:
- Payroll costs
- Rent, utilities or mortgage interest and principal,
- Interest on other debt outstanding prior to February 15, 2020,
- Covered worker protection expenses
- Up to $100,000 in payments to an independent contractor,
- Other ordinary and necessary expenses including maintenance, administrative costs, state and local taxes, insurance premiums, advertising, and more. The grant CANNOT be used to purchase real estate, pay interest or principal on debts incurred after February 15, 2020, or lobbying expenses.
- The bill is also set to include several other provisions, such as direct Covid responses like funding health care, schools, testing and tracing, and vaccine distribution. It also provides relief directed at industries hit hard by the pandemic like the airline, entertainment, farming, rail, and transit, to name a few.
- Provides $25 billion in emergency rental assistance and an extension of the Federal eviction prohibition through January 2021.
The items listed above are key highlights from the 5,593-page bill. The bill contains other provisions, such as tax extenders, expanded credits and budgeted government spend. More information is expected in the coming weeks.
If you have any questions or need further information, please contact your Presti & Naegele professional directly, or dial 212-736-0055 for immediate assistance. Stay safe.
Presti & Naegele