PPP Round 2 and Other Changes

In January of 2021, the U.S. Small Business Administration (SBA) resumed and expanded its Paycheck Protection Program (PPP) as part of the Consolidated Appropriations Act (CAA). This opens up new funds to businesses that meet certain criteria to keep workers working as the economic impacts of the pandemic persist. Below is a summary of changes and updates.


Updated as of 02/05/21:

Information presented is subject to further change as additional guidance may be released by the SBA, the US Treasury Department, the Internal Revenue Service or other governmental authorities. Information presented does not include all scenarios or situations that may apply. Information included does not represent legal advice. vcfo recommends further discussion with legal counsel regarding legal questions related to the information presented. Please contact us should you have further questions.

HR and Tax Changes

  • The Act did not extend the employer mandate beyond December 31, 2020
  • Extended Employer tax credits from December 31, 2020 until March 31, 2021
  • Employer is not required to provide FFCRA leave after 12/31/20 but may voluntarily provide leave
  • The language in the new act suggests the amounts do not reset in 2021; i.e., if such amounts were exhausted for an employee in 2020, any leave payments to that employee in 2021 would not qualify for the tax credit

  • Extended qualified wages paid after March 11, 2020 through June 30, 2021 (was through Jan 1, 2021)
  • Effective January 1, 2021 the credit is expanded to 70 percent (from 50 percent) of qualified wages and amended to include continued health benefits
  • The wage limitation is increased from $10,000 per year to $10,000 per quarter; i.e., the maximum credit per employee in 2021 is $15,000
  • The 2021 credit is available even if the employer received the $5,000 maximum credit for wages paid to such employee in 2020
  • Employers are also eligible if they can demonstrate revenue declines of 20 percent (formerly 50 percent)
  • PPP Loan Eligibility – This change is retroactive to the effective date under the original law for wages paid after March 12, 2020
  • Eligibility is also expanded to certain public instrumentalities, and new rules permit new employers not in existence in 2019, increased employee thresholds

  • Prior memorandum from August 2020, allows employers to defer withholding employees’ share of social security taxes through December of 2020; and required employers that chose to participate to withhold and pay the deferred amounts “ratably” from wages paid from January through April 2021
  • The Act extends the repayment period for any amounts deferred through December 31, 2021. However, the Act does not authorize further deferrals after 2020. Penalties and interest on deferred unpaid tax liability will not begin to accrue until January 1, 2022

  • FSAs and DCAs may carry over all unused amounts from 2020 to 2021 and from 2021 to 2022. Includes a 12-month grace period
  • An employer may permit employees who ceased to participate in a health care FSA during 2020 or 2021 to use their remaining balance through the end of the year in which participation ceased (plus any grace period)
  • If a participant enrolled in a dependent care FSA had a child that turned age 13 in the 2020 plan year the participant may be reimbursed for expenses incurred after the child’s 13th birthday for the remainder of that plan year, or if there is an unused balance at plan year end, in the following year until the child turns age 14
  • For plans ending in 2021, an employer may permit an employee to make a prospective change to their health care or dependent care FSA elections at any time for any reason
  • Employers have until the last day of the first calendar year beginning after the end of the plan year to adopt plan amendments

  • The provision originally applied to student loan payments made by an employer by January 1, 2021. The Act extends the tax treatment of such payments before January 1, 2026
  • Employers may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income as well as employment taxes
  • The $5,250 cap applies to both the student loan repayment benefit as well as other educational assistance (e.g., tuition, fees, books)

  • Consolidated Appropriations Act of 2021 (CAA) was signed into law on December 27, 2020
  • Authorized up to $284 billion towards job retention and certain other expenses
  • Restarts PPP program which will run through March 31, 2021
  • Second draw PPP loans which will run through March 31, 2021
  • Changes to allowable expenses to the calculation for forgiveness

PPP Legislation and Guidance

  • The Economic Aid Act, part of the CAA, was signed into law on December 27, 2020
  • The new program has set aside amounts for minority, underserved, veteran and women owned businesses
  • $15 billion for lending by community financial institutions with assets less than $1 billion
  • $15 billion for lending by Insured Depository Institutions, Credit Unions, and Farm Credit Institutions with assets less than $10 billion
  • $35 billion for new first draw PPP applicants
  • $15 billion and $25 billion for first draw and second draw PPP loans, respectively, for borrowers with a maximum of 10 employees or for loans less than $250,000 to borrowers in low-or moderate-income neighborhoods
  • The PPP program restarted on January 11, 2020 and applications will be accepted until March 31st
  • Initially only first draw loan applications from participating community financial institutions (< $1 billion in assets) will be accepted
  • Beginning on January 13, 2021 applications for second draw loans will be accepted from community financial institutions
  • PPP will open to all participating lenders shortly thereafter
  • Extends covered period from December 31, 2020 to March 31, 2021
  • Tax deductions are now allowed for expenses paid with the proceeds of a PPP loan
  • US Treasury and the SBA issued addition interim final rules on January 6, 2021
  • First draw and second draw loan applications were released on January 8, 2021
  • New applications for forgiveness were issued by the SBA on January 19, 2021
  • New FAQ’s are expected to be released in the next few weeks

More information can be found at the SBA website here.

First Draw PPP Application

  • New borrower application form issued on January 8, 2020
  • Can have no more than 500 employees
  • Same affiliation rules
  • Still based on 2.5 times average monthly payroll
    • 2019 payroll
    • 2020 payroll, or
    • The precise 1-year period before the expected date of disbursement
  • Added 501(c)(6) organizations to eligible entitles
  • Destination marketing organizations are eligible with some limitations associated with lobbying activities
  • Public companies are not eligible
  • Permanently closed business are not eligible but temporarily closed businesses are eligible
  • Businesses in bankruptcy proceedings are not eligible (with some exceptions)
  • Amount of EIDL loan made between 1/1/2020 and 4/3/2020 can be added to the loan amount
  • Seasonal employers use any 12-week period between 2/15/2019 and 2/15/2020
  • Under certain circumstances an existing PPP loan may be able to be increased (partnership that didn’t include partners compensation, seasonal employer that revised maximum allowable loan amount)
  • Still need to document economic necessity
    • Why is the loan necessary?
    • Risk and perception

Second Draw PPP Application

  • Generally subject to same terms, conditions and requirements as first draw PPP loans
  • 300 or fewer employees
  • Borrower must have had a first draw PPP loan and used all the full amount on or before the expected date the second draw PPP loan is disbursed
  • Must have used first draw PPP loan on eligible expenses
  • Must have experienced a 25% or greater reduction in revenue in 2020 compared to 2019
    • Reduction in gross receipts in one quarter in 2020 compared to corresponding quarter in 2019
    • Reduction in annual gross receipts in 2020 compared to 2019 and borrower submits copies of its annual tax form substantiating the reduction
  • Maximum loan amount is the lesser of 2.5 months payroll costs or $2.0 million
  • Entities with NAICS codes beginning with 72 (accommodation and food services sector) are allowed up to 3.5 times average monthly payroll costs
  • Permanently closed businesses are prohibited however temporarily closed business are eligible
  • Refinancing of EIDL loans does not apply to second draw loans
  • Documentation to substantiate second draw loans is essentially the same as first draw loans however if 2019 payroll cost are used and the second draw loan is with same lender no additional documentation is required (assumption is that lender already has the documentation)
  • For loans greater than $150,000 documentation is required to substantiate a 25% reduction in revenue
  • For loans of $150,000 or less documentation is not required to substantiate a 25% reduction in revenue at the time of application but is required when the application for loan forgiveness is submitted
  • Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances
  • Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker
  • For an eligible nonprofit organization, a veteran’s organization, an eligible nonprofit news organization, an eligible 501(c)(6) organization, or eligible destination marketing organization, gross receipts means gross receipts within the meaning of section 6033 of the Internal Revenue Code of 1986
  • Forgiven amount from first draw PPP loan cannot be included in gross receipts
  • Any person or entity that receives a grant for shuttered venue operators under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act is not eligible for a second draw PPP loan

PPP Loan Forgiveness

  • Forgiveness rules are the same for first draw and second draw PPP loans
  • Forgiveness rules from the CARES act still apply except were modified by the CAA
  • Simplified forgiveness application for loans under $150,000
  • Covered period begins on the date of disbursement and ends on ANY date selected by the borrower that is between 8 and 24 weeks from the disbursement date
  • Refinancing an SBA EIDL made between January 31, 2020 and April 3, 2020 (only applies to fist draw PPP loans)
  • Covered operations expenditures (payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses)
  • Covered property damage costs (costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation)
  • Covered supplier costs (expenditures made by a borrower to a supplier of goods for the supply of goods that—(A) are essential to the operations of the borrower at the time at which the expenditure is made; and (B) is made pursuant to a contract, order, or purchase order—(i) in effect at any time before the covered period with respect to the applicable covered loan; or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan)
  • Covered worker protection expenditures (operating or a capital expenditures to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control, or the Occupational Safety and Health Administration, or any equivalent requirements established or guidance issued by a State or local government, during the period beginning on March 1, 2020 and ending the date on which the national emergency with respect to the COVID–19 expires related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19). Does not include residential real property or intangible property

Other SBA Program Changes

  • Application deadline extended to December 31, 2021
  • Grants of up to $1,000 per employee (up to $10,000) must be issued within 21 days of application
  • Special funding set aside for eligible entities in low-income communities
  • Grants are no longer deducted when determining PPP forgiveness amount

  • Designed to assist live venue operators or promoters, theatrical producers, live performing arts organization operators, museum operators, motion picture theatre operators, and talent representatives
  • Eligible entities must have experienced at least a 25% year on year decrease in revenue in any quarter in 2020. Specific guidance on calculating the 25% revenue reduction for a second draw PPP loan and the supporting documentation can be found here
  • Permitted expenses broader than PPP program
  • Entity cannot get a grant and receive a PPP loan after December 27, 2020
  • Grants capped at $10 million per entity
    • Initial grant is 45% of 2019 gross earned revenue
    • If Q1 2021 revenue is less than 30% of Q1 2019 revenue, follow-on grant of 50% of initial grant
  • Stage Application Periods
    • First 14 days – entities whose revenue during 4/1 – 12/31 2020 is less than 10% of the same period in 2019
    • Second 14 days – entities whose revenue during 4/1 – 12/31 2020 is less than 30% of the same period in 2019
    • After 28 days – all eligible entities

  • SBA loan guarantee is increased from 75% to 90% for 7(a) loans
  • Loan limit for SBA Express Loans increased to $1 million until October 1, 2021
  • Waives borrower and lender fees for 7(a) and 504 loan programs
  • Establishes 504 express loan program for certain lenders
  • Added flexibility for deferment of 7(a) loan payments for up to 12 months
  • For existing SBA loans, resumes payment of P&I for 3 months starting February 1, 2021
  • Capped at $9,000 per month
  • Underserved borrows will get an additional 5 months, for a total of 8 months
  • For new loans approved between February 1 and September 30, 2021, SBA will pay P&I for first six months
  • Capped at $9,000 per month
  • On January 29, 2021 the SBA issued new FAQ’s (#54 – #56) on PPP. They also stated that FAQ’s #1 – #53 are in the process of being revised to reflect the Economic Aid Act

More information can be found at the SBA website here.


On Demand Webinar: Critical PPP2 Updates and an Overlooked Tax Credit

Date: February 11, 2021

vcfo’s Jennifer Lennarz, Consulting CFO, and Chris Hysinger, Consulting CFO, discuss the impact of the latest legislation and calculating debt forgiveness using the newest applications. Our team of financial experts help you navigate all the latest and answer your questions.


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