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Tax Alert: Payroll Protection Program 2 – A Second Bite at The Apple (January 14, 2021)

Jan 14, 2021

Today’s Emerging Tax and Regulation Alert – January 14, 2021

Payroll Protection Program 2: A Second Bite at The Apple

The recently passed Consolidated Appropriations Act allows qualifying businesses to take a second round of Payroll Protection Program (“PPP”) loans. This second round of funding is available even if a business takes the employee retention credit (see previous Tax Alert, “Employee Retention Credit May Provide Benefits to Your Business”). Businesses who previously received a PPP loan are eligible again if they meet the following criteria:

  • Must have less than 300 employees; or,
  • If hospitality, food service, or not-for-profit public broadcasting businesses, must have less than 300 employees “per location”;
  • Used (or will use) all of the first round of the PPP loan; and
  • Demonstrate a 25% reduction in gross receipts in the first, second, third, or fourth quarter of 2020 compared to the same quarter in 2019.

This second round of funding allows for loans up to 2.5 times the average monthly payroll costs. However, qualifying hospitality and foodservice businesses may take loans up to 3.5 times average monthly payroll costs. The maximum amount of loans available is capped at $2 million. Similar to the first round of PPP funding, the loans may be forgiven if used for eligible payroll costs of at least 60% and eligible nonpayroll costs up to 40% (the definition of nonpayroll costs has been expanded to include operations expenditures, supplier costs, property damage, and worker protection costs). Forgivable costs do not include wages used for employee retention credit (businesses cannot double the benefit from the same costs).

Please note, similar to the first round of PPP funding, all loans:

  • Do not require collateral or personal guarantees from the business or its owner;
  • Are guaranteed at 100%;
  • Bear a 1% interest rate (non-compounding interest and non-adjusted basis);
  • Have a five-year maturity; and
  • Are processed by lenders and rely on borrower certifications to determine eligibility (including certification of need).

While some of the specific provisions related to this business relief can be difficult to navigate, it is important to consider your ability to take advantage of this second round of funding separately or in conjunction with any potential employee retention credits available. Please reach out to your Topel Forman adviser and banker if you would like to discuss your eligibility to apply for a second round of PPP for your business. Please also be aware that the current application filing deadline for this program is March 31, 2021.

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