The new Paycheck Protection Program (PPP) law enacted with the stimulus package adds dollars to your pockets if you have or had PPP money.
Before we go further, please note the PPP money comes to you in what appears to be a loan. We say “appears” because you typically pay back a loan.
Done right, however, the PPP loan is 100 percent forgiven. The word “loan” makes some businesses leery of this arrangement. Don’t be. The PPP monetary arrangement is a true “have your cake and eat it too” deal.
And this remarkable deal applies to your past PPP loan, the PPP loan you have outstanding, and the PPP loan you are about to get if you have not had one before. Here are the details.
Loan Proceeds Are Not Taxable
The COVID-related Tax Relief Act of 2020 reiterates that your PPP loan forgiveness amount is not taxable income to you.
Expenses Paid with Forgiven Loan Money Are Tax-Deductible
As you may remember, the IRS took the position that expenses paid with PPP loan forgiveness monies were not deductible.
Lawmakers disagreed but were unable to get the IRS to change its position. The IRS essentially told lawmakers, “If you want the expenses paid with a PPP loan to be deductible, change the law.”
And that’s precisely what lawmakers did. The COVID-related Tax Relief Act of 2020 states that “no deduction shall be denied, no tax attribute shall be reduced, and no basis increase shall be denied, by reason of the exclusion from gross income.”
In plain English, the expenses paid with monies from a forgiven PPP loan are now tax-deductible, and this change goes back to March 27, 2020, the date the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted.
More Expenses Qualify for Forgiveness
The Paycheck Protection Program Flexibility Act of 2020 established that to achieve 100 percent forgiveness of your PPP loan, you had to spend7
- the entire loan proceeds on covered expenses (defined as payroll, rent, interest, and utilities), and
- at least 60 percent on covered payroll.
The “at least 60 percent on payroll” rule continues to exist, as do the non-payroll covered expenses of defined rent, interest, and utilities, but the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act retroactively, as if included in the CARES Act, adds the following four covered expenses as eligible non-payroll costs.
- Covered operations expenditures, which means 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, which means costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that were not covered by insurance or other compensation.
- Covered supplier costs, which means expenditures made by an entity to a supplier of goods for the supply of goods that are essential to the operations of the entity at the time at which the expenditure is made, and that are made pursuant to a contract, order, or purchase order in effect at any time before the covered period with respect to the applicable covered loan—or 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, which means operating or capital expenditures related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19, to facilitate the adaptation of an entity’s business activities to comply with requirements established or guidance issued by the Department of Health and Human Services, the Centers for Disease Control and Prevention, 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 March 1, 2020, and ending the date on which the national emergency declared by the president under the National Emergencies Act (50 U.S.C. 1601 et seq.) with respect to COVID-19 expires.
Such covered worker protection expenses may include the purchase, maintenance, or renovation of assets (other than residential real or intangible property13) that create or expand
- a drive-through window facility;
- an indoor, outdoor, or combined air or air pressure ventilation or filtration system;
- a physical barrier such as a sneeze guard;
- an expansion of additional indoor, outdoor, or combined business space;
- an on-site or off-site health screening capability; or
other assets as determined by the departments of Health and Human Services and Labor.