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Advisory Alert

Paycheck Protection Program Extension Act

On March 30th, 2021 President Joe Biden signed into law the Paycheck Protection Plan Extension Act of 2021, which extends the loan application deadline from March 31, 2021 to May 31, 2021. The law also provides the Small Business Administration (SBA) 30 days after that date to process applications.
Contents

On March 3, 2021, the SBA also made four additional changes to the Paycheck Protection Plan (PPP) guidance, as follows:

  • sole proprietors, independent contractors, and self-employed individuals are now eligible to receive more financial support
    • the new rules state that independent contractors may now base the PPP loans on their gross income instead of the net profit
  • eliminated a restriction on PPP access for small business owners with non-fraud felony convictions
  • eliminated student loan debt delinquency as a disqualifier to participating in the PPP
  • non-citizen small business owners who are lawful U.S. citizens may use Individual Taxpayer Identification Number (ITIN) to apply for the PPP

PPP Eligibility

The new PPP (PPP2) loans will be available to first-time qualified borrowers and to businesses that previously received a PPP loan. First-time PPP borrowers will be subject to the program’s original eligibility rules. The original PPP was generally available to businesses with up to 500 employees, and there was no requirement to demonstrate a revenue loss.

Previous PPP (PPP1) recipients may apply for another loan of up to $2 million if they meet the following three requirements:

  • have 300 or fewer employees;
  • have used or will use the full amount of their first PPP loan; and
  • can demonstrate a 25% gross revenue decline in any 2020 quarter compared with the same quarter in 2019.

The bill allows borrowers that returned all or part of a previous PPP loan to reapply for a second round loan.

How much can a business obtain in the new PPP loans

The maximum eligible loan amounts will be $2 million. Borrowers will generally be eligible to calculate their loan amount as 2.5 times their average monthly payroll costs in the prior year. Applicants in the accommodation and food services industries are eligible for loans that amount to 3.5 times their average monthly payroll.

PPP Loan Terms

Eligible costs for loan forgiveness consist of the ones originally included in the first PPP program: payroll, rent, covered mortgage interest, and utilities; and:

  1. covered operations expenditures
  2. covered facility modification costs to comply with safety guidelines
  3. covered supplier cost
  4. covered worker protection

Borrowers who have not yet applied for forgiveness of their original PPP loan may now also include these types of expenses in their forgiveness application. Borrowers are still required to spend at least 60% of the funds on payroll to receive full forgiveness. The other 40% may be used on eligible costs.

Streamlined Forgiveness for Borrowers under $150,000

Borrowers for loans under $150,000 will only be required to submit a one-page online or paper form and will only be subject to audit if they commit fraud or use the proceeds for improper purposes.

Tax Matters

  • deductibility of expenses paid with forgiven PPP funds
    • expenses paid with PPP funds are deductible for federal income tax purposes. This was already permitted for Puerto Rico income tax purposes under local Act 57-2020.
  • employee payroll tax deferral
    • the bill extends the deferral of an employee’s share of social security tax on wages paid from September 1, 2020 through the end of the year from April 30, 2021 until December 31, 2021.
  • Families First Coronavirus Response Act (FFCRA) Credits
    • extends the tax credit provisions of FFCRA from December 31, 2020 through March 31, 2021.
  • extension of the Employee Retention Tax Credit
    • extends the tax credit through June 30, 2021
    • businesses may now claim both the Employee Retention Credit and the PPP Loan. But wages upon which the ERC is calculated is not eligible for forgiveness under the PPP program.

Sources:

Bill - Consolidated Appropriations Act 2021

Forbes: Stimulus Payments, Paycheck Protection Program Expense Deductibility Headline Tax Changes In Latest Covid Relief Package

Journal of Accountancy: COVID-19 relief bill addresses key PPP issues

Wallstreet Journal: PPP Loans: Everything We Know About Latest Small Business Protection

We are committed to keep you updated of all developments that may affect the way you do business in Puerto Rico. Please contact us for assistance in relation to this or any other matter, we will be glad to assist you.