New COVID-19 relief legislation: PPP, tax impacts, and more

12/22/2020

After many months of on and off negotiations, including a final push that began the day after the November general election, Congress has passed a new round of COVID-19 relief worth nearly $900 billion. The president is expected to sign the legislation, which is part of a much larger tax and spending bill worth $2.3 trillion.

Read on for what we consider highlights and our perspectives on the package as a whole, and continue to the end of this page for a thorough table summarizing the legislation’s most notable measures. Plus, find out about the major tax provisions included in the COVID-19 measures and in the broader package.

Please note that this is based on news reports and early congressional summaries of the relief package; we will continue to update this page to reflect the final version as more information becomes available.

Second-draw PPP loans: The relief package provides over $284 billion in new funding for Paycheck Protection Program loans extending the program to March 31, 2021, available to both current and first-time borrowers, and takes several steps to expand who is eligible (details in our table below) and what funds can be used for (including costs incurred to protect employees and customers from COVID-19). An earlier version of the legislation called for new application materials to be released within the first week of enactment, so businesses intending to apply should begin preparing now to act quickly when the time comes.
- A key tax update for current and prospective borrowers: Business expenses paid with proceeds of forgiven PPP loans are now deemed deductible, a hoped-for reversal of previous IRS guidance. This change could have a significant impact as businesses conduct year-end or other tax planning and determine tax obligations for next year. (Keep in mind that states may decouple from this federal treatment.)
Unemployment assistance: The federal unemployment programs created by the Coronavirus Aid, Relief, and Economic Security (CARES) Act were due to expire Dec. 31, 2020. The new package extends all pandemic unemployment insurance through March 14, 2021, with an additional weekly benefit of $300 per week.
Additional aid to individuals and communities, including minority and low-income communities: The legislation includes a number of provisions to provide assistance directly to people and communities that continue to suffer the effects of the pandemic. Notably:
- Individuals below a certain income threshold will receive one-time direct cash payments of $600, including both adults and children
- $12 billion is provided in targeted economic investments to help low-income and minority communities, including funding for eligible CDFIs (Community Development Financial Institutions) and MDIs (Minority Deposit Institutions).
- $25 billion is provided to state, local, and tribal entities for rental assistance, and the eviction moratorium has been extended to Jan. 31, 2021.
- Funding is included to support better broadband access, including some funds designated specifically for low-income families, rural areas, and telehealth.
- A host of food and nutrition assistance measures are included, from a temporary increase in SNAP benefits to increased funding for food banks, school and child care meal programs, and more.

The COVID-19 relief legislation and the broader year-end package also contain a number of tax-related provisions, including extending the New Markets Tax Credit (NMTC) and the Work Opportunity Tax Credit and making a hoped-for adjustment to fix the 4% rate for the Low-Income Housing Tax Credit (LIHTC). See the below table for highlights, and watch our website and Tax social media for more detailed insights to come in the new year. (Also see: our alert on extenders for renewable energy industry.)

As these relief measures are implemented, we will be interested to see how both the outgoing and incoming administrations and legislatures apply lessons learned from the CARES Act, the first round of PPP loans, and other aid initiatives implemented over the past nine-plus months. With the second-draw Paycheck Protection Program loans, for example, will funds be disbursed more quickly with the infrastructure already in place, or will we see increased governance slow dispersal as more careful due diligence ensures that funds are going to businesses that need them most? Will businesses without existing banking relationships again struggle to secure PPP funds, or have those issues been resolved? While providing clear, welcome relief, this new package, like most significant new legislation, leaves open a number of questions regarding how the programs will be implemented, or how they may change in implementation, if at all. We will see how these new measures play out.

We were also encouraged to see running through this legislation a theme of strengthening those communities hit especially hard, including minority and low-income communities. The direct payments and the new measures offering assistance with food, housing, child care, education, and other needs should offer some relief over what will likely still be a number of very difficult months to come.

We expect additional COVID-19 relief to be passed in the early months of 2021, potentially followed by more significant legislation related to taxation and infrastructure. Still, this package arguably offers sufficient “stopgap” assistance in the interim.

Matter		New or updated provisions
Paycheck Protection Program (PPP)/Small business support		Second-Draw Paycheck Protection Program (PPP) loans (with a pool over $284 billion) – Expect further guidance to come from SBA in the weeks ahead, including new loan origination and forgiveness applications, but key points include: Eligibility: Generally, these loans will be open to businesses with 300 or fewer employees (or, for businesses with more than one physical location, 300 or fewer by location) that sustained a 25% gross receipts loss in any quarter of 2020 Newly eligible are non-lobbying 501(c)(6) organizations with 300 or fewer employees, e.g., chambers of commerce, economic development organizations, and tourism offices Businesses that received a first-round PPP loan must have used or have plans to use its full amount The waiver of affiliation rules included in the original round of PPP loans will again apply Businesses or organizations that were not in operation on Feb. 15, 2020, are not eligible for these new initial and second-draw PPP loans. Maximum Loan Amount: In general, the lesser of $2 million OR 2.5 times the average total monthly payment for payroll costs during either calendar year 2019 or the one-year period before the date the loan is made NAICS code 72 entities (those in Accommodation and Food Services) may receive up to 3.5 times their average monthly payroll figure Other calculations are provided for seasonal employers (newly defined by this round of legislation) and for businesses that did not exist during the one-year period prior to Feb. 15, 2020 Note that the interest rate on all first- and second-draw PPP loans has been clarified to be non-compounding Loan forgiveness Borrowers may again choose between an eight- and 24- week covered period Borrowers must again meet the 60/40 cost allocation between payroll and non-payroll costs to receive full forgiveness Permissible and forgivable covered expenses expanded to include: “covered operations expenditures,” such as software and other human resources or accounting needs; “covered property damage costs,” defined as costs related to 2020 public disturbances that were not covered by insurance; “covered supplier costs,” i.e. payments for the supply of essential goods related to contracts or orders that were in place before the covered period (or, for perishable goods, before or during the covered period); and “covered worker protection expenditures,” meaning investments in PPE and facility modifications for safe operations, such as ventilation and filtration systems, physical barriers, and screening capabilities Certain other employer-provided group insurance payments have been clarified to count as payroll costs, such as group life, disability, vision or dental insurance Borrowers that received PPP loans before, on, or after the date this new legislation was enacted are allowed to use the expanded forgivable expenses, unless their loans were already forgiven Simplified loan forgiveness process: A new, one-page form will be provided for borrowers with loans of $150,000 or less PPP tax update: Expenses paid for with forgiven PPP loan proceeds are now deductible, a reversal of IRS guidance Set-asides are included for smaller borrowers (10 or fewer employees); first-time PPP borrowers; recipients in low- and middle-income neighborhoods; and small community lenders (e.g. CDFI, MDI) Bankruptcy provisions: The legislation establishes a special procedure in the bankruptcy process for cases where the Administrator determines that certain small business debtors are eligible for PPP loans $20 billion provided for Economic Injury Disaster Loan (EIDL) advances Note also that borrowers receiving both PPP loans and EIDL advances no longer need to subtract such advances from the PPP forgiveness) Also, the covered period for EIDL grants has been extended through Dec. 31, 2021 $15 billion provided for independent live entertainment venue operators affected by stay-at-home orders, including independent movie theaters and museums Note that businesses receiving grants under this program are not eligible for PPP loans Funding and other provisions included related to SBA 7(a), 504, and microloans and debt relief programs
Unemployment		All pandemic unemployment insurance programs extended through March 14, 2021, including: Pandemic Unemployment Assistance (PUA) Pandemic Emergency Unemployment Compensation (PEUC) Those receiving benefits as of March 14 can continue to do so through April 5 provided they have not reached the maximum number of weeks: 50 for PUA, 24 for PEUC Federal supplemental unemployment insurance benefits: Extended from the end of December to March 14, at $300 per week
Other assistance to individuals, families, and communities		Direct payments: Individuals below a certain income threshold will receive one-time direct stimulus payments of $600 per person, including adults and children Payment size starts decreasing for people who earned more than $75,000 in 2019 (or $150,000 for married filing jointly), and those who earned more than $99,000 will not receive one Funding to help low-income and minority communities: $12 billion provided in targeted economic investments, including: $3 billion to the CDFI fund $9 billion for eligible CDFIs and MDIs Rental assistance $25 billion provided to be distributed through state, local, and tribal entities Guidelines are provided for how the funds must be used, with 90% required to be used for rent and rental arrears; utilities and home energy cost and arrears; or other related expenses “Guardrails” are in place to direct support toward the most in-need households Eviction moratorium extended to Jan. 31, 2021, from Dec. 31, 2020 Broadband $7 billion provided to improve access to broadband, including: $3.2 billion for an FCC fund to help low-income families access broadband $1 billion tribal broadband connectivity fund $250 million in telehealth funding $300 million in grants to provide broadband in rural and other underserved areas Food/nutrition assistance: Individual monthly SNAP increased by 15% through June 30, 2021, and eligibility extended to certain college students Increased funding provided for food banks; school and child care meal programs; programs on reservations; U.S. territories not served by SNAP; and programs for seniors
Vaccines, testing, and other healthcare provisions		Vaccine development and distribution: Nearly $9 billion provided for vaccine distribution Testing and tracing: More than $22 billion provided to help states with testing and tracing, including $2.5 billion specifically designated for “high-risk and underserved populations” Mental health and substance abuse: Provisions include $4.25 billion for SAMHSA programs for substance abuse and mental health, including $600 million for Certified Community Behavioral Health Centers (CCBHCs) $1.25 billion to the National Institutes of Health for research related to long-term effects of COVID-19
Education and child care		$82 billion provided in education funding, including: CARES Act Governors Emergency Education Relief Fund: $4.1 billion (including a set-aside for private K-12 schools) Public elementary and secondary schools: $54.3 billion Higher education: $22.7 billion (including set-asides for minority-serving institutions and “institutions with greatest unmet needs” Relief for territories and the Bureau of Indian Education Child care: $10.25 billion appropriated for assistance to families and child care providers, including funding for Head Start
Agricultural assistance and fisheries		$13 billion allocated to agricultural producers, growers, and processors
Transportation		$45 billion provided for transportation, including funding for airlines; airports, including airport concessionaires; motorcoach, ferry, and bus industries; public transit; and Amtrak
Postal service		The $10 billion loan provided by the CARES Act will now be available at USPS’s request with no requirement of repayment or compliance with previously agreed-upon terms or conditions; however, there would be new requirements related to planning and reporting on use of funds
Extensions of certain tax provisions		The COVID-19 relief measures and the broader spending package also extend the timelines or expiration dates of a number of tax provisions, including: New Markets Tax Credit (NMTC) Work Opportunity Tax Credit Exclusion from gross income of discharge of qualified principal residence indebtedness Empowerment zone tax incentives Employer credit for paid family and medical leave Exclusion for certain employer payments of student loans Credits for electricity produced from certain renewable resources Energy credit (both extension and phaseout included) Excise tax credits relating to alternative fuels
Other tax provisions		A full deduction (not limited by 50%) will be allowed for business meals provided by a restaurant during 2021 and 2022 The minimum Low-Income Housing Tax Credit (LIHTC) rate has been set at at least 4% (among other LIHTC changes) A 30-year Alternative Depreciation System (ADS) depreciation period has been assigned for certain residential rental property held by electing real property trades or businesses The Employee Retention Tax Credit –created by the CARES Act to allow certain employers to take a tax credit for certain wages paid through Dec. 31, 2020 – has been extended and expanded The $300 above-the-line deduction for charitable contributions for non-itemizing taxpayers – also created by the CARES Act – has been extended through 2021 The AGI limitation for contributions otherwise subject to the 60% of AGI limitation on charitable contributions (for cash contributions to certain 501(c)(3) organizations) has been suspended for 2020 and 2021, making those contributions fully deductible The legislation also includes changes to certain disaster relief tax provisions
Other		Coronavirus Relief Fund for states and localities: These CARES Act funds previously had to be used by Dec. 30, 2020; states and localities now have until Dec. 31, 2021 CARES Act Section 3610 for government contractors: Extended until March 31, 2021

Related Services

_{Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.}