Dec 28, 2020

Congressional Stimulus Bill Expands PPP; Clarifies Taxation of PPP Loan Forgiveness and Deductibility of Expenses


Congress finally reached an agreement and passed on December 21, 2020 a $900 billion economic stimulus bill, which was signed into law by the President on December 27, 2020.

Among other things, the bill expands and clarifies the Paycheck Protection Program (“PPP”), as amended, which was originally passed under the Coronavirus Aid, Relief, and Economic Security Act (CARES) on March 27, 2020:

Congressional Stimulus Bill Expands PPP

  • Expands the PPP to provide second PPP loans to certain smaller business that have suffered financial hardships during 2020;
  • Allows certain businesses in the hotel and food services industries to borrow up to 3.5 times (as opposed to 2.5 times for businesses in other industries) their average monthly payroll costs;
  • Expands the allowable uses of it loan proceeds to include expenditures for certain business software, cloud computing services and HR and accounting needs, property damage costs due to public disturbances occurring in 2020 that weren’t covered by insurance, supplier costs, and worker protection expenses in connection with complying with COVID-related public health laws and orders;
  • Creates a simplified loan forgiveness application for PPP loans less than $150,000.
  • Clarifies that the amount of forgiven PPP loans are excluded from income (e., are not taxable); and
  • Allows PPP loan recipients to deduct expenses paid with funds from a forgiven it loan, reversing the Treasury Department’s position that deductions would not be allowed for such expenses. This was a controversial decision by the Treasury Department and the IRS that many small- and medium-sized business owners, industry groups and accounting professionals had criticized since the inability to take to those deductions would have in many cases been equivalent to a taxation on the loan.

Please check our blog frequently for additional updates as the Treasury Department implements rules regarding the new legislation. In the meantime, please contact us if we can assist you.

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