On March 27, 2020, the CARES Act was enacted, an economic stimulus package for individuals and businesses to “mitigate” the damages caused by the recession triggered by the coronavirus pandemic, and, on December 27, 2020, the Federal Government signed an extension or “second major package”. Here are all the details.
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Two major lines of assistance have been implemented under this new $900 billion economic stimulus package.
The first ones is individual and household assistance, through the Economic Impact Payments (EIP) through the Internal Revenue Service (IRS) and enhanced unemployment benefits.
The second is the Paycheck Protection Program (PPP), aimed at small businesses, which basically consists of loans that can be “condoned” (forgiven). These loans are supported by the Small Business Administration (SBA) and are managed by banks and savings and loan cooperatives in order to keep small businesses operational in the context of the health crisis.
Let’s look at the details of this extension or second large economic stimulus package, specifically: Who will receive the checks? Let’s clarify that although these are popularly called “checks”, many of these payments, and the first to be delivered, are processed as direct deposits to bank accounts reported to the IRS.
Economic Impact Payments Program (EIP)
Under this program, individuals who are up to date with their IRS obligations and have an annual income under $75,000 for the 2019 fiscal year received a check for $1,200 in April 2020, couples got $2,400 and an additional $500 for each child.
It is expected that payments or economic stimulus checks for this new extension will be sent in the first week of 2021. This time, the deposits are US$ 600 per individual; $1,200 for couples and an additional $600 for each child, so an eligible household of 4 members (a couple and two children) will receive $2,400 for “financial aid” payment.
This time, an important change has been applied. Couples with “mixed immigration status”, for example, a a spouse with SSN and another with ITIN, will be eligible; those members of the family group with SSN will be eligible and counted for assistance.
Who will receive EIP economic impact checks?
- Each qualifying adult and child will receive $600, and there is no limit on the number of qualifying household members.
- The maximum income threshold for receiving aid is $75,000 declared in the 2019 tax return for single individuals; $112,500 for those paying taxes as head of household and $150,000 for couples who submit joint tax returns.
- Above these thresholds, support will begin to decrease at a rate of $5 for every $100 declared beyond the above-mentioned values.
- A change was applied to families with mixed immigration status, for example, a spouse with SSN and another only with ITIN, will be eligible; although only family members with SSN will receive US$ 600 each.
- The basis for qualification will be 2020 income, although deposits or checks will be calculated on the basis of what was declared in the 2019 financial year. Any credit in favor will be received on the next income tax return.
Paycheck Protection Program (PPP)
The second round of the Paycheck Protection Program brings significant benefits above the first round, especially a greater variety of eligible forgiveness expenses and the non-taxable nature of the funds awarded.
The SBA has 10 days after the enactment of the extension of the economic stimulus package, to issue formal guidelines and regulations, but some guidelines have already been announced.
Of the $900 billion approved as an extension, some $284 billion will be earmarked for a second round of the Paycheck Protection Program (PPP).
Now, let’s talk about some peculiarities.
Second round of the Paycheck Protection Program: Who qualifies?
- Remember that any small business that meets the SBA size guidelines can request it, as well as single ownerships, self-employed individuals, and independent contractors
- Companies that have obtained a first PPP loan (under certain terms and conditions) and any business applying for a loan for the first time may apply.
- A key premise for opting for the second loan is that candidate businesses will have to report gross income during the first, second, or third quarter of 2020 at least 25% lower than its gross income for the same quarter in 2019.
- Applicants may also report the fourth quarter of 2020 if they apply for the PPP loan after January 1, 2021.
- For companies which NAICS code starts with 72 (generally accommodation and food services) even more favorable conditions will apply.
Don’t miss our post: Five (5) recommendations to ensure the Paycheck Protection Program loan is forgiven.
Types of expenses covered
For PPP loans in the second stimulus package, Congress expanded the types of expenditures for which funds can be used and which are subject to forgiveness.
Now in addition to payroll, rental fees, mortgage interest, and utilities, the Paycheck Protection Program allows loan funds to be used to:
- Cover property damage, vandalism and looting resulting from riots that occurred during 2020 and were not covered by insurance.
- Costs of suppliers of goods essential for operations.
- Expenses for worker protection to comply with all safety guidelines ordered by OSHA, the Department of Health and the CDC. Especially personal protective equipment (PPE), physical barriers, space expansion, ventilation or filtration systems and step windows.
- Costs that facilitate operations such as: Software and cloud services, logistics in the delivery of products or services, processing, payment or tracking of payroll expenses; human resources and billing functions, supply tracking, inventory and records.
If the PPP loan is used to cover these expenses, it can be forgiven by up to 100%. This law also provides a simplified forgiveness application process if the loan did not go over $150,000.
Application amounts and tax treatment
The amount of the loan to be received will be 2.5 times the average monthly payroll costs in 2019, up to a maximum of $2 million for those who have already been beneficiaries of a first loan. For first-time applicants, the maximum limit remains at $10 million.
Borrowers who have NAICS Code 72 (generally accommodation and food services) can use a 3.5 times factor of their average monthly payroll costs to calculate the maximum loan amount, subject to the above limits.
Another good news we mentioned earlier is that PPP loans will not be included as taxable income. Also, unlike the first round, expenses paid with the proceeds of a PPP loan that are waived will now be tax deductible, leaving aside the previous guideline of the Treasury Department and the IRS.
What about unemployment benefits?
Under the CARES Act and its extension, unemployment insurance benefit programs under state administration have been made more flexible.
Some flexibilities have been granted to support self-employed individuals and independent contractors, who under normal conditions would not be eligible.
Here are some basic premises to know about unemployment insurance benefits in the context of the CARES Act, the stimulus package and its extension:
- Extension of an additional 11 weeks for unemployment benefits, until March 14, 2021.
- $300 a week as a supplement to the benefits granted by each state.
- Self-employed individuals and independent contractors will continue to be eligible to opt for these benefits
- The benefit is retroactive until December 1, 2020.
If your company was favored with a PPP loan and you are applying for debt forgiveness, or if you want to opt for a PPP loan under the second package, it is possible that doubts arise along the process, especially as a result of the treatment that banks can provide.
We wish you success in your goals!