Major Updates to the Paycheck Protection Program

On December 21, Congress passed the Consolidated Appropriations Act, 2021, a $2.3 trillion spending bill that includes a $900 billion stimulus package intended to provide additional financial relief to individuals and businesses impacted by the COVID-19 pandemic. The bill was signed into law on December 27, 2020.

The Act contains follow-on provisions to the CARES Act and the Paycheck Protection Program enacted in the Spring of 2020. AAFCPAs has highlighted for your convenience the key provisions of Division N, Title III, Continuing the Paycheck Protection Program and Other Small Business Support related to the forgiveness of existing PPP loans and PPP second draw loans.

Updates to Paycheck Protection Program Loan Forgiveness (PPP1)

Key changes to PPP loan forgiveness, summarized below, are effective as if they were included in the CARES Act originally and are thus applicable to both existing and new second draw loans (except in the case of loans that were already forgiven at the time the legislation is enacted, unless otherwise noted):

  • Taxability:  Loan forgiveness is excluded from taxable income, and qualifying business expenses paid using PPP loan proceeds are indeed deductible, even if the loan is forgiven.  The Economic Injury Disaster Loan (EIDL) advance is tax exempt.
  • Additional eligible expenses: In addition to eligible expenses of payroll costs, mortgage interest, rent, and utilities, the following are now ALSO eligible:
    • Worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines;
    • Operating costs such as software and cloud computing services and accounting needs; and
    • Property damage costs such as costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was NOT covered by insurance or other compensation.
  • Simplified forgiveness for loans up to $150,000: For loans under $150,000, borrowers will have a simplified forgiveness application process consisting of signing and submitting a certification to the lender which:
    • is no more than 1 page in length;
    • indicates the number of employees the borrower was able to retain because of the loan, the estimated amount of the loan spent on payroll costs, and the total loan value; and
    • attests that the borrower has accurately provided the required certification, has complied with all the requirements of the PPP loan program, and retains records to prove compliance with requirements for 3-4 years (depending on record type, 4 years for HR related records and 3 years for all others).

AAFCPAs suspects that the application Form 3508S (which was previously applicable to only organizations whose loans were under 50k) will be used for this application. However, the SBA has not yet revised their guidance.

  • Eligibility now includes 501(c)(6) and destination marketing organizations, with limitations based on the amount of lobbying an organization is engaged in.
  • Audits: Within 45 days after enactment, the SBA must submit to the Senate and House of Representatives a plan for conducting reviews and audits of covered loans of more than $150,000 and the metrics that the SBA shall use to determine which loans to audit. Within 30 days after submitting the plan, and each month thereafter, the SBA must submit a report on the status of their forgiveness review and audit activities.
  • Expanded definition of benefits as part of payroll costs: In addition to group health care benefits, payroll costs will now include group life, disability, vision, or dental insurance costs.
  • Repeal of EIDL Advance Deduction: Previously, borrowers who received a PPP loan as well as an EIDL advance had to deduct the amount of their EIDL advance from the amount of their PPP loan forgiveness. This EIDL advance deduction is now repealed. The SBA will establish a process for borrowers who have already received PPP loan forgiveness and who had an EIDL advance deducted from their loan forgiveness amount to be made whole.
  • Eligible for Employee Retention Credit: Organizations who obtained a PPP loan are now eligible for the Employee Retention Credit. Organizations may be eligible for both.

Paycheck Protection Program Second Draw Loans (PPP2)

A second PPP loan, referred to as a “PPP second draw,” will be made available to certain eligible businesses. The PPP second draw is designed to provide relief to smaller businesses that have been more significantly hurt by the pandemic as compared to the first round of PPP loans. Approximately $275 billion of funding was set aside for PPP2 and the ability to repurpose any previously unused PPP1 funds. The following table outlines key provisions related to the PPP second draw.

PPP 2 – Second Draw Loans
Spent PPP1 -Eligibility Requirement The organization must have used or will use the full amount of their first PPP1 loan.
Size Limit – Eligibility Requirement No more than 300 employees (down from 500), or an alternative size standard if applicable. The limitation is per location with eligible employers who have more than one location. Note this is a headcount and NOT an FTE count, same as PPP1.
Reduction in Gross Receipts – Eligibility Requirement Applicants must demonstrate at least a 25% reduction in gross receipts in any quarter of 2020, relative to the same quarter of 2019. For loans up to $150k, the borrower may submit a certification attesting that it meets the revenue loss requirement and then must produce documentation that the revenue loss was met prior to submitting a forgiveness application. Special rules apply to those not in operation for the entirety of 2019. Gross receipts do NOT include EIDL or PPP funds received. NOTE: AAFCPAs advises clients to consider the Employee Retention Credit.
Necessity – Eligibility Requirement Organizations must still attest to the necessity of the loan. (It is unclear whether the two loan amounts will be aggregated for purposes of special rules applying to loans over 2 million.)
Application Period Will be open until March 31, 2021, although no bank is currently accepting for PPP2. This also extends the application period for PPP1.
Determination of Loan Amount Up to 2.5x monthly payroll costs (same as PPP1), payroll costs definitively include payment for group life, disability, vision and dental insurance benefits. For businesses with a NAICS Code 72 (Accommodation and Food Services) the amount is raised to 3.5x monthly payroll costs. This is based on the one year prior to your loan application, or the 2019 calendar year (same as PPP1) up to a maximum of $2M. Special rules apply for seasonal employers, which has now been defined in the Act. Also, a special rule applies if you have taken out a PPP1 within the last 90 days.
Affiliation Rules Waived for PPP2 purposes of determining eligibility.
Covered Period Choose a period not shorter than 8 weeks and no longer than 24 weeks. Certain time limitations moved from Dec 31, 2020 to March 31, 2021.
Qualified Expenditures Same as PPP1 and includes payroll costs, mortgage, rent (special rules if related parties), utilities, and now covered operational expenditures, property damage, covered supplier costs, and covered worker protections. As with the first round, at least 60% must be spent on payroll costs.
Reductions in Loan Forgiveness The reductions of loan forgiveness from PPP1 still apply, i.e., reductions in number of employees and reduction of wages paid greater than 25% will reduce your loan forgiveness. The safe harbors still apply as well.
Prioritization of Underserved Communities The Administrations is directed to issue guidance addressing barriers to access of capital for underserved communities no later than 10 days after enactment.
Restrictions on eligibility Ineligible entities include:

  • Businesses otherwise ineligible for SBA loans (unless made eligible by CARES)
  • Entities primarily engaged in political or lobbying activities
  • Any entity owned 20% or more by an entity created in, organized under the laws of, or has significant operations in China or Hong Kong
  • Any entity with a board member who is a resident of China
  • A person required to register under the Foreign Agents Registration Act of 1938
  • A person or entity that receives a shuttered Venue Operator Grant (new grant program created under this Act).

Further details on the changes in PPP loan forgiveness and the PPP second draw loans may be found in the House of Representatives’ summary of the provisions of the Coronavirus Response and Relief Supplemental Appropriations Act:

AAFCPAs’ COVID-19 Task Force will continue to provide guidance and valuable insights as more information becomes available about the PPP and other financial relief programs. If you have any questions, please contact Carla McCall, CPA, CGMA, at 774.512.4049,; or your AAFCPAs Partner.

About the Author

Carla McCall
Carla McCall, CPA, CGMA is Managing Partner of AAFCPAs, a preeminent, 300-person CPA and consulting firm based in New England. Carla was named one of the Most Powerful Women in the Accounting Profession in 2021 and 2022 by the Association of International Certified Professional Accountants (AICPA) and CPA Practice Advisor Magazine. Her dynamic executive leadership, bold practicality, and enthusiasm to embrace change is setting the standard for mission driven, growth organizations.