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.
Sign up for our free webinar: What you need to know about the stimulus package and PPP
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.
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.
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.
Don't miss our post: Five (5) recommendations to ensure the Paycheck Protection Program loan is forgiven.
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:
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.
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.
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:
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.
Proper specialist advice will always be within your reach and at GBS Group, we have years of experience in SBA-backed loans; so, we are here to support you along the way.
We wish you success in your goals!