Smart Tax Planning

Bipartisan Covid relief plan includes more PPP, plus tax deductions for small businesses

Key Points
  • Lawmakers on both sides of the aisle proposed a $908 billion emergency Covid relief package. Of this, $300 billion would be earmarked for the Small Business Administration, the agency overseeing the Paycheck Protection Program.
  • Small businesses with up to 300 employees and that have sustained a 30% revenue loss in any quarter of 2020 would be eligible for a second round of PPP funding.
  • Business expenses paid for with PPP funding would be tax deductible, according to a summary of the proposal.
Charday Penn | E+ | Getty Images

Small business owners with battered finances might be in line for additional funding from the Paycheck Protection Program.

On Wednesday, lawmakers from both sides of the aisle circulated a summary of their $908 billion emergency Covid relief package.

The proposal sets aside $300 billion for the Small Business Administration, the federal agency responsible for overseeing the Paycheck Protection Program – a forgivable loan that was created through the CARES Act.

The measure, known as the Bipartisan Emergency COVID Relief Act of 2020, also would provide $300 in weekly supplemental unemployment payments, as well as an extension of student loan forbearance through the end of April 2021.

The funding would bolster the PPP and make more money available to firms that have suffered the most.

Generally, borrowers are eligible for PPP loan forgiveness if they apply at least 60% of the proceeds to payroll. Partial loan forgiveness may be available to those who don't meet this threshold.

Sums that aren't wiped must be repaid and are subject to an interest rate of 1%.

In all, more than 5 million PPP loans were approved, adding up to $525 billion.

Second draw for the hardest hit

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More than 600 companies got the maximum $10M in PPP loans, disadvantaging small businesses

The bipartisan framework would permit the hardest hit firms to take a second forgivable PPP loan.

Eligibility for a second draw of PPP cash would be limited to small businesses with no more than 300 employees and that have sustained a 30% revenue loss in any quarter of 2020.

"They may have had challenges getting the first loan to begin with, considering the inequity in getting access to the first tranche," said Garrett Watson, senior policy analyst at the Tax Foundation.

Indeed, back in the spring, large businesses that had relationships with banks had first crack at the loans.

"Some small businesses didn't get access to it at all," Watson said.

The proposal also plans to set aside funding to ensure smaller borrowers – namely firms with 10 or fewer employees -- and underserved communities receive aid.

Forgiveness and deductibility

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IRS ruling could hurt businesses that had their PPP loan forgiven

The proposal also expands the list of forgivable expenses covered by PPP proceeds to include supplier costs, investments in facility modifications and personal protective equipment needed to operate safely.

Lawmakers also propose simplifying the forgiveness process for those with loans of $150,000 or less.

Though forgiveness of the PPP loan is tax-free, business owners currently can't claim a deduction for those covered business expenses, according to the Treasury and IRS.

The bipartisan proposal tackles this issue by allowing these deductions, "consistent with Congressional intent in the CARES Act," according to the framework.

They may have had challenges getting the first loan to begin with, considering the inequity in getting access to the first tranche.
Garrett Watson
senior policy analyst at the Tax Foundation.

Indeed, lawmakers on both sides of the aisle have pitched legislation that would allow firms to take the write-offs.

Industry groups and tax professionals have said that failure to permit those deductions would raise tax bills.

Meanwhile, Treasury and the IRS said last month that business owners who "reasonably believe" their PPP loans will be forgiven can't deduct the costs.

The timing of the proposal is crucial, Watson explained.

"Hopefully it will clarify where businesses stand as they head into tax season," he said.

"I think one reason it's included here is so there's more runway for business to have clarity on what their tax situation will be heading into next year," Watson said.