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PPP expansion approved, broader stimulus awaits

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Tax Hot Topics newsletter Congress has passed legislation making enhancements to the Paycheck Protection Program (PPP), including repealing a provision in the Coronavirus Aid, Relief, and Economic Security (CARES) Act that made businesses ineligible for payroll tax deferral once they had loans forgiven under the program. The bill was kept narrow in scope to ensure quick passage, but lawmakers are considering several other tax proposals for the next round of COIVD-19 stimulus and relief.

The PPP was established by the CARES Act to provide small businesses with forgivable loans as an incentive for retaining their employees during the pandemic. To be eligible for full forgiveness, businesses were originally required to spend the loan proceeds within eight weeks, with at least 75% used to cover payroll costs (including health benefits). The remaining loan amount could be used to pay interest on a mortgage or other existing debt obligations, rent and utilities.

The Paycheck Protection Program Flexibility Act (H.R. 7010) eases some of the PPP’s limitations. However, it fails to reverse IRS guidance disallowing deductions for expenses covered by loan proceeds that are ultimately forgiven. Lawmakers on both sides of the aisle were quick rebuke the guidance when it was issued in May and vowed to enact a legislative fix, indicating the IRS’s conclusion went against Congress’s intent. The absence of a fix in the bill suggests it could have impeded passage, but it is still likely to be part of a broader legislative package in the future.

Lawmakers are in negotiations over additional COVID-19 stimulus and relief. An expanded employee retention credit and a bonus allowing workers who lost their job during the pandemic to continue receiving some unemployment payments after returning to work are among the tax proposals gaining bipartisan traction. However, discussions are moving slowly, and it could be several weeks before legislation takes shape.

Contacts:
Dustin Stamper
Managing Director
Washington National Tax Office
T  +1 202 861 4144

Omair Taher
Senior Associate
Washington National Tax Office
T  +1 202 861 4143

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