PPP expansion approved, broader stimulus awaits

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.

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

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.