~ Author – Keely Keenan, CPA, Deluzio & Company, Audit Supervisor ~
In January of 2021, The Economic Aid Act was amended to include Section 311, which implements a provision to include second draw loans. Second draw loans are generally subject to the same terms, conditions as first draw loans, however eligibility and maximum draw amounts apply. Second draw loans will be approved for businesses that have 300 or few employees and experience a revenue reduction of 25% or more in 2020 relative to 2019. Also, a second draw PPP loan will only be made if the first draw PPP loan received was used, or will be used in its entirety on or before the expected date of the second draw PPP loan disbursement date.
Revenue reduction is calculated by comparing a borrower’s quarterly gross receipts for one quarter in 2020 with the corresponding quarter for 2019. If the borrow was in operation all four quarters of 2019 and 2020 and tax return filings show a 25% annual revenue reduction, then submission of the tax forms is suitable for application. If a borrow does not experience the 25% reduction on an annual basis, or it was not in operation all four quarters of 2019, the borrower may still meet the revenue reduction requirement under one of the quarterly measures described above.
Maximum amounts on second draw loans are 2.5x the average monthly 2019 or 2020 payroll costs up to $2 million. However, for borrows in the Accommodation and Food services sector, the maximum amount is 3.5x the average monthly 2019 or 2020 payroll costs, but only up to $2 million.
The PPP Extension Act of 2021 was recently passed, which extends the Paycheck Protection Program (PPP) application deadline to May 31, 2021 for first and second-draw requests. Included in this act is an additional 30 day window beyond the May 31st date to process these loan requests.
Earlier this year, the US Small Business (SBA) and US Treasury, updated the PPP to include a one-page forgiveness application, Form 35808S, for borrowers who received $150,000 or less. Information sought includes loan amount, disbursement date, employee totals and covered period dates for the application period. Documentation does not need to be submitted, it is mandated to be maintained in case there is a subsequent SBA loan review or audit.
For filers beyond the $150,000 threshold, the original Form 3508 and Form 3508EZ have been revised as of January 19, 2021 and require submission of supporting documentation for eligible expenditures be submitted with the loan forgiveness application.
Last, Pennsylvania state law makers passed legislation that ensured that PPP loans that have been forgiven, would be exempt from personal income tax.
If you have questions regarding the above, or any other aspects of the PPP program, please feel free to contact our office.