Renner Nonprofit News; January 12, 2021—Joan M. Renner, CPA, CGMA
The Consolidated Appropriations Act of 2021 (CAA) includes a number of provisions to help small employers affected by the pandemic. One of the biggest features is the expansion of the Paycheck Protection Program (PPP) originally created by the CARES Act. The new law extends the time to apply, provides for a second PPP loan for hard-hit small businesses and nonprofits and finally adds more entities to the list of eligible organizations, including associations.
Organizations exempt under Section 501(c)(6) of the Internal Revenue Code are now eligible if they pass a few limitations. For a 501(c)(6) organization to be eligible for a PPP loan, the organization must:
- Have fewer than 300 employees,
- Not be a professional sports league,
- Not have the purpose of participating in a political campaign or conducting other political activity,
- Not receive more than 15% of its receipts from lobbying activities,
- Not engage in lobbying activities comprising more than 15% of the total activities of the organization, and
- Not have spent more than $1 million on lobbying activities during the most recent tax year that ended prior to Feb. 15, 2020.
None of the proceeds may be used for federal, state or local lobbying wages or other lobbying expenses.
The SBA will issue a new loan application form that will shed more light on the SBA’s requirements.
The loan amount is 2½ times the average monthly payroll costs paid or incurred, either in 2019, or in the year before the date of the loan.
The loan will be forgiven if the borrower spends the proceeds on eligible costs during the forgiveness period. Eligible costs include payroll, health insurance, rent, interest and utilities. The new law clarifies that eligible costs also include other types of group insurance such as group life, disability, vision and dental insurance. Eligible costs also include software, cloud computing services and certain costs to protect workers from COVID-19.
At least 60% of the expenditures qualifying for loan forgiveness must be payroll costs.
Borrowers may select any forgiveness period between 8 to 24 weeks, beginning on the date the loan proceeds are disbursed. After the end of the selected forgiveness period, the borrower must apply to the lender for forgiveness.
The new law extends the period for making PPP loans through March 31, 2021. Contact your bank to discuss their timeline for accepting PPP loan applications.
There are many details contained in the new legislation. This information is intended to be a summary of the basics and is not a substitute for individual advice. For specific information about how these provisions apply to you, contact your finance professional.
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