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Update: PPP Loan and the Second Economic Stimulus Bill

NOTE: The information provided is not a reflection of the views or opinions of John Marshall Bank. The following are objective summaries of the recent economic stimulus bill and its provisions. 

If you’ve had the news on for 10-15 minutes, then you’re more than likely aware of the upcoming PPL Loan and comprehensive Economic Stimulus Bill. And you more than likely have tons of questions about how the regulations can impact you, your family, and your business. For example, did you know that with the help of the Paycheck Protection Program Loan you can avail the benefits of the Economic Bill? The second economic stimulus bill is thousands of pages long but we’ve summarized it for you. The Economic Stimulus Bill will provide another round of direct payments, enhanced unemployment benefits, education funding, and aid to sectors still reeling from the economic fallout of the pandemic. We split up the benefits into seven categories:

  1. Individual and Family Benefits
  2. Small Business Benefits
  3. Tax Provisions
  4. Unemployment Benefits
  5. Housing Provisions
  6. Postal Services
  7. Disaster Relief

1. Individual and Family Benefits

If you are an individual making no more than $75,000 per year you will be given a direct economic relief via stimulus checks of $600. If you’re a couple making up to $150,000 per year then you are entitled to $1,200 and an extra $600 for dependent children that are under 17 years old.  So if a single person earned $50,000 in 2019 and has four children under 17, the individual will be eligible for a $3,000 payment.

You need a Social Security number for you to be eligible to receive payment. As noted above, individuals earning up to $75,000, and couples earning up to $150,000 will receive the full amount. Children will be eligible for the same benefit amount as eligible adults, and families with members of mixed immigration status with a valid Social Security number for one spouse are also eligible for the payments, unlike with the CARES Act rebates.  Others who did not file either a 2018 or 2019 return would be ineligible for the payment, although they could file a 1040 now and still get a check.

In summary, the stimulus bill includes the following provisions for individuals and family benefits:

  • $600 direct payments to eligible people
  • $300 per week in supplemental unemployment payments
  • Extended unemployment coverage and benefits for freelance workers
  • $13 billion in nutrition assistance
  • Extended eviction moratorium and emergency rental assistance
  • $10 billion for child care assistance

2. Small Business Benefits

Paycheck Protection Program Loan: The Paycheck Protection Program Loan (PPP) is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. It’s also a loan created by the U.S Small Business Administration (SBA) that helps businesses keep their workforce employed during the Coronavirus (COVID-19) crisis.

The most recent economic stimulus package provides $325 billion in small business funds including $284.5 billion for first and second forgivable Paycheck Protection Program (PPP) loans. If you have a small business you can receive a second PPP loan if you have less than 300 employees and can demonstrate a revenue reduction of 25%. Small businesses that received PPP loans would be able to take tax deductions for the expenses covered by forgiven loans. The Paycheck Protection Program Loan may be able to support your business in this uncertain economic climate and provide relief from burdensome loan forgiveness requirements.

PPP loans for second-time borrowers are limited to $2 million. But certain businesses severely impacted by the pandemic, such as restaurants, can get an amount equal to 3.5 times their average monthly payroll costs instead of the normal 2.5. What is unique about the PPP loan is the loan forgiveness provision, which means you do not have to pay the money back. Moreover, the forgiven loan amount is tax-free.

Another type of loan businesses can obtain from the SBA is an Economic Injury Disaster Loan (EIDL). These are low-interest 30-year loans of up to $150,000. The stimulus bill refunds the EIDL loan program for businesses in low-income communities. EIDL loan applicants can receive emergency loan advances of up to $10,000 from the SBA. The stimulus bill provides that these advances are tax-free. Moreover, PPP loan forgiveness is not reduced by the number of such advances.

The stimulus bill extends this loan payment subsidy to up to 14 monthly payments for various types of businesses that have been seriously impacted by the pandemic including, restaurants, food service, entertainment, education, recreation, accommodation arts, and personal care services. These payments are also tax-free for the borrower.

Rules and Regulations:

  • SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses. First PPP loans have an interest rate of 1%.
  • Second loans issued before June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.
  • Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower’s loan forgiveness amount to the lender.
  • If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness either 8 weeks or 24 weeks.
  • No collaterals nor lenders will charge fees for small businesses.

Finally, this bill will also help you with your small business with an EIDL Cash advance. You may request more money from your first PPP loan if you are one of the many small businesses that returned their PPP loan, or that applied for less than what you were entitled to receive in PPP funds the first time. You are now eligible to go back and request more funding.

3. Tax Provisions

Workers whose payroll taxes have been deferred since September would be given until Dec. 31, 2021, to pay back the government, instead of through April 30, 2021, as originally directed by the Treasury Department. The measure would extend credits for paid sick and family leaves provided under the second coronavirus relief package through March 31, 2021.

The bill also helps more students take advantage of the Lifetime Learning Credit by increasing the income threshold at which the credit phases out. It provides more time for employees and employers to pay back deferred employee payroll tax amounts from the President’s August 2020 memorandum. The bill includes incentives for hiring and retaining workers. It extends and significantly improves the Employee Retention Tax Credit, offering a 70 percent credit on up to $10,000 of wages per employee per quarter to help keep employees on payroll and connected with their jobs. The bill also extends the Work Opportunity Tax Credit for five years, helping employers continue to hire disadvantaged individuals.

The bill also includes changes to some provisions for taxable years beginning in 2021and taxpayers who do not itemize deductions may take a deduction for cash donations of up to $300 made to qualifying organizations. In terms of medical expense deduction, the income threshold for unreimbursed medical expense deductions is permanently reduced from 10% to 7.5% so that more expenses may be deducted. Businesses may deduct 100% of business-related restaurant meals during 2021 and 2022.

The bill provides for a five-year extension of the following tax provisions that are scheduled to sunset on December 31, 2020:

  • New Markets Tax Credit
  • Work Opportunity Tax Credit
  • Health Coverage Tax Credit
  • Carbon Oxide Sequestration Credit
  • Employer credit for paid family and medical leave
  • Empowerment zone tax incentives
  • Exclusion from gross income of discharge of qualified principal residence indebtedness
  • The seven-year recovery period for motorsports entertainment complexes
  • Expensing rules for certain productions
  • Oil spill liability trust fund rate
  • Incentive for certain employer payments of student loans

The bill also has permanent changes for tax provisions in addition to the medical deductions:

  • The deduction of the costs of energy-efficient commercial building property
  • The gross income deduction provided to volunteer firefighters and emergency medical responders for state and local tax benefits and certain qualified payments
  • The transition from a deduction for qualified tuition and related expenses to an increased income limitation on the lifetime learning credit
  • The railroad track maintenance credit
  • Certain provisions, refunds, and reduced rates related to beer, wine, and distilled spirits, as well as minimum processing requirements for certain craft beverages produced outside the U.S.

4. Unemployment Benefits

Through this most recent relief package, the legislature has extended the unemployment protections by increasing the coverage. It means that the assistance program for ‎individuals unable to work due to the COVID-19 public health emergency during the timeframe ‎beginning on December 26, 2020, and ending on March 14, 2021. The bill also increases the number of unemployment benefits to an additional $300 per week for payments states make to individuals eligible for ‎unemployment benefits under applicable state law. The package includes funding for employees with reduced hours through short-time compensation programs.

The new bill will also extend two newly created federal jobless benefit programs that were set to expire at the end of this year. Pandemic Unemployment Assistance (PUA) and Pandemic Emergency Unemployment Compensation (PEUC) offered jobless benefits to gig workers and others who were not eligible under state criteria along with those who had exhausted their eligibility for collecting benefits.

One of the unique features of the bill as mentioned above is funds for enhanced unemployment insurance (UI). Those accessing jobless benefits through the Pandemic Unemployment Assistance (PUA) program and the long-term unemployed accessing Pandemic Emergency Unemployment Compensation benefits now qualify for 11 additional weeks of payments through March 14, 2021, for a total of 50 weeks.

The bill provides an extra $100 per week for workers who “have both wage and self-employment income but whose base UI benefit calculation doesn’t take their self-employment into account,” according to a summary of the UI provisions.

5. Housing Provisions

The main feature of this benefit is that it provides struggling renters and landlords with dedicated rental assistance. Qualified renters will receive the assistance to pay for rent, utility payments, any unpaid rent, and/or unpaid utility bills. A household may receive up to 12 months of assistance, however, an additional three months may be added if it is necessary to ensure the family remains housed.

The new bill provides two housing assistance provisions: An extension of the CDC eviction moratorium through Jan. 31, and $25 billion in emergency assistance funds for renters that can be used to pay past-due rent, future rent, and utility bills.

Qualifications of a renter:

  • Household income less than 80% of their area’s median income
  • One or more household members can demonstrate that they’re at risk of experiencing homelessness, housing instability, an eviction notice, or living in unsafe or unhealthy living conditions
  • One or more household members qualify for unemployment benefits or are experiencing financial hardship due to Covid-19

In other cases, renters will have to provide a written promise swearing they meet the stated requirements.

6. Postal Services

The USPS will receive $10 billion in direct funding, without repayment. These funds will be used for operational costs and other expenses resulting from the COVID-19 pandemic. This funding was repurposed from the CARES Act.

The Government Accountability Office (GAO), a nonpartisan government watchdog agency, released a report in May that the USPS lost about $78 billion between 2007 through 2019 due to declining mail volumes and increased costs, such as employee compensation and benefits, enacted by the 2006 Postal Accountability and Enhancement Act (PAEA). In addition to that, the coronavirus pandemic has put additional strain on an already struggling Postal Service. First-class mail, the agency’s most profitable class of mail, has seen a 44% volume decline since 2006. Its already-distressed volume could decrease by another 50% over the next few months due to the pandemic, according to the Wall Street Journal.

That is why USPS will receive $10 billion. According to a recent agreement, the Postal Service can borrow the money if it determines that it will not be able to fund operating expenses due to the coronavirus pandemic. In April, the USPS told Congress it would run out of money by September and requested $75 billion in emergency funding.

The Democratic proposal for a second stimulus relief package—called the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act—would include a $25 billion grant to the Postal Service. Republicans, who favor a significantly less costly stimulus package, have pushed back on the provision, claiming the loan granted by the CARES Act should be enough to keep the service running throughout the pandemic.

7. Disaster Relief

Increases the low-income housing tax credit allocations in states that experienced disasters in 2020–the increase is equal to $3.50 multiplied by the number of residents in qualified disaster zones and is capped at 65% of the state’s 2020 credit allocation it also provides a 40% tax credit of wages up to $6,000 per employee to employers in disaster zones areas where individual and public assistance is mandated.

The act added $20 billion for certain grants pursuant to the SBA’s Economic Disaster Injury Loan (EIDL) program. Eligible businesses, independent contractors, gig workers, and self-employed individuals are eligible for up to $10,000 in grants not required to be repaid if:

  • Located in a low-income community
  • Suffered an economic loss of greater than 30% during an 8-week period between March 2, 2020, and December 17, 2021, relative to a comparable 8-week period immediately preceding March 2, 2020, or during 2019
  • Employ not more than 300 people
  • They are a qualifying business, such as a small business, private non-profit, sole proprietorship, or independent contractor
  • In operation by January 31, 2020

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If you have any questions or concerns regarding resources and financial assistance due to the COVID-19 outbreak, feel free to contact us or reach out to your relationship banker.