The Coronavirus Response and Relief Supplemental Appropriations Act of 2021 (the “2021 COVID Relief Act”) was signed into law on December 27, 2020. The 2021 COVID Relief Act is a $900 billion part of the $1.4 trillion omnibus spending and appropriations bill that is viewed as the sequel to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), the largest stimulus bill in the country’s history. The National Council of Nonprofits offers a helpful summary sheet of the Nonprofit Provisions in the 2021 COVID Relief Act here.
According to findings from a University of Southern California (USC) study published on December 10, 2020:
- job losses could range from 14.7% to 23.8%, and in the worst case affect an estimated 36.5 million workers;
- the number of COVID-related deaths in the U.S. could range from more than 300,000 to 1.75 million; and
- the net U.S. GDP losses from COVID-19 are estimated to range from $3.2 trillion (14.8%) to $4.8 trillion (23.0%) in a 2-year period.
Payroll Protection Program
Round one of Paycheck Protection Program (PPP) funding pursuant to the CARES Act consisting of about $350 billion, ran out in just 2 weeks. Round two, however, closed out with $137.5 billion that was never applied for and that was not available for second loans from previous PPP borrowers. The 2021 COVID Relief Act rescinds this offering. According to The Chronicle of Philanthropy, 180,000 nonprofits received PPP loans.
The 2021 COVID Relief Act provides for:
- $284.5 billion to the SBA for PPP loans, including $35 billion for first-time borrowers;
- $20 billion for Economic Injury Disaster Loan (EIDL) grants (to qualify, a nonprofit must, among other things, be located in a low-income community, have suffered an economic loss greater than 30%, and employ not more than 300 employees);
- $15 billion in dedicated funding for live venues, theaters, museums, and zoos (but a recipient can only accept funding from this pool of funds if they do not accept a PPP Second Draw Loan).
PPP First Draw Loans
The qualifying criteria for first-time borrowers is generally the same as the criteria that existed prior to the 2021 COVID Relief Act (including employment of 500 or fewer employees) except that 501(c)(6) organizations may now qualify. The PPP eligibility requirements for 501(c)(6) organizations include:
- The organization must not employ more than 300 employees;
- The organization does not receive more than 15 percent of receipts from lobbying (up from 10%);
- The lobbying activities do not comprise more than 15 percent of total activities (up from 10 percent); and
- The cost of lobbying activities of the organization did not exceed $1,000,000 during the most recent tax year that ended prior to February 15, 2020.
The maximum amount of a PPP First Draw loan remains generally the lesser of $10 million or the amount calculated using the statutory payroll-based formula.
PPP Second Draw Loans
PPP Second Draw loans are more restrictive than PPP First Draw loans and only available to employers that:
- employ 300 or fewer employees, and
- demonstrate at least a 25% reduction in gross revenues between the same quarters in 2020 and 2019.
To receive full loan forgiveness, borrowers must spend at least 60 percent of their PPP second draw loan on payroll costs over a covered time period of their choosing between 8 weeks and 24 weeks starting from the loan origination date. Up to 40 percent of their PPP second draw loan can be spent on certain non-payroll costs, including rent, covered mortgage interest, and utilities.
In addition, the 2021 COVID Relief Act adds four additional categories of expenses that are now eligible for forgiveness under PPP loans:
- Covered operations expenditures (including software and cloud computing services for business operations, product or service delivery, payroll, HR, accounting, etc.);
- Covered property damage costs (resulting from public disturbances that occurred in 2020 and that were not covered by insurance);
- Covered supplier costs (for the purchase of goods essential to operations generally made pursuant to a contract in effect prior to the covered period); and
- Covered worker protection expenditures (including for personal protective equipment and operating and capital expenditures related to meeting worker or customer safety requirements related to COVID-19).
While generally not applicable to tax-exempt recipients, PPP loans, even if forgiven, are not included as taxable income. The 2021 COVID Relief Act further provides that otherwise deductible expenses paid for with PPP loans will be considered tax deductible, which reverses earlier IRS guidance.
The maximum amount of a PPP Second Draw loan is 2.5 times the average monthly payroll costs up to $2 million.
The 2021 COVID Relief Act also simplifies the forgiveness application process for smaller loans up to $150,000 by allowing them to attest on a one-page form that they are in compliance with the requisite terms. The Act requires that the following items be included in the form: (1) the number of employees able to be retained, (2) the estimated amount spent on payroll costs, (3) the total loan value, and (4) an attestation of compliance with the requirements of the PPP loan program.
Charitable Contribution Deduction
The CARES Act provision allowing non-itemizing taxpayers to deduct up to $300 ($600 for married couple filing jointly) for giving to qualified charitable 501(c)(3) organizations has been extended through 2021.
The 2021 COVID Relief Act also extends for one year the increased limits on deductible charitable contributions for individuals who itemize and for corporations. For individuals, the cap will remain at 100 percent of adjusted gross income (instead of reverting back to 60 percent). For corporations, the annual limit will stay at 25 percent of taxable income in 2021 (instead of reverting back to 10 percent). The cap on deductibility of food donations from corporations will stay at 25 percent of taxable income (instead of reverting back to 15 percent).
New PPP guidance issued by SBA, Treasury (Journal of Accountancy)
PPP application forms released (Journal of Accountancy)
PPP Reopens Jan 11 (SBA)