The Consolidated Appropriations Act, 2021, signed by President Trump just before the new year, has among its aims attempts to correct problems with Paycheck Protection Program (PPP) loans. It has refinements and clarifications that clients with these loans need to know.

Among the conditions for loans, said Gail Rosen, a CPA in Martinsville, N.J., are that business gross receipts must have declined at least 25% in any quarter in 2020 compared with the corresponding quarter in 2019, and businesses must have 300 or fewer workers.

The maximum loan amount is $2 million dollars, calculated by taking 2.5 times a business’s average monthly payroll for the last 12 months. Hotels and restaurants are eligible for 3.5 times the monthly average payroll.

Some big general misconceptions about PPP loans are calculating the full-time equivalent employee headcount, how the available exemptions work and how it all affects loan forgiveness, noted Jake McDonald, director at CBIZ MHM in Plymouth Meeting, Pa.

That wasn’t the only question about previous loans. The new relief looks to clarify rules on eligibility, forgiveness and tax responsibilities of borrowers, among other points.

First, additional PPP funding will be available for certain smaller qualified businesses, including some business owners who received PPP funds in round one, said Robbin E. Caruso, a CPA, partner and co-leader of the National Tax Controversy Department at Cranbury, N.J.-based Prager Metis.

The big difference between the first round of loans and the second is the criteria involved. “Almost everyone qualified before,” said Rob Seltzer, a CPA at Seltzer Business Management in Los Angeles.

One major confusion about previous PPP rules was the deductibility of forgiven loans. For example, if a borrower of a $100,000 PPP loan spent the entire amount on payroll expenses, it would have been completely forgiven; the $100,000 forgiven loan would not have been taxable income. But the deduction for payroll expenses had to be reduced by $100,000.

“Most recipients haven’t received forgiveness of the [previous] PPP loans yet, so they were confused as to when they should recognize the income and had some questions as to how much of the loan would be forgiven,” Seltzer said.

Originally, Small Business Administration Form 3508S, the simplest loan-forgiveness form, was limited to loans of less than $50,000. Under the new act, the limit has been increased to $150,000.

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