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.

The relief similarly states that such business expenses as rent and utilities that were paid for using PPP loan money will be deductible if the loan is forgiven. “Definitely a Christmas present for borrowers,” said Steven R. Rossman, a CPA and shareholder at Drucker & Scaccetti in Philadelphia. “Businesses can now deduct the expenses paid by with PPP funds and lower their 2020 taxable income."

The new stimulus also clarifies that these expenses are deductible in the year incurred and that the provision is essentially retroactive to the effective date of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, added Bill Smith, Bethesda, Md.-based managing director for CBIZ MHM’s national tax office.

Economic Injury Disaster Loans (EIDL) to small businesses under CARES will be similarly excluded from income. “Businesses should start gathering information, based on the last application, that may be needed to apply for the next round of PPP funding,” Caruso added. Advisors should also see if clients want a revenue comparison to check on their eligibility for the second round of loans.

Relief is not a done deal for all clients’ businesses. States may not necessarily follow federal guidelines regarding deductibility, for instance. “New York decoupled from the CARES Act, so when the forgiveness occurs, the expenses will be non-deductible for state purposes,” Rosen said.

“The biggest misconception is that all of the ambiguities have been addressed,” Caruso said. “The guidance has been fluid from the start and notices releases as recent as this November are being changed with the passing of this new bill. The only constant is change.”