The Quick Guide on Stimulus 2.0 and the PPP

Shiloh Johnson
By Shiloh Johnson

At the end of 2020, a $900 billion stimulus package was signed into law offering aid to millions of Americans as well as small business owners. The stimulus package includes more direct payments, expanded unemployment benefits, and yes, another round of the Paycheck Protection Program (PPP). Here is a brief guide on what you need to know about stimulus 2.0 and taxes. 

More $600 checks

The stimulus package is renewing the direct payments to individuals, offering $600 per person earning less than $75,000. If you earned between $75,000 and $99,000 your payment will decrease and the benefit is phased out for people earning more than $99,000. It’s important to note that your stimulus payment is not taxable.  

Extended unemployment 

Millions of Americans still dealing with unemployment can find some reprieve in the fact that unemployment benefits were extended. Benefits will continue up to $300 per week. Also, Pandemic Unemployment Assistance has been renewed which is geared toward gig workers who may not qualify for insurance benefits from their state. NOTE: You do have to pay taxes on your unemployment income. 

Paycheck Protection Program (PPP) is back 

The stimulus package allotted $284 billion for the PPP program. If you haven’t applied for the PPP yet, you can do so now. Self-employed folks such as solopreneurs, freelancers, and contractors qualify. If you’ve already received a PPP loan, you may be able to get your loans forgiven and may qualify for a second round. 

To get your loans forgiven, 60 percent of the loan must go toward payroll expenses and the rest on qualifying expenses. There is still no formalized process for loan forgiveness so keep an eye out for communication from the bank that is handling your loan for direction on applying for forgiveness once it is made available.

If you apply for another round of PPP, some guidelines have changed. For example, the employee cap went from 500 to 300and you must show that you’ve had a loss of 25% of your gross revenue. Also the amount limit for the 2nd PPP round is now $2 million compared to $10 million for the 1st round.

You can show a reduction in revenue by comparing your 2019 and 2020 tax returns. You can also compare quarters as well. So if your Q4 revenue in 2020 has a 25% reduction or more from Q4 in 2019, you may qualify. 

Expanded eligible expenses 

This new stimulus package has expanded what can be considered a qualifying expense under the PPP program. 

Under prior legislation, the package covered things like rent, utilities, and payroll. Now expenses like operation costs, property damage costs (for example, any damage done during the protests in 2020 that wasn’t covered by insurance), supplier costs, as well as any worker protection costs (such as equipment or items to stay COVID safe) qualify. 

PPP and taxes 

Here’s some good news for business owners. If you get your PPP loan forgiven, that amount won’t be considered part of your gross income that you need to report. On top of that, any qualified expenses paid for with PPP money that is forgiven will actually be tax-deductible. There’s also a new tax break for corporate meal expenses, in an effort to aid the restaurant industry which has been hit hard by the pandemic.   

Bottom line 

All in all the latest stimulus package is a much-needed boost for the floundering economy and provides assistance to small business owners. If you apply or have applied for the PPP, stay on top of forgiveness applications and keep good records for tax time. 

Shiloh Johnson
By Shiloh Johnson
Shiloh Johnson is a long-time CPA and founder of ComplYant, a technology platform offering business owners and entrepreneurs a simple way to manage tax rules and requirements.

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