Tax Preparer Info: Recent Changes to the Payment Protection Program

Tax preparer helps small business owner client

The most recent application period for the Paycheck Protection Program closed on May 31, 2021, and odds are, you have at least a few clients who received a PPP loan. Here’s what you should know to understand the PPP and its latest updates:

What is the PPP and who qualifies?

The Paycheck Protection Program (PPP) is one of several pandemic-related economic relief opportunities available to small businesses. It was designed to help businesses continue to pay their employees throughout the pandemic. When businesses use the money as directed 

The PPP loan is available to sole proprietors, independent contractors, small businesses (typically 500 or fewer employees or businesses that meet the SBA’s size standards), and non-profit organizations. (If a sole proprietor or independent contractor isn’t sure if they qualify for a PPP loan, filing with a Schedule C or Form 1040 is a good indicator that they do).

What are the new changes to the PPP?

The Biden-Harris administration introduced several major changes to the PPP in February 2021, including:

  • A two week period in which lenders were required to prioritize PPP applications from businesses with fewer than 20 employees
  • Allowing businesses to use their gross income rather than net income to calculate their PPP loan amount
  • Removes restrictions that made small business owners ineligible for the PPP, including those with delinquent federal student loans, those with non-fraud felony convictions, and non-citizens who are lawful U.S. residents

The second application period for the PPP was originally set to end on March 31, 2021. The Extension Act extended the deadline by 60 days to May 31 and gave the SBA an additional 30 days (up to June 30) to process loan applications.

Is the PPP out of funding?

Yes, the latest PPP news updates from the SBA announced that funds had run out and the PPP was closed to most new applicants. However, business owners who applied before applications closed and have not received a decision yet may still get approved. The SBA specified that $6 billion in remaining funds had been set aside for remaining unprocessed applications. 

Right now, there are no known plans to offer additional funding for the PPP or open another application period.

How does the FFCRA tax credit work with the PPP?

The Family First Coronavirus Response Act (FFCRA) required some employers to provide paid emergency sick leave or family leave to employees who were ill with COVID-19 or caring for family members with COVID-19. The act also allows employers to claim the costs of qualifying leave as tax credits. Self-employed individuals can also claim the tax credit if they had to take a qualifying leave due to COVID-19.

Employers and self-employed individuals can claim both the FFCRA tax credits and the PPP loan. However, the IRS stipulates that when calculating the amount of PPP loan an employer qualifies for, they must deduct any amount of FFCRA tax credits they have received or expect to receive. When they apply for forgiveness of their PPP loan, any amount of qualifying sick leave that they received a tax credit for cannot be counted as eligible payroll costs for their PPP loan forgiveness. 

How does the Employee Retention Tax Credit work with the PPP?

Employers can qualify for both the PPP and the Employee Retention Tax Credit. However, they can’t claim the credit for payroll costs that were paid using a PPP loan. 

This article was last edited on August 18, 2021.

Scroll to Top