COVID-19 Relief Bill Expands the Paycheck Protection Program

By Ashleen Sahni, Pooja Srivastava and Sukhpaul Hundal

The United States House of Representatives passed a $900 billion COVID-19 relief bill on Monday, December 21, 2020. The bill contains business-friendly provisions that expand Paycheck Protection Program (PPP) loan forgiveness rules, eligibility, and tax deduction opportunities. The bill is effective as of Sunday, December 27.

The relief bill provides $325 billion in aid for small businesses, and more than $284 billion to expand PPP lending and forgiveness. The bill also allocates $20 billion in grant funding to businesses in low-income communities through the Economic Injury Disaster Loans (EIDL).

New Eligibility Rules for PPP2 Loans

The new round of PPP loans, also known as PPP2, is available to first-time borrowers and businesses that have already taken out a PPP loan. Expanded loan terms include:

  • Loan amount: PPP2 loan amounts are calculated based on 2.5 times the average monthly payroll costs for a business in the calendar or prior year. Restaurant and hospitality businesses are eligible for PPP loans worth up to 3.5 times their average monthly payroll costs. The maximum loan amount is $2 million, a reduction from the $10 million maximum available per loan in the first round of funding.
  • Eligible borrowers: PPP2 expands loan eligibility to first-time borrowers that have 500 or fewer employees. The bill also welcomes first-time PPP2 borrowers in new industries, including nonprofit organizations, eligible self-employed individuals, sole proprietors, independent contractors, and accommodation and food services businesses with fewer than 300 employees per physical location.

Previous PPP loan recipients can qualify for PPP2 loans of up to $2 million if they meet all the following conditions:

  • Have 300 or fewer employees.
  • Have used or will use the entire amount of their first PPP loan.
  • Experienced a 25% decline in gross revenue in any quarter of 2020 in comparison to the same quarter in 2019.
  • Loan terms: Just like the first PPP loans, PPP2 loans will have a 1% fixed interest rate with a five-year loan repayment term.
  • Eligible expenses: Borrowers must spend at least 60% of their PPP2 loan proceeds on payroll expenses during an eight week or 24-week covered period. The bill expands eligible expenses to include:
    • Personal protective equipment expenses.
    • Certain operating costs like cloud computing services and accounting.
    • Supplier costs that are essential to current operations.
  • Tax deduction for expenses paid using PPP loans: Under the bill, business expenses paid using forgiven PPP loan funds are tax-deductible. This provides ample relief for businesses and supersedes earlier Internal Revenue Service (IRS) guidance that these expenses are not tax-deductible.

Application of the new federal COVID-19 relief bill may differ depending on the state. In California, for instance, taxpayers cannot claim any deductions or credits for expenses that are paid using forgiven PPP loan funds because an existing state law prohibits this (AB 1577, Ch. 20-39).


For help understanding how the COVID-19 relief bill impacts your business, getting your PPP loan forgiven, or obtaining other financial relief available to your business, please contact your trusted Chugh CPAs, LLP professional.

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