COVID-19 Resources & Information

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PPP Round 2 and Other Changes

At least there is some good news to kick off 2021--  Expenses paid with PPP funds are now deductible and there is a Second Draw of PPP loans. 

The Consolidated Appropriations Act, 2021 (CAA 2021), H.R. 133, Division N, Section 276, provides that deductions are allowed for otherwise deductible expenses paid with the proceeds of a Paycheck Protection Program (PPP) loan that is forgiven and that the tax basis and other attributes of the borrower’s assets will not be reduced as a result of the loan forgiveness. Also, If you received an EIDL advance (an amount of $10k or less which suddenly appeared in your bank account last spring), your PPP loan forgiveness will no longer be penalized by that amount. You can amend your forgiveness application if previously penalized for the EIDL advance. 

Secondly, the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSA) was enacted on December 27, 2020, as a follow-up to the CARES act and includes significant provisions relating the Paycheck Protection Program (PPP), including an allocation of $284 Billion for a new round of PPP loans.

This article will highlight the most important aspects of the Second Draw of PPP Loans.  On Wednesday,  January 13th, at 11am EST, we are hosting a webinar to cover this topic in more detail. To register, please click here 

Who is eligible for a Second Draw PPP Loan?


To be eligible for a second draw PPP loan, a business concern:

  • Must  have received a First Draw PPP Loan, and must demonstrate that is has used, or will use, the full amount of the First Draw PPP Loan on eligible expenses on or before the expected date on which the Second Draw PPP Loan is disbursed
  • Must employ not more than 300 employees (as opposed to 500 employees in the first round of PPP). Unless subject to an exemption, e.g., hospitality (NAICS code 72), the SBA affiliation rules apply in determining the number of employees;
    •  A single business entity that is assigned a NAICS code beginning with 72 is eligible to receive a Second Draw PPP Loan if it employs no more than 300 employees per physical location
  • Must demonstrate at least a 25% reduction in revenue relative to 2019. A borrower must calculate this revenue reduction by comparing the borrower’s quarterly gross receipts for one quarter in 2020 with the borrower’s gross receipts for the corresponding quarter of 2019. 
    • a borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25 percent or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline. A borrower that was not in operation during all four quarters of 2019 may still meet the revenue reduction requirements (to be detailed during webinar)
    • Gross receipts includes all revenue in whatever form received or accrued (in accordance with the entity’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances.
    • Generally, receipts are considered “total income” (or in the case of a sole proprietorship, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms.

Gross receipts do not include the following:

  • A forgiven PPP loan
  • taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees) 
  • proceeds from transactions between a concern and its domestic or foreign affiliates;
  • amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker.
  • All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts.

When comparing against the same quarter in 2019, your organization must have experienced at least one 25% reduction of gross receipts. Gross receipts is a term used for cash-based businesses, but most companies will be able to use their normal GAAP revenue to meet this qualification. If your business started in 2019, you’ll have to limit your analysis to just the quarters you existed; or, if you were formed in 2020, you’ll have to compare Q2, Q3, and Q4 against 2020 Q1. 

A borrower that was in operation in all four quarters of 2019 is deemed to have experienced the required revenue reduction if it experienced a reduction in annual receipts of 25 percent or greater in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline.

How much is the PPP second round draw?



Similar to round 1, the maximum second draw of PPP Loan is lesser of 2 and half months of borrowers average monthly payroll costs or $2M (for borrowers with an NAICS code of 72, its 3 and half months of average monthly payroll costs). Business that are part of a single corporate group cannot receive more than $4,000,000 of Second Draw PPP Loans in the aggregate. 

 The relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan is either the twelve-month period prior to when the loan is made (calendar year 2020) or calendar year 2019. Businesses should select the period with the highest average payroll expenses and multiply it by 2.5. This will be the loan amount for most businesses.  Accommodation and Food Service businesses who use NAICS code 72 may use a multiplier of 3.5 instead, giving them larger loans.

Like the first round of the PPP, second round draws will be based on historic payroll expenses. Historic payroll expenses are the same as the first round and, as a reminder, include:

  • Regular wages
  • Commissions
  • Bonuses
  • Tips
  • Holiday, vacation, and sick pay
  • Qualified benefits ( retirement and employee group health, life, disability, vision and dental
    insurance contributions)

What documentation is required to apply?


Payroll cost calculations is generally the same as documentation required for First Draw PPP Loans

However, no additional documentation to substantiate payroll costs will be required if the applicant (i) used calendar year 2019 figures to determine its First Draw PPP Loan amount, (ii) used calendar year 2019 figures to determine its Second Draw PPP Loan amount, and (iii) the lender for the applicant’s Second Draw PPP Loan is the same as the lender that made the applicant’s First Draw PPP Loan.

For loans with a principal amount greater than $150,000, the applicant must also submit documentation adequate to establish that the applicant experienced a revenue reduction of 25% or greater in 2020 relative to 2019. For loans with a principal amount of $150,000 or less, such documentation is not required at the time the borrower submits its application for a loan, but must be submitted on or before the date the borrower applies for loan forgiveness, as required under the Economic Aid Act

Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements.

Who is Ineligible?

The following potential borrowers are ineligible for PPP loans (the specific requirements in italics were added by the Economic Aid Act):

  • Engaged in any activity that is illegal under federal, state, or local law
  • Household employer (individuals who employ household employees such as nannies or housekeepers)
  • 20 percent or more owner of employer is incarcerated, on parole, subject to criminal indictment or convicted of a felony within the last five years (one-year for non-financial felonies)
  • Any business owned or controlled by them has ever obtained a direct or guaranteed loan from SBA or any other federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government
  • Not in operation on February 15, 2020
  • Received or will receive a grant under the new Shuttered Venue Operator Grant Program
  • A direct or indirect controlling interest in the business is held by the President, Vice President, head of an Executive Department, Member of Congress or the spouse of any of these
  • Publically held company
  • Business has permanently closed

Eligible costs

PPP borrowers can have their first- and second-draw loans forgiven if the funds are used on eligible costs. As with the first round of the PPP, the costs eligible for loan forgiveness in the revised PPP include payroll, rent, covered mortgage interest, and utilities. In addition, the following costs are now eligible:

  • Covered worker protection and facility modification expenditures, including personal protective equipment, to comply with COVID-19 federal health and safety guidelines.
  • Covered property damage costs related to property damage and vandalism or looting due to public disturbances in 2020 that were not covered by insurance or other compensation.
  • Expenditures to suppliers that are essential at the time of purchase to the recipient’s current operations.
  • Covered operating expenditures, which refer to payments for any business software or cloud computing service that facilitates business operations; product or service delivery; the processing, payment, or tracking of payroll expenses; human resources; sales and billing functions; or accounting or tracking of supplies, inventory, records, and expenses.

To be eligible for full loan forgiveness, PPP borrowers will have to spend no less than 60% of the funds on payroll over a covered period between eight or 24 weeks.


This concludes our summary. Please join us during our webinar, Wednesday, January 13th at 11am EST for more detail on this topic. Click here to register for webinar.