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Extension of PPP, Discontinued EIDL Advances Offer Limited Tax Planning Opportunities

Updated: Sep 7, 2023

On July 4, 2020, legislation introduced in the Senate on June 30, 2020, initially the last date for submitting an application under the Paycheck Protection Program (PPP), was signed into law. The bill, S. 4116, titled, "A bill to extend the authority for commitments for the paycheck protection program and separate amounts authorized for other loans under section 7(a) of the Small Business Act, and for other purposes" extended the covered period for the federal relief program authorized under section 1102 of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Pub. L. No. 116-136 (2020) to August 8, 2020. Subject to the extended deadline, employers, including nonprofit organizations, with workforce not exceeding 500 employees have additional planning opportunities for financing payroll and other operating expenses with loans backed by the Small Business Administration (SBA) subject to forgiveness, SBA grants, and refundable employment tax credits.

As of July 11, 2020, SBA grants up to $10,000 in the aggregate per applicant under section 1110 of the CARES Act (emergency EIDL grants or EIDL Advances) were discontinued due to depletion of $20 billion in funding allocated for the program. See SBA Rel. No. 20-56 (July 11, 2020). An eligible recipient of a PPP loan, which is subject to forgiveness under CARES Act section 1106, may not receive an emergency EIDL grant. However, eligible recipients of PPP funds would be able to structure business operations to maximize the economic and tax benefits of PPP loan proceeds or payroll credits under sections 7001 or 7003 of the Families First Coronavirus Response Act, Pub. L. No. 116-127 (2020) (FFCRA) as financial assistance.

For example, a business entity may have suspended operations, utilized an employee retention credit under CARES Act section 2301 to subsidize certain payroll liabilities during the first two calendar quarters in 2020 and applied for an emergency EIDL grant. Employers that have reopened may be required to provide paid sick leave or family leave under FFCRA to employees due to Covid-19 medical or family circumstances. Such employers may claim certain refundable FICA tax credits for qualified sick leave or family leave wages and certain other payroll expenses under FFCRA. However, receipt of a PPP loan would preclude an employer from claiming any employee retention credit under CARES Act section 2301.

In addition, any amount of an emergency EIDL grant is deducted from a PPP loan forgiveness amount applied to payroll costs. Furthermore, a covered employer may not apply PPP loan proceeds to fund qualified sick leave or family leave wages, for which a credit is allowed under FFCRA. Employers impacted by Covid-19 may require economic relief for financing business operations in the current environment. Businesses, which have claimed an employee retention credit or received an emergency EIDL grant may engage tax counsel to determine, among other tax considerations, whether to apply for PPP funds by the extended August 8, 2020 deadline or claim FFCRA refundable tax credits to offset certain payroll liabilities.


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