Congress’ Second COVID-19 Relief Bill Updates the Paycheck Protection Program


By Jason Patterson, William Pokorny, and Tracey Truesdale of Franczek P.C.
Published December 30, 2020

Last week, Congress reached a deal on a second pandemic relief package which includes the enactment of the Economic Aid to Hard-Hit Small Business, Nonprofits, and Venues Act (Act), which has now been signed by President Trump. The Act includes significant changes to the existing Paycheck Protection Program (PPP) and also creates a PPP “Second Draw” loan for borrowers who exhausted their first PPP loan. Generally, the Act expands eligible expenses, modifies tax treatment for expenses, and provides borrowers greater flexibility regarding the covered period in which they can spend loan proceeds. Further, the Act instructs the Small Business Administration (SBA) to issue regulations to carry out the Act and amendments within 10 days of the bill being signed into law. We will closely monitor all developments. Below is a summary of some of the important provisions.

Changes to Existing PPP Rules

The Act provides several changes and amendments to the existing PPP rules. These changes will have an impact on borrowers who have not yet exhausted their initial PPP funds or applied for loan forgiveness. Also, these changes generally apply to new borrowers and those who receive a PPP Second Draw Loan.

Additional Eligible Expenses: The Act expands the list of eligible forgivable expenses. Borrowers can now use PPP funds for the following:

  • Property Damage Costs: This includes costs related to property damage due to looting, vandalism, or public disturbances that occurred in 2020 but which were not otherwise covered by insurance or other compensation.
  • Covered Worker Protection: Borrowers may use PPP funds for operating and capital expenditures related to compliance with governmental safety guidance and mandates including:
  • The purchase, maintenance, or renovation of protective measures such as sneeze guards, drive-through windows, air pressure ventilation filtration systems, additional indoor/outdoor business space, onsite or offsite health screening capability, or other assets to assist with mandated safety compliance.
  • The purchase of surgical N95 filtering facepiece respirators, surgical masks, and other PPE as to be determined in consultation with the Secretary of Health and Human Services and the Secretary of Labor.
  • Supplier Costs: Borrowers may use PPP funds for expenses made to a supplier for goods that are essential to the operation of the entity made pursuant to a contract in effect before the covered period, or if related to perishable goods, in effect at any time during the covered period.

Tax Treatment of PPP related expenses: Despite the Treasury Department’s previous guidance, expenses paid with PPP funds are deductible. As with the first round of PPP loans, funds forgiven are not treated as taxable income. Thus, loan forgiveness carries a double tax benefit.

Flexible Covered Period: Loans are forgivable if paid or incurred during the covered period. Previously, borrowers had to select either an 8-week or 24-week covered period. The Act provides greater flexibility by allowing borrowers to determine their own covered period, so long as it is between 8 and 24 weeks.

Simplified Loan forgiveness application: Borrowers with loans of less than $150,000 will only have to complete a 1-page simplified loan forgiveness application.

PPP Second Draw Loans

The Act provides previous borrowers an opportunity to take out a “second draw” loan. These loans will be available until March 31, 2021 subject to availability. Below is a summary of the Second Draw loan. Again, we await the SBA to issue more guidance.

  • Eligibility: Covered borrowers include borrowers who previously exhausted a PPP loan and: 1) employ no more than 300 employees and 2) experienced a more than 25% reduction in gross receipts during a quarter in 2020, as compared to the same quarter in 2019. Eligible entities generally include businesses, non-profits, housing cooperatives, veterans organizations, tribal business concerns, small agriculture cooperatives, sole-proprietors, self-employed individuals, and independent contractors.
  • Maximum Loan Amounts: A borrower’s maximum loan amount is equal to 2.5 multiplied by either the average payroll costs from 2019, or the average payroll costs for the 12 months prior to the loan. For particularly hard-hit industries such as hotels and restaurants, the average payroll costs will be multiplied by 3.5. Regardless of industry, loans are capped at $2 million.
  • Loan Forgiveness: As with the first round, no more than 40% of the forgivable loan amount can include non-payroll costs. In addition, similar to the first round of PPP loans, loan forgiveness can be reduced based on a reduction in employees or salaries. However, the Act retains the Safe Harbor provisions which allow borrowers to avoid the loan forgiveness reduction if they restore staffing levels and salaries. Much guidance was provided by the SBA during the first round. We will closely monitor the SBA’s guidance on loan forgiveness reduction.

Other Important Changes

Employee Retention Tax Credit: Previously borrowers could not claim the Employee Retention Tax Credit and qualify for a PPP loan. The Act now permits eligible borrowers to claim the credit and accept a PPP loan. In addition, the Employee Retention Tax Credit program has been extended through July 1, 2021, and was significantly expanded. Some of the changes include:

  • The amount of tax credit an employer can claim is increased from 50% on $10,000 per year per employee, to 70% on $10,000 per quarter per employee.
  • Previously employers had to demonstrate a 50% quarterly reduction in gross receipts to qualify for the credit. Now, employers only need a reduction in gross receipts of more than 20% to qualify for the credit.
  • Previously, employers with more than 100 employees could only apply the tax credit to employees who were being paid not to work. This threshold has been raised, and only employers with more than 500 employees will be subject to this limitation.

EIDL Grants: Many borrowers accepted the $10,000 EIDL cash advance. Previously, if you subsequently accepted a PPP loan, your loan forgiveness amount was reduced by the amount you received from the grant. This requirement has been removed.

As with the initial rollout of the PPP, the SBA will issue additional regulations implementing the Act. While we hope for a less bumpy ride, we will closely monitor all developments and stand ready to assist with any questions.

Jason PattersonJason Patterson advises employers on all aspects of employment law including workplace discrimination, health and safety, wage and hour, whistleblowing, employee handbooks, termination, and disciplinary action. Jason also counsels employers in traditional labor matters including collective-bargaining, union organizing campaigns, grievance arbitration, and matters before federal and state labor boards. He can be reached at or 312.786.6102.


William PokornyWilliam Pokorny is a member of the firm's Executive Committee and serves as co-chair of the firm's Higher Education Practice Group. Bill helps employers and educational institutions achieve their goals in legal disputes with their current and former employees, students, and others in state and federal courts and administrative agencies. Bill has a wide range of litigation experience, particularly in the areas of wage and hour litigation, discrimination and civil rights, employee benefits, faculty tenure disputes, and leave, benefits and accommodations claims. He can be reached at or 312.786.6141.


Tracey TruesdaleTracey Truesdale is a partner and co-chair of the Labor & Employment Law Practice Group at Franczek P.C. She has represented management in labor and employment for more than 25 years. She represents both national Fortune 50 corporations and smaller companies, with clients in the professional services, manufacturing, construction and technology industries. She can be reached at 312.786.6106.