PPP Loan Round 3 and Tax Treatment

According to data compiled by the Federal Reserve, about 82% of small employers applied for a PPP loan during the pandemic. Among those, about 77% got all the money they requested, which came at a cost of more than $770 billion.

PPP loan round 3 programs, which were authorized in December of 2020, expired on May 31, 2021. For hundreds of businesses, that means the bill has come due despite the ongoing pandemic situation.

If you received emergency relief through the PPP program, then there are a few important things you need to know. Not only do you need to understand how to pay back the loan, but you also need to know the tax implications of accepting that money or having your loan forgiven, too. Learn everything you need to know below.

What is the Paycheck Protection Program?

First, we need to answer the questions – what is a PPP loan, and what’s the Paycheck Protection Program? At the height of the coronavirus pandemic, politicians were worried that a lack of business would disrupt employment, which will further derail the economy during the crisis. To prevent a domino-like effect, the government created the Paycheck Protection Program when Congress passed the CARES Act.

This program was designed to help small businesses continue to pay employees despite the stay-at-home, work-from-home, and virtual schooling situations. The program accomplished this by proving PPP loans that were meant to get used for:

• Employee wages (up to 8 weeks)
• Employee benefits (up to 8 weeks)
• Business mortgages
• Business rent
• Business utilities

These loans were provided by private lenders, but they’re backed by the Small Business Administration. Borrowers who used PPP funds appropriately but can’t pay back the loan now can apply for loan forgiveness.

What is PPP Round 3?

The PPP loan program was very successful from the beginning. That’s why it was ultimately renewed through a secondary act, the PPP and Health Care Enhancement Act. This Act was signed into law in April of 2020 just one month after the CARES Act passed. Then in December, additional funding was provided for the PPP, which funded the third round of PPP loans.

PPP Round 1 Eligibility

To qualify for the first round of PPP loans, businesses must have been:

• Sole proprietors, independent contractors, or self-employed
• Any business that has more than 500 employees
• Any business with more than one physical location and employees less than 500 per location

During the first round of loans, all loans had the same terms regardless of who the lender or borrower was.

PPP Second Round Eligibility

The second round of PPP loans narrowed the amount of businesses eligible for relief. Eligibility requirements include:

• Businesses who got the first PPP loan and used the full amount within the scope of the law
• Businesses with less than 300 employees
• Businesses with at least a 25% reduction in gross receipts between 2019 and 2020

Like the first round of loans, all second PPP loans had the same terms regardless of who the lender and borrower were.

PPP Round 3 Eligibility

To be eligible for the final PPP loan round, businesses must have used all previous PPP funds appropriately and prove they were adversely impacted by the pandemic.

Is PPP Available for Small Businesses in 2022?

Now that it’s mid-2022, the pandemic situation continues to cause problems in the workforce. Despite that, most pandemic relief programs are ending. PPP loans are one of those things. The PPP loan program expired in mid-2021, so you’re no longer able to apply for this type of relief in 2022.

PPP Round 3 and Tax Treatment

If your loan was forgiven, then you may wonder if you need to include the amount in your taxable income. You do not need to include your forgiveness amounts in your taxable income figure for your federal taxes, but some states may require you to do so. More states are complying with the federal government’s tax treatment of PPP forgiveness funds, but you’ll need to research your local laws for clarity.

PPP Loan Round 3: Taxes, Debt, and More

Did your business accept PPP loan round 3 funds? Are you extremely worried that you’re not going to be able to cover the costs of that loan due to an ongoing business debt situation? If your business used all your PPP funds, then you can apply for forgiveness within 10 months after the last day of the covered period. If that time has passed or if your lender isn’t participating in direct forgiveness through the SBA, then you may have to look into other options.

Get small business debt relief by reaching out to our debt experts now. Together, we’ll go over your debt situation, options, and the best course of action moving forward.