What the federal relief bill delivers to restaurants

Don't have time to plow through the 5,600-page opus? Here's the gold you'd find for restaurants.
Photograph: Shutterstock

At a whopping 5,593 pages, the $900 billion relief package approved Monday night by Congress will be dissected for days because of its doorstop heft. Here, gleaned largely from an analysis by the National Restaurant Association, are the elements with the most pertinence to the restaurant industry.

A revised PPP
The bill calls for restarting the Paycheck Protection Program (PPP), a lifesaver for many restaurants at the start of the pandemic. Under the re-up, restaurants that received funding in the first go-round will be able to draw again from the well, but with different conditions set this time around.

The essence of the program remains the loan of money to small businesses such as restaurants. If the borrower follows federal guidelines in spending the money, the advance morphs into a grant, with the debt waived.

The particulars are what have changed. Under the original program, restaurants could borrow up to $10 million. That cap has been lowered in the new version to $2 million. Restaurants can borrow up to 3.5 times their monthly payroll expenses, provided the amount falls below $2 million. All other businesses are limited to borrowing 2.5 times their personnel expenses; the higher limit was set just for restaurants.

Eligibility requirements were also tweaked. To merit a loan, a business has to prove that its revenues dropped year-over-year by at least 25% in any quarter of 2020. It must also employ fewer than 300 people, as compared with the original cap of 500 employees. But restaurants won the concession of applying that threshold per location, a move that will allow multiple units of an all-company-run chain to each seek a loan.

Small businesses will have a freer hand under the second iteration of PPP on how they can spend the money. The new aid bill permits borrowers to spend the funds not just on payroll and rent, but also on reconfiguring their physical plants to accommodate COVID safety protocols, and on personal protective equipment (PPE) and anti-viral sanitation supplies.

Changes in taxation
The industry won a crucial battle by convincing lawmakers to legislate how forgiven PPP funds should be treated tax-wise. In April, to the surprise of many, the Internal Revenue Service warned tax accountants and the business community that expenses paid with forgiven PPP funds would not be deductible from their taxable incomes for 2020. The agency contended that the charges were reimbursed business expenses, and hence not deductible, just as employees of a company cannot deduct their travel charges if those amounts are reimbursed.  

The bill passed Monday by Congress expressly overturns that interpretation. Restaurants will be able to deduct what they spend on payroll, rent, mortgage payments and utilities even if forgiven PPP funds are used. Otherwise, those charges would be taxable at the usual corporate rate of 37%.

The bipartisan bill also reinstates the long-discontinued 100% deduction for business meals, a measure of considerable relevance to restaurants with a robust expense-account clientele.

Breaks for small restaurants
Version 2 of the program also aims to simplify the process for seeking forgiveness of loans of less than $150,000.  Many small businesses had complained under the original PPP that the forms were confusing and difficult to complete. Authors of the new bill say the form will be reduced to a simple two-page document.

Restaurants employing the equivalent of 10 or fewer full-time employees will also find more support available.

Employee retention incentives
Employers of hard-to-employ workers can earn a $7,000 tax break for each eligible employee who’s kept on the payroll for the first two quarters of 2021. The Employee Retention Tax Credits apply even if the retained workers are paid with forgiven PPP funds.

Help for customers
Restaurants say they saw an updraft in spending after the federal government sent a $1,200 relief check to Americans earning less than $99,000 annually. The aid bill passed in Congress at the start of the pandemic also sweetened unemployment insurance payments by $600 per week.

This time around, $600 relief checks will be distributed, and to individuals who were earning no more than $75,000 annually. A household earning less than $150,000 gets a $1,200 direct payment.

The unemployment bonus amount has been reduced to $300.

If President Trump signs the stimulus bill into law as expected, those relief payments could begin as early as next week.

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