Changes to PPP Forgiveness – Paycheck Protection Flexibility Act
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Congress has passed and the president has signed “H.R. 7010 – Paycheck Protection Flexibility Act of 2020” (the Act) as of June 3, 2020. The Act modifies many components of forgiveness for the Paycheck Protection Program to make it easier for PPP recipients to obtain forgiveness.
A link to the full Act can be found here: https://www.congress.gov/bill/116th-congress/house-bill/7010/text
Key components of this new legislation include:
- New PPP Loans will be granted a 5-year repayment period. Any pre-existing PPP borrower (before this Act) will be able to extend any non-forgivable portion of their loan from 2 years to 5 years.
- The 8-week covered period for forgivable PPP expenses has been expanded to 24 weeks (or December 31, 2020, if earlier). Any pre-existing PPP borrower may elect to keep the original 8-week period.
- Borrowers now have until December 31, 2020, instead of June 30, 2020, to bring back all full-time equivalents and restore wages and salaries to the same levels as of February 15, 2020.
- The Act grants two additional exceptions for forgiveness reductions for PPP recipients that cannot fully restore their workforce before December 31, 2020. The exceptions are as follows:
- The borrower cannot return to the same level of pre-COVID-19 business due to workplace safety requirements for COVID-19 mandated by CDC, OSHA, Secretary of Health and Human Services, or another governmental agency; or
- The borrower can document that he or she was were unable to rehire individuals who were employees as of February 15, 2020, and hire similarly qualified individuals to replace any unfilled positions on or before December 31, 2020.
- All PPP recipients are now eligible to defer all payments of employer payroll taxes through December 31, 2020, until 2021 (50%) and 2022 (50%). Prior to this Act, a PPP borrower could only defer payroll taxes until he or she had received PPP loan forgiveness.
- To receive loan forgiveness, a PPP recipient must use at least 60% of the loan for payroll costs and may use up to 40% for any covered mortgage obligation (no prepayments), covered rent obligation, or utilities. Before the Act, PPP borrowers needed to use at least 75% of their loans for payroll costs for full forgiveness.
- A borrower has 10 months after the end of the covered period to apply for forgiveness and payments will be deferred until forgiveness is granted. If a borrower does not apply for forgiveness, payments are deferred until 10 months after the end of the borrower’s covered period.
Additional guidance will be needed to answer the following questions we have about the Act:
- If a borrower does not spend 60% of the loan proceeds on payroll costs, will there be proportional forgiveness?
- Will a borrower be able to apply for loan forgiveness before the 24-week covered period expires if he or she utilizes the PPP funds and restores FTE and salary levels before it ends?
- Will the 8-week limit of $15,385 on cash compensation increase with the longer covered period?
- Will self-employed Schedule C filers be able to get more than 8/52 of 2019 Schedule C income forgiven?