Payroll Protection Program Loan Forgiveness Change Passed by Congress
We are pleased to announce that Congress changed some of the PPP rules over the weekend. It is important to note that several of the rules have been relaxed; those of you who were getting close to the end of your “8 week window” can now take a deep breath, as that period has been extended. As always, we are staying up-to-date as the new rules are rolled out and will reach out to you as these events continue to change. We have summarized some of the newest changes below for you:
• “Covered Period” for Loans: HR 7010 extends the “covered period” from 8 weeks to 24 weeks from the date the loan proceeds were deposited into the borrower’s bank account or Dec. 31, 2020 whichever occurs first. This change provides more time for the borrower to incur and pay forgivable costs.
• Payroll Spending Requirements: Earlier in the year, SBA and Treasury issued an interim final rule which required borrowers to spend at least 75% of the PPP loan proceeds on payroll. HR 7010 reduces the payroll spending requirement to 60%. However, and this is a big problem, the legislation seems to have added a cliff to the payroll percentage requirement. The legislation places this limitation on forgiveness: “to receive loan forgiveness, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs . . . ” This makes the 60% an all or nothing for forgiveness. If you don’t spend 60% of your PPP loan on payroll during the covered period, then none of it will be forgiven.
• Full-time Equivalent Employees (FTEs) and Salary Reduction: Even if the employer used the PPP loan proceeds for payroll and other eligible expenses, the forgiveness will be reduced if the borrower has fewer FTEs from a base period or reduced the average annual employee wage by 25% or more. After all, the loan is supposed to be use for “payroll protection”. Under CARES, the reduction could be corrected if the borrower restored FTEs or wages reductions by June 30, 2020. HR 7010 extends the restoration date until Dec. 31, 2020. The legislation also provides that the forgiveness will not be reduced if the business is not able to return to its level of business before Feb. 15, 2020 because of compliance to guidance issued between Mar. 1, 2020 and Dec. 31, 2020 by HHS, CDC or OSHA related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19. An exception is also provided for an inability to rehire individuals who were employees of the eligible recipient on Feb. 15, 2020; and an inability to hire similarly qualified employees for unfilled positions on or before Dec. 31, 2020.
• Loan Payoff Due Date: To the extent the loan is not forgiven, the maturity date of the loan has been extended from two years to five years for new loans if you received your PPP Loa prior to the enactment of this law, you may request an extension of two years to five years from your lender.
What Needs Clarification?1. How is salary treated for owner employees, 8/52 or 24/52 of 2019 wages? How does the calculation of “payroll expense” for the self-employed work, 8/52 or 24/52 of 2019 net Schedule C income?
2. What is the limit allowed for Employees with earning in excess of $100,000 is it 8/52 to 24/52 of the capped $100,000?
3. Congress did not address the deduction of expenses paid with the proceeds of the PPP Thus, businesses are stuck with IRS Notice 2020-32 where the IRS says that the expenses paid with PPP loan proceeds are not deductible.