On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act Of 2020 into law thus allowing businesses a greater opportunity to use PPP funds received in conjunction with the progression of their activity. This change should increase one’s chances of allowing the loan to be completely forgiven.
THE FOLLOWING ARE THE KEY PROVISIONS OF THE ACT
Extension of Covered Period from 8 weeks or June 30, 2020 to the earlier of 24 weeks or December 31, 2020
- This change appears to provide the greatest benefit as it now allows businesses more time to bring their employees back to work thereby allowing them to be employed in a more productive manner.
- In addition, since the period is extended three fold, this gives employers a larger window to spend the PPP funds on forgivable expenses, thus increasing the chances that the business will achieve loan forgiveness.
Lowering of Requirement to Use PPP Funds for Payroll Costs from 75% to 60%
- Under the prior act, loan forgiveness was based on businesses using 75% of PPP funds received for payroll costs. This has now been lowered to 60% thus allowing businesses with higher permissible non payroll costs the ability to treat these expenses as forgivable expenditures.
Institution of Mandatory Minimum Usage of 60% of PPP Funds to Achieve Any Forgiveness
- This appears to create a negative consequence within the Act, however as it stands today, an employer must use 60% of the PPP funds for payroll costs for any part of the loan to be forgiven.
- Thus if a business spends 58% of the loan on payroll costs, none of the loan will be forgiven.
Relaxation of Requirement to Restoring FTE’s by the End of the Covered Period
In addition to the previous exemptions mentioned in our prior webinars (fired for cause, employee refusing to come back to work, etc.), the Act now provides additional exemptions provided business are able to document the following:
- Inability to rehire individuals who were employees on February 15, 2020.
- Inability to return to the same level of business activity that existed at February 15, 2020 due to compliance with requirements related to maintenance of standards of sanitation, social distancing , or any other worker or customer safety requirements related to COVID-19.
Ability to Delay the Payment of Payroll Taxes for Borrowers Who Have Loans Forgiven
- The Act now allows Companies to defer the payment of the employer’s share of Social Security Taxes even if the loan is forgiven.
- Under prior law, payroll taxes were only eligible to be deferred up until the date the loan was forgiven.
Extension of maturity of loan from 2 years to 5
- Previously the maturity date of PPP loans that were not forgiven was 2 years. This has now been moved to 5 years, while the interest rate remains at 1%.
Extension of Deferral Period of Initial Interest and Principal Payment on PPP Loan from 6 months to the Date the Forgiveness is Determined
- In the prior version of the Act, the due date of the initial payment was due 6 months from the date the loan was received.
- The revised law defers the initial repayment on the loan to the date the loan forgiveness is determined.
- In those circumstances where the borrower fails to apply for forgiveness within 10 months after the last day of the covered period, such loan repayments shall begin on that date.
Election to Retain 8 Weeks as Covered Period
- Companies that received their loan prior to June 5,2020 may elect to maintain eight weeks as their covered period.
- This option can benefit Companies that have fulfilled their obligation to meet the debt forgiveness requirements and would like to accelerate the forgiveness process before an unanticipated business occurrence arises which could negatively impact the debt forgiveness.
Deductibility of Expenses Paid With PPP Funds That Are Forgiven
Although it has been previously stated that the forgiveness of PPP loans will be nontaxable, the expenditures made with the forgiven funds are still nondeductible.
Many were hoping that Congress would have incorporated a change in the Act to allow these expenditures to be tax deductible but at this writing this remains unchanged.
In the meantime, if you need advice specific to your situation, please feel free to contact us.