We are closely monitoring legislation passed by both the House and the Senate and awaiting signature from the President regarding updates to the Payroll Protection Program (PPP). This legislation contains multiple significant changes to the guidelines surrounding the usage and forgiveness of these loans.
- Borrowers can choose to extend the 8 week covered period to 24 weeks, or they can stay with the original 8 week covered period.
- The payroll spend requirement has been reduced from 75% to 60%, BUT, 60% is now a cliff, meaning borrowers MUST spend 60% on payroll costs or none of the loan will be forgiven.
- Borrowers will be able to use the 24 week covered period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. The re-hire and salary restoration safe harbor deadlines have been moved from June 30th to December 31st.
- Interest rate remains at 1% for all borrowers.
- The legislation includes new exceptions for borrowers that lost FTEs. For the period February 15, 2020 and ending December 31, 2020, the amount of loan forgiveness will not be reduced when a borrower experiences a loss of FTEs if the borrower is able to document any of the following:
- There was an inability to rehire individuals who were employees of the borrower on February 15th
- There was an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020
- There was an inability to return to the same level of business activity as such business was operating at before February 15th due to compliance with requirements established by the Secretary of HHS, the CDC, or OSHA during the period beginning March 21, 2020 and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other customer safety requirement related to COVID-19.
- The portion of the loan that is not forgiven, is now repayable up to 5 years instead of 2 years. Currently, P&I payments were deferred for the first 6 months, the deferment of the first loan payment has now been extended to 10 months (not clear if this is applicable to all loans or only new loans).
- Borrowers that took advantage of the employer FICA Tax Deferral can now defer the taxes for 2 years. The bill allows an employer to double dip; a borrower of a PPP loan may now also defer all of its 2020 Social Security tax burden into 2021 and 2022, even if the PPP loan is forgiven prior to December 31, 2020.
- The maximum amount paid to any one employee that can be forgiven is capped at an annualized salary of $100,000. If borrowers elect the 24 week covered period, this limit would be reached when an employee receives $46,153 in compensation. No indication if the employee compensation limit remains $15,385 or will be increased to $46,153.
- Not clear if owner-employees will be able to increase their forgivable costs, currently limited to 8/52 of 2020 compensation.
- Not clear how the bill impacts self-employed Schedule C filers. Currently, these borrowers forgiveness is limited to 8/52 of 2020 Net Profit. It is possible the ratio can be increased to 24/52.
- The payroll cliff of 60% is still being debated and might change.
- Will borrowers be able to apply for forgiveness prior to the expiration of their 24 week period, if the funds are fully spent?
- The IRS has currently stated that any expenses funded by PPP loans will not be deducted. There are discussions to have this changed.
If you have any questions, please do not hesitate to contact us.