Brand New Guidance for PPP Loan Forgiveness
Filed under:Affordable Housing, Construction, COVID Updates, Dental, Family Business, FQHC, Healthcare, Nonprofit, Private Companies, Small Business Services
The month of June has been jam-packed with guidance and rules from the SBA and Treasury Department. The guidance came just in time as many borrowers are approaching, or have completed, their 8-week covered period, and some have crucial decisions in regard to applying for forgiveness. Below is a summary of the many events that have taken place since the beginning of June.
On June 5th, the President signed into law the Paycheck Protection Program Flexibility Act (PPPFA), and on June 11th, the SBA issued additional rules to clarify many of the provisions within the PPPFA. Below are some of the key provisions:
- For PPP loans made prior to June 5th, there’s still the option to utilize the 8-week covered period. For loans made on or after June 5th, a 24-week covered period will be used.
- If a borrower did not meet the 60% threshold for payroll costs, then a prorated loan forgiveness is available.
- For example, borrower received $100,000 PPP loan and only spent $54,000 (54%) on payroll costs. The maximum loan forgiveness would be $90,000 ($54,000 payroll cost divided by 60%), which means the non-payroll costs portion could not exceed $36,000. The remaining $10,000 of the PPP proceeds would be considered a loan.
- June 30, 2020 remains the last date on which PPP loans can be approved. Time is running out!
- The date to rehire employees and restore compensation has been pushed back from June 30, 2020 to December 31, 2020. Otherwise known as the “FTE Reduction Safe Harbor”.
- Loan repayment term changed from 2 to 5 years for PPP loans made on or after June 5th. For loans prior to June 5th, a borrower can request there lender extend the loan terms but there is no guarantee.
- Unless mutually agreed upon with the bank, the rule extends the loan principal and interest payment requirement to 10 months from the end of the covered period. Note that interest is still accruing during these 10 months.
On June 16th, the Treasury Department along with the SBA released additional interim rules and new PPP loan forgiveness applications. Links to the new applications and interim rules are below:
- A NEW Loan Forgiveness Application Form EZ
- A NEW Loan Forgiveness Application Form EZ Instructions
- Revised Loan Forgiveness Application
- Revised Loan Forgiveness Application Instructions
- Interim Final Rule on Revisions to the Third and Sixth Interim Final Rules and below summarizes some of the key provisions:
Below is a summary of some of the key provisions from the new EZ Application (Form 3508EZ) and interim rules:
- Borrowers that are eligible to use the EZ application if they meet one of the three requirements:
- You are self-employed, an independent contractor or sole proprietor who has no employees,
- There was no reduction in wages of more than 25% during the covered period and head count didn’t decrease, OR
- The business experienced reductions in business activity as a result of COVID-19 directives and there was no reduction in wages by more than 25%
Even though this is a simpler form, the rules above are more complicated than they appear and you should discuss this with your tax adviser or CPA.
- Compensation for owner-employees, self-employed individuals, or general partners are capped at the lesser of $20,833 for a 24-week covered period or their equivalent 2019 compensation. The original cap of $15,385 is still in place if using the 8-week covered period.
- The maximum compensation per employees is $46,162 (24 weeks x $1,923 per week) plus retirement benefits and health insurance premiums paid on their behalf if using the 24-week covered period.
On June 22nd, the provision with the most impact gives borrowers the ability to apply for loan forgiveness before the end of their 24-week covered period.
With all of this guidance there are still a few questions yet to be answered. Those questions include:
- Will “automobile” gas be included in utilities and non-payroll costs?
- What is the definition of an “owner employee”?
- Most importantly, will costs related to forgiveness be tax deductible?
You should consult with your tax adviser or CPA in regard to any of the items above and whether they impact your eligibility for PPP loan forgiveness.