PPP Forgiveness Changes as Congress Passes PPP Flexibility Act of 2020

Both houses of Congress have passed the PPP Flexibility Act of 2020, and it awaits the President’s signature, which is expected. We provide below a summary of the provisions and our initial analysis of its implications. As more SBA guidance may be issued and we gain more depth of understanding, we will continue to share updates with you.

But, for now, this is really good news for you, as it will allow many more to qualify for 100% forgiveness of your SBA PPP loan.

Act Provisions:

  • Extends loan forgiveness period from 8 weeks to 24 weeks or December 31, 2020, whichever is earlier.
  • Reduces the minimum proceeds required for payroll from 75% to 60%.
  • Increases the loan repayment period from two to five years for new loans after enactment of the Flexibility Act.
  • Replaces the June 30 date with December 31 for purposes of re-hires and other provisions of the CARES Act.
  • The requirement to reduce forgiveness due to a headcount reduction is not required if (1) you are unable to rehire former employees and unable to hire similarly qualified employees or (2) you are unable to return to the same level of business activity due to compliance with Federal requirements or guidance related to COVID-19.
  • Allows taxpayers to take advantage of the payroll tax deferral provisions beyond your loan forgiveness date.

 

Impact on Forgiveness:

Your original PPP loan amount was based on slightly less than 11 weeks of payroll, so you now have up to 24 weeks to spend your loan proceeds on payroll and other costs. This means most of you will easily qualify for 100% loan forgiveness. Even those with no or limited payroll during part of your original 8 week period due to stay at home orders, now have both an additional 16 weeks for your forgiveness period and can spend up to 40% of your loan proceeds on non-payroll costs.

If you have experienced a headcount reduction you now until December 31, 2020, to re-hire (or offer to re-hire), and this Flexibility Act provides additional protection against forgiveness reduction if you can demonstrate an inability to hire qualified employees or demonstrate that your business is unable to return to its pre-February 15, 2020 level of activity due to Federal restrictions.

We expect the maximum allowed payroll for the 24-week forgiveness period for those employees making more than $100,000 annually will increase from $15,385 to $46,153.

Unfortunately, this Flexibility Act did not modify the IRS position that expenditures from loan proceeds are not tax-deductible.

 

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