Payroll Protection Program Loan Forgiveness Changed as Senate passes House bill

The U.S. Senate passed the House version of Paycheck Protection Program (PPP) legislation Wednesday night, tripling the time allotted for small businesses and other PPP loan recipients to spend the funds and still qualify for forgiveness of the loans.  The Senate approval sent the House bill to President Donald Trump who signed it Friday.

The Paycheck Protection Program Flexibility Act of 2020 modifies several provisions of the Paycheck Protection Program (PPP) and amends the Small Business Act and the CARES Act:

  • The “covered period” is extended 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 flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
  • 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. The PPPFA reduces the payroll spending requirement to 60%.  The SBA and Treasury clarified on June 8 that the 60% threshold is not a cliff and that partial forgiveness is available under 60%.
  • CARES allows the deferral of the employer’s 2020 Social Security tax. Half of the deferred amount is due Dec. 31, 2021 and the remainder is due Dec. 31, 2022.  HR 7010 now allows the PPP loan borrower to deferral social security taxes even though the loan is forgiven.
  • The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
  • Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
  • To the extent the loan is not forgiven, the maturity date of the loan has been extended from two years to five years.

It is still not clear how “salary” is 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?
Congress also did not address the deduction of expenses paid with the proceeds of the PPP. Thus, it seems that expenses paid with PPP loan proceeds are not deductible.

Posted in IRS, Taxes, Tips