Paycheck Protection Program: What you need to know

UPDATE 9-21-22: Improperly forgiven PPP loans are taxable

On Friday, June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (the Act). The Act makes critical changes to the Paycheck Protection Program (PPP), which provides relief to small businesses utilizing PPP loans and now preparing to seek forgiveness of their loans.

Here are highlights of the key changes:

Covered period for loan forgiveness extended from eight weeks to 24 weeks.

Eligible payroll and non-payroll costs paid or incurred over a period now beginning on the date of loan disbursement and ending 24 weeks after such date (or December 31, 2020, whichever is earlier) can be eligible for forgiveness. Borrowers, who received the loan before enactment of this Act may elect to use the original eight-week period for loan forgiveness.

60 percent of the loan must be used for payroll. The remaining 40 percent of the loan may be used for rent, utilities and mortgage interest.

This is a change from the previous rules, under which 75 percent of the loan amount had to be spent on payroll. Latest guidance suggests partial loan forgiveness will be possible even if less than 60 percent of the loan is applied to payroll costs.

Loan repayment period extended to five years for loans issued after enactment of the Act.

All loans issued after enactment of the Act will have a minimum maturity of five years. For loans issued before enactment, borrowers and lenders can mutually agree to modify the maturity date.

Defers payment of principal and interest.

For borrowers who seek forgiveness, the Act defers payment of principal and interest to the date the lender receives the forgiven amount from the Small Business Administration.

For borrowers who fail to apply for forgiveness within 10 months from the end of the 24-week covered period, the deferral period will end on the date that is 10 months after the last day of the 24-week covered period.

More time granted to restore pre-Covid-19 full-time equivalent (FTE) and wages.

To avoid any reduction in PPP loan forgiveness, borrowers now have until December 31, 2020 to restore any reductions in FTE and salary/wages to February 15, 2020 levels.

New exceptions added for certain employees to not be counted toward FTE reductions.

Borrowers must be able to document that they:

  1. Tried but were unable to rehire employees who were employed on February 15, 2020.
  2. Could not find similarly qualified employees for open positions by December 31, 2020.
  3. Could not restore business activity to the level comparable to February 15, 2020 or earlier because of social distancing, sanitation, or worker or customer safety guidelines issued by the Secretary of Health and Human Services, the director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration.

Employer’s share of payroll taxes can be deferred for two years regardless of whether a borrower receives loan forgiveness.

This is simply a deferral and must not be construed as a forgiveness of payroll taxes. The first 50 percent of the deferred amount is due on December 31, 2021 and the remaining 50 percent is due on December 31, 2022.

Next steps

Although the Act brings great relief to PPP loan borrowers, it has also raised a number of new questions. We anticipate the U.S Treasury and the Small Business Administration will provide further guidance in the coming weeks.

Call your Sol Schwartz & Associates professional at 210.384.8000 to discuss how this guidance applies to your own situation.

If you have not applied for a PPP loan or are currently seeking forgiveness, we are available to discuss how you can take full advantage of the federal government’s programs to help your business.