New Loan Forgiveness Rules for the Paycheck Protection Program

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By: Ashleen Sahni

With the Paycheck Protection Program Flexibility Act of 2020, the United States government has made it easier for businesses to get their Paycheck Protection Program (PPP) loans forgiven. The act also offers relief to businesses that receive PPP loan forgiveness.

  1. PAYROLL COST REQUIREMENT REDUCED FROM 75% TO 60%

Initially, businesses needed to use at least 75% of their PPP loan funds on payroll costs to qualify for loan forgiveness. The PPP Flexibility Act relaxes this proportion to 60%. Businesses can now use up to 40% of the loan for non-payroll eligible costs.

  1. COVERED PERIOD EXTENDED FROM EIGHT WEEKS TO 24 WEEKS

All loan proceeds must be spent on eligible expenses by the end of the covered period to qualify for loan forgiveness. This amendment extends the covered period to 24 weeks from the loan disbursement date, or December 31, 2020, whichever is earlier. Previously, the covered period was just eight weeks from loan disbursement.

  1. RESTORE HEADCOUNT BY DECEMBER 31, 2020 INSTEAD OF JUNE 30, 2020

To qualify for full PPP loan forgiveness, businesses must restore their workforce to pre-COVID-19 levels. The new act gives businesses more time to rehire previous or similarly qualified employees. The deadline is now December 31, 2020, up from June 30, 2020.

  1. EXCEPTIONS TO REHIRING A FULL WORKFORCE

Previously, businesses could still qualify for PPP loan forgiveness if they could not reach their pre-COVID-19 staffing levels because their former employee(s) turned down a good faith offer to work at the same salary as before the pandemic. The PPP Flexibility Act allows employers two more related exceptions to rehiring their full workforce if they:

    1. Are unable to hire a similarly qualified employee before December 31, 2020
    2. Could not restore operations to February 15, 2020 levels due to compliance with COVID-19 sanitation, social distancing, or any other worker or customer safety requirements imposed by certain federal agencies between March 1, 2020, and December 31, 2020

Businesses must document both exceptions appropriately for their lender to grant full loan forgiveness.

  1. LOAN REPAYMENT PERIOD EXTENDED FROM TWO YEARS TO FIVE YEARS

After their PPP loan is forgiven, new borrowers now have five years to repay the remaining balance. Existing borrowers can get their repayment term extended to five years if both the lender and borrower agree.

  1. DEFERAL OF EMPLOYER PAYROLL TAXES

Businesses who received or will receive PPP loan forgiveness can now defer their employer Federal Insurance Contributions Act (FICA) payroll taxes for two years. Half of deferred payroll taxes will be due in 2021, with the remaining due in 2022.

Conclusion

For help applying for PPP or another Small Business Administration (SBA) loan, understanding loan forgiveness, or exploring other forms of COVID-19 relief for your business, please contact our experienced Chugh CPAs, LLP professionals at info@chugh.com.