Congress Liberalizes PPP Loan Forgiveness

Article Highlights:

Loan Forgiveness Confusion
Covered Period Extended
Loan Maturity Extended
Limit on Expenses other than Payroll Reduced
Exemptions for Those Unable to Rehire or Replace Employee
Both Loan forgiveness and Payroll Tax Deferral Allowed

If you are the owner of a small business that was able to obtain a Paycheck Projection Program (PPP) Loan, you have probably already started worrying about how you are supposed to spend the loan proceeds to maximize loan forgiveness.

When these loans were first offered, the key word business owners heard was “forgiveness,” and that created a national stampede to apply for these loans. Most potential borrowers had little or no knowledge of how the loan proceeds were to be used to qualify for loan forgiveness. This, combined with the lack of initial guidance from the Treasury and Small Business Administration (SBA), added to the confusion.

The CARES Act, the legislation that created this loan program, specified that loan proceeds were to be used for business payroll, lease payments, mortgage interest, and utility payments. It also specified the loan funds were to be used during the eight-week “covered period” that commenced immediately after receiving the loan proceeds. That meant the forgiveness clock started ticking the day the loan proceeds were deposited in the employer’s bank account.

To add to the confusion, the SBA decided to limit uses other than payroll to 25% of the amount forgiven—a limitation not included in the CARES Act.

Because the CARES Act includes generous unemployment benefits that, in many cases, provide income in excess of what the employer was paying as wages, many employees are resisting returning to work. This makes it difficult for employers to maintain their pre-COVID payroll and head count, which are also requirements for forgiveness.

Seeing the confusion and consternation caused by the forgiveness issue, Congress has passed the Paycheck Protection Program Flexibility Act (PPPFA) of 2020, which makes substantial changes to the program:

The covered period has been extended from 8 weeks to 24 weeks after the origination of the loan or December 31, 2020, whichever occurs first, giving employers substantially more time to comply with the forgiveness requirements and other terms of the loan. If the loan was received before the enactment of the PPPFA, the borrower may choose either the original 8-week period or the new 24-week/December 31, 2020 period.
Loan maturity has been increased from 2 years to a minimum of 5 years, giving borrowers a longer amount of time to pay back the portion of the loan that is not forgiven. For loans finalized prior to the PPPFA, the lender and borrower can agree to change to the longer term.

Congress has rebutted the administration’s attempt to limit the uses of the funds for other than payroll to no more than 25% of the forgiveness. The Act instead requires at least 60% of the loan proceeds to be used for payroll for full forgiveness and up to 40% can be used for business rent, mortgage interest (but not for pre-payment of the interest or for payment of principal) and utility payments.
To alleviate employers’ rehiring problems, the Act provides an exemption for employers that are unable:

o To rehire an employee who was working for the employer on February 15, 2020,

o To hire similarly qualified employees on or before December 31, 2020, or

o To return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance 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 during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
The deferral of payments of the PPP loan principal, interest and fees that was originally 6 months to one year is changed by the Act to be until the date the loan forgiveness amount is remitted to the bank by the SBA.
The original rules of the CARES Act prevented employers who received PPP loan forgiveness from being able to defer payment of payroll tax, another provision of the CARES Act. The PPPFA changes that rule to allow qualified employers to take advantage of deferring 2020 payroll tax payments even if they’ve received PPP loan forgiveness. The deferral allows 50% of the eligible payroll taxes to be deferred until December 31, 2021 and the balance to December 31, 2022. Taxes that can be deferred include the 6.2% employer portion of the Social Security (OASDI) payroll tax, and the employer and employee representative portion of Railroad Retirement taxes (that are attributable to the employer’s 6.2% Social Security (OASDI) tax rate), effective for wages paid March 27, 2020 through December 31, 2020.

Since the PPPFA was passed, the SBA has revised the PPP loan forgiveness application and added an EZ application. Here are the links to the applications and instructions:

If you have questions about how these changes might apply to your situation or need assistance completing your forgiveness application, please give this office a call.

Check the background of your financial professional on FINRA's BrokerCheck
Avantax affiliated Financial Professionals may only conduct business with residents of the states for which they are properly registered. Please note that not all of the investments and services mentioned are available in every state. Securities offered through Avantax Investment Services℠, Member FINRA, SIPC, Investment Advisory services offered through Avantax Advisory ServicesSM, Insurance services offered through an Avantax affiliated insurance agency. 3200 Olympus Blvd., Suite 100, Dallas, TX 75019. 972-870-6000.
The Avantax family of companies exclusively provide financial products and services through its financial representatives. Although Avantax Wealth Management® does not provide or supervise tax or accounting services, Avantax representatives may offer these services through their independent outside business. Content, links, and some material within this website may have been created by a third party for use by an Avantax affiliated representative. This content is for educational and informational purposes only and does not represent the views and opinions of Avantax Wealth Management® or its subsidiaries. Avantax Wealth Management® is not responsible for and does not control, adopt, or endorse any content contained on any third party website.
This information is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation.
The information being provided is strictly as a courtesy. When you link to any of the web sites provided here, you are leaving this web site. We make no representation as to the completeness or accuracy of information provided at these web sites. Nor is the company liable for any direct or indirect technical or system issues or any consequences.
For Important Information and Form CRS please visit https://www.avantax.com/disclosures.

Learning Center

Congress Liberalizes PPP Loan Forgiveness

NEVER MISS A STORY.

Social Media

Rose Tax & Financial