President Signs Bill That Provides More PPP Flexibility
On June 5, President Trump signed he Paycheck Protection Program (PPP) Flexibility Act (PPPFA) of 2020 (H.R. 7010) which provides more flexibility for participants in the PPP program, including allowing those participants to defer the payment of certain payroll taxes that the CARES Act prevented them from deferring.
What changes were made under the PPP Flexibility Act
For new loans, the maturity period is now a minimum of five years, compared to the original two-year term established by the SBA. This applies to loans obtained after the passage of the PPP Flexibility Act, but borrowers and lenders could agree to extend the terms of any current loan.
Amendments to PPP loan forgiveness
Many of the changes to the loan forgiveness provisions of the PPP loan involved extended deadlines, as well as to the covered period for loan forgiveness. Additional changes were made on the percentages applied to eligible costs that could be forgiven and exemptions on full-time equivalent (FTE) employees that are included in calculating forgiveness.
- Extends the covered period. The covered period begins on the date you receive your loan and ends 24 weeks later, or Dec. 31, 2020, whichever is earlier. Borrowers who received a PPP loan before June 5, 2020 (the effective date of the PPP Flexibility Act) may elect to use their original covered period (eight weeks after their loan received).
- Loan forgiveness. Amends SBA rule requiring that not more than 25% of the borrower’s loan forgiveness amount could be attributed to non-payroll costs. If a borrower uses less than 60% of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60% of the loan forgiveness amount having been used for payroll costs.
- FTE Salary/Hourly Wage Re-Hire safe harbors. Extends the time a borrower can qualify for the FTE and Salary/Hourly Wage reduction safe harbors from June 30, 2020 to Dec. 31, 2020 if they fully restore FTEs and/or salary/hourly wages. The Act also created a new FTE Reduction Exemption that provides loan forgiveness will not be impacted if the FTE reduction was due to being unable to re-hire employees (or hire similarly qualified employees) or return to pre-COVID-19 business activity.
- Extended Deferral of Loan Repayment. Extends deferment of payments of loan principle, interest and fees, from the current six months, to the date when the SBA pays the forgiveness amount to your lender. If a borrower has not applied for forgiveness of a covered loan within 10 months after the last day of the covered period payments on principal, interest and fees will begin.
Employer payroll taxes
Employers would be able to defer payment of their share of Social Security taxes, even after a PPP loan is forgiven. This replaces the original provision of the CARES Act.
We will continue to monitor for the SBA and the U.S. Treasury to release additional guidance, including FAQs. It is important to note that these amendments will require an update to the loan forgiveness application the SBA released in early June.
Source: Paychex, Paycheck Protection Program Flexibility Act Modifies Forgiveness Provisions of PPP Loans