Paycheck Protection Program Update

On Wednesday, June 17, 2020, The U.S. Small Business Administration (SBA) released a revised loan forgiveness application for the Paycheck Protection Program (PPP) as well as unveiled a new EZ application for forgiveness of PPP loans. The applications reflect changes to the PPP made by the Paycheck Protection Flexibility Act of 2020, which became law on June 5. The SBA also issued a new interim final rule providing guidance on how to calculate employee and owner compensation for loan forgiveness in the new 24-week covered period created by the Paycheck Protection Flexibility Act. Below is a summary of the recent changes.

New Interim Final Rule

The SBA issued rules for determining payroll costs and owner compensation in calculating PPP loan forgiveness under the new 24-week covered period.

The Paycheck Protection Flexibility Act tripled the duration during which PPP recipients could spend the funds and still qualify for loan forgiveness. The interim final rule adjusts and adds to previous guidance for calculating loan forgiveness under the original eight-week covered period.

The PPP allows loan forgiveness for payroll costs — including salary, wages, and tips — for up to $100,000 annualized per employee, or $15,385 per individual over the eight-week period. The new interim final rule establishes the 24-week maximum for full loan forgiveness at $46,154 per individual.

Owner Compensation Replacement Calculations

While the employee compensation limit for the 24-week period is three times the eight-week limit, the interim final rule does not do the same with the owner compensation replacement for businesses that file Schedule C, Profit or Loss From Business, or Schedule F, Profit or Loss From Farming, tax returns. For those businesses, forgiveness for the owner compensation replacement is calculated for the eight-week period as 8 ÷ 52 × 2019 net profit, up to a maximum of $15,385. For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 ÷ 12) of 2019 net profit, up to $20,833.

Other Provisions

The interim final rule also modifies earlier guidance to account for changes included in the Payroll Protection Flexibility Act.

  • The minimum term for PPP loans is raised to five years for all loans made on or after June 5. For loans made before June 5, the two-year minimum maturity remains in effect unless both the borrower and the lender agree to extend it to five years.
  • The proportion of PPP funding that must be used on payroll costs to qualify for full forgiveness drops to 60% from 75%.
  • The application deadline for PPP loans remains June 30.

The PPP Loan Forgiveness Application

Notable changes to the application and instructions.

  • Health insurance costs for S corporation owners cannot be included when calculating payroll costs; however, retirement costs for S corporation owners are eligible costs.
  • Safe harbors for excluding salary and hourly wage reductions and reductions in the number of employees (full-time equivalents) from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted. Borrowers do not have to wait until Dec. 31 to apply for forgiveness to use the safe harbors.
  • Borrowers that received loans before June 5 can choose between using the original eight-week covered period or the new 24-week covered period.

Revised PPP Loan Forgiveness Application and instructions

The EZ PPP Loan Application

The EZ PPP Loan Forgiveness Application requires fewer calculations and less documentation than the full application. The EZ application can be used by borrowers that:

  • Are self-employed and have no employees.
  • Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees.
  • Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

EZ PPP Loan Forgiveness Application and instructions

If you have any questions, please contact us at (973) 298-8500.