Yesterday, the Senate passed the latest Paycheck Protection Program Flexibility Act of 2020, which is also known as H.R. 7010. We expect the President to sign this Act.

The Good News

With a little patience and a little more work, most borrowers should be able to have their entire PPP loans forgiven. How, you ask?

  • The 8-week covered period has been extended to 24-weeks. For existing loans, the extension is optional.
  • The 75% payroll cost requirement has been reduced to 60%.
  • You now have until 12/31/2020 to meet the rehire Safe Harbor tests.
  • There are now two new Safe Harbors for each Forgiveness Limitation: 1) after reasonable efforts, you are unable to hire or replace employees by 12/31/2020; or, 2) federal rules or regulations prevent you from returning to full capacity by 12/31/2020. Unlike the original Safe Harbors, the reductions in pay rates or FTEs can occur any time after 2/15/2020. There is no 4/26/2020 cutoff.

Other Good News

The maturity date of the unforgiven loan may now be extended to 5 years, instead of 2. Payments are automatically deferred until the SBA approves the forgiveness amount.

All borrowers qualify for the employer paid FICA deferral, even after forgiveness.

The Bad News

There may be a gotcha in the 60% payroll cost rule. The way the House drafted the Act, Treasury could interpret it as a cliff test which means that if your payroll costs total less than 60% of the loan amount, you will get no forgiveness. Hopefully, Treasury won’t take this view.

Oh, What a Surprise. Not!

The Act creates more questions. The biggest is how do we apply the annualized $100,000 limit to payroll costs. Will we get $46,153 per employee for 24 weeks, instead of $15,385 for 8 weeks? Probably. The bigger issue is with sole proprietors, partners and owner-employees. Much of the current guidance centers on the fraction 8/52. Hopefully that guidance will be quickly updated.

Another question: Can you file early? If you have spent all of your PPP loan on forgivable expenses, can you file for forgiveness or do you have to wait for the end of the 24-week covered period? We do know how late you can file, up to 10 months after the end of your covered period.

So, why would you want to apply early? Currently, if you meet a Safe Harbor, there is no guidance for how long you must meet it. Do you still need to meet the Safe Harbor when you file your loan forgiveness application?

You should plan on extending your 2020 tax returns. Many covered periods will end in October. So, you wouldn’t be able to apply for forgiveness until your fourth quarter payroll tax returns are done. The bank will then have 60 days and the SBA will have an additional 90 days before your forgiveness is complete.

H.R. 7010 did not address the deductibility of the forgiven expenses. Stay tuned. We have a variety of ways to approach this uncertainty. No matter the approach, this is another reason that your 2020 returns should be extended.

Another webinar is coming as soon as we get a little more guidance from Treasury and the SBA. We will keep you posted.