On Friday, June 5, the PPPFA was signed into law providing much more flexibility to borrowers of PPP funds. Following is a synopsis of the new rules and how these may affect you and your business.
- In an attempt to make it easier to be fully forgiven, current PPP borrowers can choose to extend the original eight week period to twenty four weeks to use the loan proceeds. The covered period cannot extend past December 31, 2020. In addition, borrowers are not required to wait for twenty four weeks to apply for forgiveness. They can choose to do so after the eight week period concludes.
- Originally, PPP loans were eligible for forgiveness if a business spent 75% or more of the proceeds on payroll. The PPPFA lowers that amount to 60% but also institutes a cliff, meaning if less than 60% is used on payroll, none of the loan will be forgiven.
- The original CARES Act required employers to rehire the same amount of employees by June 30, 2020 in order to be fully forgiven. The PPPFA implements additional exceptions allowing employers who have not restored their entire workforce to still be eligible for full forgiveness. The new law allows employers to adjust headcount calculations if they cannot find qualified employees or if they are unable to restore business operations to pre-COVID levels.
- The June 30, 2020 deadline to restore workforce levels and wages is pushed back to no later than December 31, 2020.
- For any PPP loan that is not forgiven, borrowers now have five years to repay the loan instead of two years. The interest rate remains at 1%.
- The CARES Act provided that the payment of 2020 employer payroll taxes could be delayed to the ends of 2021 (50%) and 2022 (50%). This deferral did not apply to any business that received PPP loans. The PPPFA eliminates this exception and allows PPP borrowers to delay payment of employer payroll taxes.
Note that expenses paid with PPP money are still not deductible for tax purposes. This continues to be a point of contention in Washington and we hope that this rule is overturned in the near future.
If you have questions about the CARES Act, the PPPFA, or the deductibility of expenses paid with PPP proceeds, please contact a member of your Baker Holtz team at (616) 458-1835.