July 6, 2020
PPP Forgiveness Applications Are Improved
The US Treasury Department and Small Business Administration announced shortening two Payroll Protection Program’s loan-forgiveness applications.
The application updates are in response to changes included in the Paycheck Protection Flexibility Act of 2020, PL 116-142, signed on June 5. The SBA 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. Reportedly, bank portals will begin accepting forgiveness applications starting mid-July.
Paycheck Protection Flexibility Act expands the “covered period” for loan forgiveness to 24 weeks from eight weeks, and reduces the proportion of proceeds for payroll costs to 60% from 75%, and establishes a safe harbor for businesses unable to return to the level of business revenue prior the economic lockdown to submit to Covid-19 health and safety guidelines.
For any business wishing to apply for a PPP loan, the deadline is now August 8th. Also, any loan over $150,000 will be disclosed to the public.
Forgivable payroll costs include salary, wages, and tips per employee earning up to
- $100,000 annual salary
- $15,385 over the eight-week period
- $46,154 over the 24-week maximum period – for employees, not owners
The instructions for each application
The full application has been revised down from 11 pages to 5 pages – 4 pages of the application and 1 page of instructions. The “EZ” application has been revised from 5 pages to 3 pages – 2 pages of the application and 1 page of instructions. The United States Department of the Treasury stated the changes make it easier for businesses to realize full forgiveness of PPP loans.
Revised PPP Loan Forgiveness Application and instructions
EZ PPP Loan Forgiveness Application and instructions
Some revised PPP Loan Forgiveness Application changes are:
- Health insurance costs for S corporation owners are ineligible when calculating payroll costs
- Retirement costs for S corporation owners are eligible costs
- Health insurance premiums for non-owner employees are permissible
- Safe harbors to exclude salary and hourly wage reductions and reductions in FTEs from loan forgiveness reductions are permissible as of the date the loan forgiveness application is submitted.
- Borrowers may 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.
New EZ application changes
There are fewer calculations and less documentation than the full application. The EZ application is ideal for borrowers who:
- Are self-employed and have no employees
- Did not reduce the salaries or wages of their employees by more than 25%
- Did not reduce the number of hours of their employees
- Experienced reductions in business revenue due to health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.
The Owner Compensation Replacement Calculation
- Over the eight-week period, the forgiveness calculation is 8 ÷ 52 × 2019 net profit, up to a maximum forgiveness amount of $15,385.
- Over the 24-week period, the forgiveness calculation is 2.5 months’ worth (2.5 ÷ 12) of 2019 net profit, up to $20,833 maximum forgiveness amount.
The interim rule says, “This would not only result in a windfall for the owner, by providing the owner with five months of payroll instead of 2.5 months but also defeat the purpose of the CARES Act of protecting the paycheck of the employee. For borrowers with no employees, this limitation will not have an effect, because the maximum loan amount for such borrowers already includes only 2.5 months of their payroll.”
Your business may have experienced financial fluctuations in the last 12 months, and you aren’t sure whether your organization will qualify for the available relief. Now is the time to consider leaning on your accountant for cash flow guidance, tax deadlines, completing SBA and CWCA loan applications, Family First tax credit calculations, and interpreting the CARES Act. Our accountants are available, and we have the knowledge, skill, and information that you need right now to address your financial needs in a timely fashion adequately.
Maria is a partner at Wilke & Associates servicing closely-held businesses in manufacturing, real estate, transportation/logistics, and technology industries as well as high net worth individuals and executives in delivering effective tax strategies.