Paul Thorstenson, CPA/ABV , CVA
You may want to throw away your current applications for PPP loan forgiveness. The Senate passed the Paycheck Protection Program Flexibility Act last evening, and the President is expected to sign it into law today.
- Covered period is expanded to 24 weeks from 8.
- Only required to spend at least 60% on payroll costs vs. 75%.
- If you don’t spend at least 60% of the loan on payroll, there is no forgiveness at all.
- Unforgiven amounts will now be amortized over five years rather than two.
- Forgiven amounts remain taxable.
- Borrowers can elect to keep the current 8 week covered period.
- Now have until December 31 to reach full-employment levels in relation to February 15 to meet FTE safe harbor.
- The proportional reduction in the forgiveness
relating to FTE reductions will no longer take into account any person for whom
- A) Was unable to rehire any former employee; or
- B) Was unable to hire similarly qualified employees for unfilled positions before December 31.
- The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which had been prohibited under the CARES Act.
More unanswered questions
- Will the SBA will be issuing regulations explaining this law?
- Will a new application form be forthcoming?
- We assume that any employee, including owners, will be able to count $46,153 of payroll per person. ($100,000/52*24), but this has not been clarified.
- It now will be virtually impossible not to spend the full amount of your loan on forgivable items.
- Meeting the 60% payroll test is a mere formality for a business that has re-opened.
- The most important planning item is to re-hire by December 31, 2020, to February 15, 2020 FTE levels in order to meet the FTE safe harbor, so that 100% of the amount spent is forgiven.
- If you have achieved 100% forgiveness in the 8 week period, you should elect to use that and apply for forgiveness.
- If you have not achieved 100% forgiveness in the 8 week period, you should calculate forgiveness using the better of the 8 week period or the 24 week period.
- It is possible that the 8 week period provides for a larger forgiveness amount if the FTE safe harbor is not met and the average FTE’s in the 8 weeks is larger than the average FTEs in the 24 weeks.
At KT we have a team assisting with the preparation and review of PPP loan applications. If you have met the requirements as of the 8 week period, we can work with you to prepare the applications as soon as your 56 day period expires. Email [email protected] to enlist our assistance.