On June 5, 2020, after the outcry of small business owners, the president with bilateral support from the United States Congress signed the legislation titled The Paycheck Protection Program Flexibility Act (hereinafter “PPPFA”). The PPPFA revises the Paycheck Protection Programs, also known as PPP, offering more flexibility and opportunities to small business owners at a critical time in our country.
Since early April, the PPP has loaned over $500 billion to small business owners. Having said that, if you haven’t applied for your PPP funding, don’t worry: there are still $150 billion currently available from the second round of PPP funding. However, you must submit the PPP application before the June 30, 2020 deadline. If you need any assistance with your PPP calculation or the necessary tax deliverable, please reach out to a Taxfyle Pro for assistance (www.taxfyle.com).
Below you will find a recap of the crucial topics that were revised from the PPP to PPPFA:
Originally, for your loan to be forgiven, you had to use the proceeds within eight weeks of the disbursement date. The PPPFA has extended the time in which loan proceeds must be used to 24 weeks or December 31, 2020 (whichever one of these occurs first). The extension will result in more small business owners getting 100 percent of the loan forgiven.
Under the original PPP guidelines, 75 percent of proceeds must be used towards payroll costs in order to qualify for full loan forgiveness. The PPPFA has reduced the initial amount from 75 percent to 60 percent. This reduction allows small businesses to use their proceeds on other non-payroll expenses (i.e., rent, utilities, etc.). Please note that if less than 60% used towards payroll expenses, the business will still be eligible for partial forgiveness.
In order to have the complete loan amount forgiven the original PPP required employers to rehire their furloughed employees by June 30, 2020. Accordingly, to make this requirement easier for small business owners the PPPFA is stating that they now have until December 31, 2020, to rehire employees who have been let go due to the COVID-19 pandemic.
As a result of the PPPFA, the same extension of time has been granted with regards to documenting (in good faith) any inability to rehire the individuals who were employed by the business on or before February 15, 2020, and an inability to hire similarly qualified employees by December 31, 2020.
Businesses are gradually reopening with many restrictions all across the country. Although we are all hopeful that all businesses will return to their activity pre-COVID-19, the truth is that we are far from that point. The original PPP stated that if you were unable to return to the same level of business activity that existed on or before February 15, 2020, you may not be eligible for loan forgiveness. The PPPFA reversed this with the caveat that businesses need to document why they haven’t gotten back to their level of activity.
Initially, small businesses that used the PPP, which had their loans forgiven, could not take advantage of the 6.2 percent social security tax deferral designed in the CARES Act. The PPPFA reversed this and clearly states that PPP borrowers can take advantage of this tax deferral.
To make it easier on small businesses that are unable to qualify for 100 percent of the loan forgiveness, the maturity of the loan was extended from two years to five years. This will aid small business owners by lowering the overall monthly payment.
The original PPP required lenders to provide a loan deferral of six months to a year. Under the PPPFA, this was eliminated and the new rule states that payments are deferred until the date on which the amount of loan forgiveness is determined. Please note that the borrower (small business owner) must apply for forgiveness within ten months of the last day of the loan forgiveness period (24 weeks after the loan proceeds are disbursed or December 31, 2020, whichever comes first). If they fail to apply for forgiveness within the above-mentioned rules in place, the borrower must begin loan payments.
These are unprecedented times, so being up to date on all the changes that are happening with small business assistance can make the difference between your business surviving or failing. At Taxfyle, we have thousands of licensed Certified Public Accountants and Enrolled Agents ready to assist you with any questions you may have today or in the future. Again we reiterate if you need any assistance with your PPP calculation or the necessary tax deliverable packages required for the loan, please reach out to a Taxfyle Pro for assistance (www.taxfyle.com).
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