The Senate just passed the House bill, called the Paycheck Protection Flexibility Act which is expected to be signed into law by the president. The law will extend the Paycheck Protection Program (PPP) loan forgiveness period from eight weeks to twenty four weeks and reduce the payroll forgiveness spend requirement from 75% to 60%. Loan recipients now have until December 31, 2020 to complete their twenty four week spend period and to meet the restoration of workforce and pay requirements.
However, if at least 60% of the loan is not spent on payroll, there is a cliff effect where none of the loan will be forgiven. Certain Senators and members of Congress have stated this was not the intent and they are working on a technical correction to allow the bill to restore the previous sliding scale of only partial loss of loan forgiveness if the 60% threshold is not met.
The law provides exceptions for the restoration of workforce requirements to achieve full PPP loan forgiveness if can document a good faith effort for the following:
- The inability to rehire individuals who were employees on February 15th
- The inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020
- The inability to restore business operations to Feb. 15, 2020 levels due to COVID-19 related operating restrictions
For any remaining amount of the loan that is not forgiven, the payback period maybe extended from two years to five years.
Additional guidance is needed from the SBA to clarify certain items in the law, for example, whether the limit of cash compensation per employee would increase in proportion to the increase in the covered period, from $15,385 to $46,153.
PPP funds are still available for eligible businesses who have not yet taken advantage of this program.
Another significant benefit is that the law allows businesses that intend to have a PPP loan forgiven to now qualify to delay payment of their payroll taxes, which was prohibited under the CARES Act. Businesses should immediately consider deferring payment of the employer’s 6.2% share of 2020 Social Security tax until the end of 2021 (50%) and 2022 (50%).
For additional information or guidance regarding the Paycheck Protection Program or payroll tax deferral, please contact your WFY advisor or contact us here.
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