The Paycheck Protection Program Flexibility Act 2020
Updated on 06/17/2020. Click here to jump to the updated PPP forms.
Signed into law by the President June 5, 2020, The Paycheck Protection Program Flexibility Act amends the Paycheck Protection Program (PPP) to give borrowers more freedom in how and when loan funds are spent while retaining the possibility of full forgiveness.
Key points:
- Borrowers now have 24 weeks to spend loan proceeds, up from 8 weeks.
- The PPP Flexibility Act reduces mandatory payroll spending from 75% to 60%.
- Two new exceptions let borrowers obtain full forgiveness even without fully restoring their workforce.
- The time to pay off the loan has been extended to five years from the original two.
- Payment deferment extension
- The PPP program was extended to December 31, 2020
- Enhanced rehiring exemptions
- Deferred payroll taxes
Borrowers now have 24 weeks to spend loan proceeds, up from 8 weeks.
PPP borrowers will now have up to 24 weeks (but not beyond December 31, 2020) to spend the loan funds and remain eligible for loan forgiveness. The eligibility period is an increase from the 8-week period limitation established by the CARES Act. They also have the option to keep the original eight-week spending period if they already had their loan before the enactment of the PPP Flexibility Act. Under the new timeline, full forgiveness is still possible.
The PPP Flexibility Act reduces mandatory payroll spending from 75% to 60%.
Now a minimum of 60% of loan proceeds must be used for payroll expenses, down from 75%. This allows greater flexibility to cover monthly fixed expenses such as rent and utilities and still be eligible for loan forgiveness.
Under the new Act, failure to spend at least 60% of the total loan amount on payroll, will result in no loan forgiveness. Previous requirements required spending 75% of the forgiven amount on the payroll.
Two new exceptions let borrowers obtain full forgiveness even without fully restoring their workforce.
These are in addition to previous guidance that let companies exclude workers who turned down good-faith offers of re-employment. Borrowers can now also reduce workforce requirements based on the inability to find qualified employees or if they were unable to restore operations to Feb. 15, 2020, levels due to COVID-19 restrictions.
The time to pay off the loan has been extended to five years from the original two.
The PPP loan repayment period has been extended to five years from the original two while retaining the original 1% interest rate. This gives borrowers more time to pay off the unforgiven portion of their loan.
Payment deferment extension
The 6-month deferral on repayments has been removed. You do not need to repay the PPP until your forgiveness application has been processed and completed.
You have up to 10 months after the end of your covered period to apply for forgiveness. After that time, payments will be required.
Failure to apply for loan forgiveness within 10 months of the end of the covered period will result in payments being due.
The PPP program was extended to December 31, 2020
The PPP loan program now continues through December 31, 2020. Originally it was set to expire June 30.
Enhanced rehiring exemptions
The deadline that employers have to rehire employees that were laid off between February 15 and April 26, or restore employee wages that were reduced between February 15 and April 26, is extended from June 30 to December 31, 2020.
If an employer is unable to rehire a worker, they may qualify for a new exemption. They must be able to show that they were unable to fill the position with similarly qualified employees, or document that due to safety requirements, they were unable to return to normal operating levels.
Additional guidelines were established regarding employees returning to work so that a PPP borrower may still achieve loan forgiveness while facing a staff reduction if either of the following is documented by the borrower:
- Unable to rehire previously laid-off workers or similarly qualified workers as replacements; or
- Unable to return to the same level of business activity (as existed on February 15) due to compliance with governmental requirements or guidance related to social distancing, sanitation standards, or any other worker or customer safety requirements related to COVID-19.
Deferred Payroll Taxes
The PPP Flexibility Act of 2020 allows businesses that took a PPP loan also delay paying their payroll taxes until December 31, 2020. This was not allowed under the original CARES Act.
Here are some helpful online resources for more information regarding PPP:
SBA website – www.sba.gov
PPP Loan Resource on our website – www.snbconnect.com/SBA
Updates as of 06/17/2020
The Small Business Administration made some modifications to the PPP Loan forgiveness process including updated applications to help make the process more simple.
A new EZ three-page version of the PPP loan forgiveness application
Available for use by those borrowers who meet one of the following criteria:
- Are self-employed and have no employees, OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees, OR
- Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.
Download Form 3508EZ
Download the instructions for Form 3508EZ
Updated version of the full loan forgiveness application
This updated application requires fewer calculations and less documentation than the previous version for eligible borrowers.
Download the revised Form 3508
Download the instructions for Form 3508
Reminder to make sure to diligently track your expenses. Keep documentations for the covered forgiveness period. Stay on top of your records and bookkeeping to ensure your loan forgiveness. Speak with your bookkeeper or contact Verdant Accounting to learn more about our bookkeeping services.
Still have questions about the PPP? Don’t hesitate to reach out. Email us at [email protected] or leave a comment below.
Visit our COVID-19 resource center for more tax-related changes and updates