Paycheck Protection Program Forgiveness
The US Senate passed a House version of additional Paycheck Protection Program (PPP) legislation last night. The legislation triples the time allotted for small business es to spend the funds and qualify for forgiveness of the loan.
The previous secure act allowed for an 8-week time frame to expend funds from the PPP. The bill, which has yet to be signed by the President, allows business to extend that time frame to 24-weeks.
Under the House bill, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met.
Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
Borrowers now have five years to repay the loan instead of two. The interest rate remains at 1%.
At present the IRS position of the PPP funds has remained unchanged and they have indicated will remain unchanged unless legislation is passed. That position is that while the loan forgiveness is not taxable income, expenses reimbursed by PPP funds (payroll, rent & utilities) ARE NOT DEDUCTIBLE.