This article is current as of 6/8/20. The SBA has indicated that there will be constant, ongoing updates.
An update to the Paycheck Protection Program (PPP) has been made via the Paycheck Protection Program Flexibility Act of 2020. This law has several provisions that will make qualifying for full forgiveness a lot easier. Some highlights are:
- There is an option to have the covered period for qualifying spending extended from 8 weeks to 24 weeks. If you meet full deduction in 8 weeks then you can elect to use that time period. Note that regardless of what time period you use, the covered period cannot extend past 12/31/2020.
- More flexibility for impacted businesses that are unable to return to their pre-Covid-19 headcount due to an inability to rehire individuals, find qualified replacements, or inability to return to previous levels due to government restrictions. If you appear to meet one of these conditions you’ll want to dive deeper on this rule. Remember that reduction in headcount will typically impact your forgiveness amount.
- The timeframe to rehire and correct your headcount or to return compensation to previous levels has been changed from 6/30/2020 to 12/31/2020. How this will factor in if people choose the 8 week forgiveness period needs clarification. As with the previous point, this directly impacts head count.
- Up to 40% of the forgiveness expenditure (vs 25% previously) can now be for qualified expenses that are not payroll related (think rent, utilities, etc.). Be careful here - several senators have concerns that as the bill is written there is a 60% cliff. Meaning, if you do not spend at least 60% on payroll, you receive no forgiveness. They intend to correct with a subsequent bill or guidance but it is definitely something to be aware of.
- Allowing businesses participating in PPP to also defer their payroll tax payments until 12/31/2020. Previously these two points were mutually excludable. I would caution people in deferring payroll taxes - you want to make sure that when they come due you can pay them as business owners can be personally liable for unpaid payroll taxes.
- If a business does not obtain full forgiveness, the first loan repayment is deferred for 10 months and the loan maturity is changed from 2 years to 5 years.
There is still a good chance that additional changes are coming. Those can come in two primary forms - IRS/SBA interpretations and guidance and additional legislative changes. As soon as this bill was passed congress was talking about subsequent changes. Make sure you apply timely for forgiveness but don’t rush it. There may be more favorable changes coming and so far the way this has played out being later seems to come with more benefits.
Nothing was done to make expenses used for forgiveness tax deductible, so you need to still plan for those tax implications as you plan for 2020 and 2021.
Our goal today was to help you understand the most recent changes to the Paycheck Protection Program. You should proactively approach PPP loan forgiveness to ensure that you maximize the expenses eligible for forgiveness and that your application for forgiveness is correct and properly documented. As always, be sure to speak to a professional about your specific situation.
Caroline Montgomery, CPA (NC License Number 39017), MSA, is tax manager and partner of Adam Shay CPA, PLLC. The most rewarding part of what she does is helping business owners and individuals achieve their goals, all while working with a dynamic team that is growing quickly. The firm focuses on a proactive approach by encouraging clients to minimize taxes via income tax planning and projections, or by focusing on other areas of their business as part of the firm's Virtual CFO services. The firm also offers tax preparation, fraud and forensic accounting and tax issue resolution services. She moved to Wilmington in 2014 and started at the firm in 2015. Caroline graduated with her her undergraduate and graduate degree in 2010 from East Carolina University. She is actively involved with NourishNC as their Treasurer and enjoys volunteering with various organizations throughout New Hanover County. In her free time, Caroline enjoys spending time with her husband, Mike, and dog, Mason, as well as travelling and going to the beach.