Breaking the Code: The Paycheck Protection Plan Flexibility Act
By: Rachel Speigle Dunnigan, CPA, MSA, CFP®
Back in April, we wrote an article about the CARES Act, a $2 trillion financial aid package that included $350 billion in relief for small businesses impacted by the COVID-19 pandemic. Today, June 5th, the Paycheck Protection Plan Flexibility Act was signed into law, which provides more guidance on PPP loans. Although this is primarily for businesses, we wanted to share the highlights of this bill which are generally favorable to small businesses.
Choice to Extend Spending Period
The bill allows PPP borrowers to use the funds from the loan over a 24-week period instead of the original 8-week period limitation. The idea of this change is to increase the flexibility of the loan and allow for more small businesses to increase their forgiveness amount or to reach full forgiveness. This also addresses the challenge that some employers have faced: trying to rehire employees that are making more money on expanded unemployment (planned to expire July 31) than their pre-pandemic wages.
This time extension also applies to the restoration of workforce levels to pre-pandemic levels – a requirement for full forgiveness – and allows for exceptions if they do not fully restore their workforce. Previous guidance allowed borrowers to exclude employees that turned down rehire offers in good faith, but now employers can adjust their calculations if they cannot find qualified employees or are unable to reopen their businesses due to pandemic related restrictions.
Forgiveness Threshold
The CARES Act required 75% of the PPP loans to be used for payroll expenditures to qualify for full forgiveness. If the 75% was not achieved, only partial forgiveness would apply. The Paycheck Protection Plan Flexibility Act decreases that requirement from 75% to 60%, but now does not allow for any partial forgiveness. If less than 60% of the loan is used for payroll costs, forgiveness of the loan is completely eliminated.
Additional Topics
Borrowers using the funds now have five years to repay the loan at a 1% interest rate instead of the original two-year repayment period
Businesses that took a PPP loan may delay the payment of payroll taxes (50% deferred until 12/31/2021 and 50% deferred until 12/31/2022)
We hope this summary is helpful as we all navigate this uncharted territory. As more guidance is released, we will keep our clients updated. As always, if any questions regarding specific situations, please do not hesitate to reach out to us. We are happy to help.
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