President Trump Signs PPP Flexibility Act Into Law
On Friday, June 5, President Donald Trump signed the measure that would provide additional flexibility for small businesses under the Paycheck Protection Program (PPP) into law. Earlier this week the United States Senate approved the bill, which was passed by the U.S. House of Representatives on May 28.
That being said, during a June 3, webinar sponsored by Tax Analysts, Rep. Richard Neal (D-MA), chairman of the House Ways and Means Committee, said that he intends to clarify in the next stimulus bill that the loan forgiveness expenses are tax-deductible. The Rea & Associates’ COVID-19 Task Force will continue to monitor the situation for updates and additional clarification as this measure is critical to the many small- to mid-sized businesses we serve.
What’s In The Bill
Specifically, The PPP Flexibility Act of 2020 (H.R. 7010) effectively modifies provisions related to the forgiveness of loans made to small businesses under the program originally implemented in response to the COVID-19 (coronavirus) crisis earlier this year. This piece of legislation:
- Extends the original eight-week covered measurement period for businesses to spend their loan money to 24 weeks. (Note: Even though the law permits a 24-week covered measurement period, for some borrowers, the original eight-week covered measurement period will still make sense.)
- Extends the safe harbor date by which an employer may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the employer’s forgivable amount of their paycheck protection loan to Dec. 31. Prior to H.R. 7010, to avoid a reduction in their PPP loan forgiveness, employers had until June 30 to bring employees back.
- Grants employers more leeway on loan forgiveness if they are able to show that they were unable to rehire people or to reopen their business in a way that complies with federal requirements and guidance related to COVID-19.
- Reduces the amount of loan money that must be spent on payroll to 60 percent, down from 75 percent.
- Allows businesses that took a PPP loan to delay payment of their payroll taxes, which was previously prohibited under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
- Gives borrowers up to 10 months to apply for forgiveness.
PPP Forgiveness Application Holding Pattern
As you can imagine, now that the President has signed the PPP Forgiveness Bill into law, the PPP loan forgiveness application will need to be revisited. For now, we believe that the best way for you to prepare for the loan forgiveness application process is to continue to strategizing about how to achieve the most amount of loan forgiveness with your key business advisors, but to wait to actually start the application itself until the updated version has been released along with any related guidance.
In the meantime, if you are looking for a great resource to help you crunch the numbers, check out this PPP Loan Forgiveness Calculator, created and updated regularly by the AICPA. This tool uses available guidance from the Small Business Administration (SBA) and the U. S. Department of Treasury, along with interpretations of that guidance (see notes throughout the tool) to estimate the amount of a PPP loan that may be eligible for forgiveness.
We also recently presented a 90-minute open discussion pertaining to the PPP Loan Forgiveness Application. This presentation addressed the topic at a high-level rather than walking you through the actual application. Check it out to learn about what you can do to prepare for completing this application and how you can ensure that you will receive the maximum amount of forgiveness.
Finally, check our COVID-19 webinar series web page frequently for upcoming live webinars. We will release information about the next one very soon.
By Paul McEwan, CPA, MTax, AIFA (COVID-19 Task Force)