Paycheck Protection Program Flexibility Act Passes Senate

Author: Lindsey Jackson

Congress reached an agreement yesterday evening on the Paycheck Protection Program Flexibility Act and the bill is now headed to President Trump’s desk for signature.  This is great news as it provides some much-needed relief for businesses with PPP loans.  The bill updates several provisions from the CARES Act and provides a few clarifications detailed below:

• If any portion of a borrower’s PPP loan is not forgiven, the repayment period is now five years instead of two.
• The covered period of the PPP loan referenced in the forgiveness calculation is now changed from eight weeks to the earlier of twenty-four weeks or December 31, 2020.
• Employers now have until December 31^st to restore their full-time employees instead of the previous date of June 30th to qualify for the FTE and salary reduction exemption.
• The amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of full-time equivalent (FTE) employees if an eligible recipient in good faith is able to document:
  • Inability to rehire individuals who were employees of the eligible recipient on February 15, 2020, and
  • an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
• The amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of full-time equivalent (FTE) employees if an eligible recipient in good faith is able to document:
  • An inability to return to the same level of business activity they had as of February 15, 2020, due to compliance with requirements established or guidance issued from the following agencies during March 1, 2020, through December 31^st, 2020:
    • Secretary of Health and Human Services
    • Director for the Centers for Disease Control and Prevention
    • Occupational Safety and Health Administration
• Changes the requirement of PPP fund spending to a 60% payroll and 40% eligible non-payroll cost split from the previous 75% and 25% split.
• An eligible PPP recipient who received their loan before the enactment of this bill may make an election to retain the original 8 week covered period.
• The repayment deferral period for the balance of the PPP loan that is not forgiven is extended from six months to ten months after the end of the covered period.
• Borrowers who received a PPP loan are now eligible to take advantage of the payroll tax deferral provision under the CARES Act.

Those who have not yet applied for a PPP loan are still eligible to do so until the end of the month.  The passage of this act does not extend the time of program eligibility.  After June 30^th, the SBA will no longer accept applications for PPP loans.

Lastly, it should be noted that this act does not change the IRS guidance on PPP loan forgiveness and expense deductibility.  As of today, the loan forgiveness is still not considered taxable income to the recipients, and the expenses used to generate that forgiveness are not tax-deductible.  While many members of Congress have come out and said that the Treasury’s guidance on this issue is contradictory to the intent of the CARES Act, a legislative fix was not included in the most recent legislation. We will continue to monitor and provide updates.