New PPP Loan Forgiveness Applications and Guidance Released

Jun 17, 2020

Author:  Lindsey Jackson

Late yesterday the SBA finalized and released two loan forgiveness applications which can be accessed online at https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program.  The first is a revised application (very similar to the previous application) incorporating the changes from the Paycheck Protection Program Flexibility Act (PPPFA).  The second is a more simplified EZ Application which borrowers may utilize if they meet one of the three requirements detailed below.  The EZ Application eliminates the PPP Schedule A and Schedule A worksheet requirements while also adding additional certifications that the borrower must make acknowledging their ability to utilize the EZ application.   The EZ application is a great alternative for those taxpayers able to take advantage of the safe harbors and meet the eligibility requirements.

As expected, the applications incorporated the changes we expected to see from the PPPFA such as (1) updating from an 8 to 24 week covered period, (2) an update to the FTE reduction safe harbor date to December 31, 2020 instead of June 30, 2020, (3) the newly created FTE reduction safe harbor if business activity was impaired as a result of governing agencies, and (4) the updated split of loan proceeds required to be spent 60% on payroll costs and 40% on non-payroll costs.

In addition, both the Interim Rules and the application instructions have given us some much needed clarification on the deductible payroll amounts for owner-employees, a self-employed individual, or general partners.  If a borrower elects to use the 24 week Covered Period, the deductible amount is capped at $20,833 (the 2.5-month equivalent of $100,000 per year) for each individual or the 2.5-month equivalent of their applicable compensation in 2019, whichever is lower.  For borrowers using an 8-week Covered Period, this amount remains capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower.  Employer health insurance contributions and employer retirement contributions made on behalf of owner-employees, a self-employed individual, or general partners are also not eligible to be included in the loan forgiveness application because they are already included in their compensation.

The SBA has removed the old application from their website entirely, therefore it is safe to assume that it is no longer valid or acceptable to submit for loan forgiveness.

Below are the highlights of changes between the old forgiveness application and the two new ones posted by the SBA.

PPP Loan Forgiveness EZ Application (new).  This is a condensed 3 page application that may be used by borrowers if they meet at least one of the three requirements:

  1. The Borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form (SBA Form 2483).
  1. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period. (ignore reductions that arose from an inability to rehire individuals who were employees on February 15, 2020 if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020. Also ignore reductions in an employee’s hours that the Borrower offered to restore and the employee refused.)
  1. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020 (for purposes of this statement, “employees” means only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000); AND the Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

PPP Loan Forgiveness Application (revised June 16, 2020.)  

  1. PPP Schedule A remains largely unchanged except for the addition of boxes to check if the borrower plans to utilize one of the two available safe harbors:
    1. Safe Harbor 1: A borrower may avoid the FTE Reduction if they were unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the following agencies related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19:
      1. Secretary of Health and Human Services
      1. Director of the Centers for Disease Control and Prevention
      1. Occupational Safety and Health Administration
    1. Safe Harbor 2:  If the borrower’s total FTE as of December 31, 2020 is greater than or equal to their total FTE on February 15, 2020 and their FTE on February 15, 2020 is greater than their average FTE between February 15, 2020 and April 26, 2020 they will be exempt from the FTE reduction calculation.
  2. The application includes a new certification to be made and initialed by the borrower if they claim the FTE Reduction Safe Harbor 1 detailed above.

The instructions are updated to reflect not only the changes from the Paycheck Protection Program Flexibility Act (PPPFA), but to provide guidance on some previously unanswered questions:

Covered Period & Alternative Payroll Covered Period are updated to reflect the 24 week period provided by the PPPFA.

  1. The Covered Period is either (1) the 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or (2) if the Borrower received its PPP loan before June 5, 2020, the Borrower may elect to use an eight-week (56-day) Covered Period. For example, if the Borrower is using a 24-week Covered Period and received its PPP loan proceeds on Monday, April 20, the first day of the Covered Period is April 20 and the last day of the Covered Period is Sunday, October 4. In no event may the Covered Period extend beyond December 31, 2020.
  2. Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the 24-week (168-day) period (or for loans received before June 5, 2020 at the election of the borrower, the eight-week (56-day) period) that begins on the first day of their first pay period following their PPP Loan Disbursement Date.  Borrowers that elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference in this application to “the Covered Period or the Alternative Payroll Covered Period.” However, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only. In no event may the Alternative Payroll Covered Period extend beyond December 31, 2020.

Eligible payroll cost information provided in the instructions is updated to include the following:

  1. A reminder that only payroll costs for employees whose principal place of residence is in the United States are eligible. 
  2. Reference added to the Interim Rule released on June 11th clarifying confusion surrounding the PPPFA 60% payroll requirement.  Several professionals interpreted the legislation to read that the 60% was a cliff, and that if a borrower does not meet the 60% payroll requirement their entire loan would not be eligible for forgiveness.  The SBA has clarified this issue by stating that this requirement is a proportional limit on non-payroll costs rather than as a threshold for receiving any loan forgiveness. 

The amounts below are now listed in the instructions as those a borrower will not include in their FTE reduction calculation:

  1. Any positions for which the Borrower made a good-faith, written offer to rehire an individual who was an employee on February 15, 2020 and the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
  2. Any positions for which the Borrower made a good-faith, written offer to restore any reduction in hours, at the same salary or wages, during the Covered Period or the Alternative Covered Period and the employee rejected the offer.
  3. Any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.

Documentation that borrowers must maintain after submitting their application received two important updates.

  1. Documentation regarding any employee job offers and refusals, refusals to accept restoration of reductions in hours, firings for cause, voluntary resignations, written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
  2. Documentation supporting the borrower’s claim if Safe Harbor 1 is claimed on the application.  This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.