PPP Update – New Rules, New Applications
June 18, 2020
On June 16, the SBA released new rules for self-employed PPP borrowers, new applications for forgiveness (including an ‘EZ’ form for some borrowers) and new instructions for the applications. The new rule, application forms, and instructions can be found here. You may also be interested in today’s Journal of Accountancy article, found here.
This post focuses on what we know from the new information. There were also a number of questions raised, for which we expect to receive further clarification in the next couple weeks. We will keep you up-to-date as we learn more. Here are the main points from the June 16 update:
For non-owner employees, the maximum forgivable payroll (cash compensation) is $15,385 ($100,000 prorated to 8 weeks) if the borrower elects an 8-week covered period, and $46,154 ($100,000 prorated to 24 weeks) if the borrower elects a 24-week covered period. In addition, non-cash compensation of group health insurance premiums, retirement payments, and employer paid state/local taxes on wages (e.g. SUTA) are allowable.
For self-employed, general partners and owner-employees (S Corp shareholders) the maximum forgivable payroll is $15,385 if the borrower elects an 8-week covered period and $20,833 ($100,000 / 12 X 2.5 (months)) if 24 weeks is elected. The $20,833 is the maximum they could have borrowed and so the forgiveness has been set to match the loan. Therefore, a self-employed borrower without employees should be assured of full forgiveness if they elect the 24-week covered period. Non-cash compensation is not permitted in addition to cash compensation.
Health insurance costs for S Corp owners cannot be included when calculating payroll costs; however, retirement costs for S Corp owners are allowable.
Previous guidance included a safe harbor whereby borrowers who had a decrease in FTEs between 2/15/20 and 4/26/20 but (by 6/30/20) restored their FTEs to the level at 2/15/20 would not have their loan forgiveness reduced due to a decrease in average FTEs during the covered period and one of two reference periods (2/15/19–6/30/19 or 1/1/20–2/29/20). The new guidance has changed the 6/30 deadline to the earlier of 12/31/20 and the date of application for forgiveness. This change in dates can have significant impacts on borrowers who are adding FTEs (and payroll costs) as they approach June 30 with the expectation of restoring their loan forgiveness. Those borrowers will now need to keep employees on payroll for a longer time.
The same extension for FTEs also applies to restoring salary/wage reductions by 6/30/20, the new requirement is the earlier of the application for forgiveness or 12/31/20.
A new safe harbor has been created whereby borrowers who can certify that they were unable to operate between 2/15/20 and end of the covered period at the same level of business activity as before 2/15/20 due to compliance with requirements to maintain standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 (e.g. restaurants, hospitality borrowers) will not have their loan forgiveness reduced to due reductions in FTEs.
A new ‘EZ’ loan forgiveness application is available to borrowers of all size loans (including those over $2 million) if they can certify to one or more of the following:
- Is self-employed and did not include employees on the application for the loan or the application for forgiveness, or
- The borrower did not reduce salaries/wages of any employee by more than 25% during the covered period compared to the period 1/1/20–3/31/20 AND did not reduce the number of employees or the average paid hours between 1/1/20 and end of the covered period, or
- The borrower did not reduce salaries/wages of any employee by more than 25% during the covered period compared to the period 1/1/20–3/31/20 AND the borrower was unable to operate during the covered period at the same level of business activity as before 2/15/20 due to compliance with requirements to maintain standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
We realize the continuing changes to the PPP forgiveness process can be stressful for clients trying to maximize their forgiveness. If you’d like help filling out the original PPP loan forgiveness application, we created a video walkthrough to help. Do not hesitate to reach out to me, Caleb or Cassandra for help in assisting clients.