On Friday June 5, 2020, President Donald Trump signed the Paycheck Protection Program (“PPP”) Flexibility Act of 2020 (“Act”). It was a bipartisan effort and much applauded.
Some highlights of the Act include:
- The loan forgiveness period increases from eight to twenty-four weeks but no later than December 31, 2020.
- The payroll ratio of total eligible expenses reduces to 60% from 75%. What qualifies as forgivable expenses did not change.
- The rehiring deadline for the forgiveness calculation extends from June 30, 2020, to December 31, 2020.
- For loans not forgiven, the repayment period increases from two to five years, but only for loans obtained after enactment of the Act.
- Payroll tax deferral applies to all PPP recipients.
With the major enhancements above, businesses have a higher probability of having the entire PPP loan forgiven. In addition, deferral of payroll tax (the employer share of FICA 6.2%) payment needs to be acted on, if not already in place. A reminder that payment of such taxes through December 31, 2020, can be delayed until December 31, 2021 (50%) and December 31, 2022 (50%). Does your payroll tax provider need alerted?
More PPP guidance is still on the way, through a technical corrections bill. In addition, certain members of Congress are still lobbying to permit a tax deduction for use of the PPP loan forgiveness proceeds. At present, IRS guidance indicates that the loan forgiveness proceeds are non-taxable and the use of the proceeds are non-deductible – i.e., a wash. Time will tell. In the meantime, the Act provides welcome news to those businesses impacted.