We’ve written extensively about the Paycheck Protection Program (“PPP”) enacted as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act). You can find our PPP observations and explanations on the COVID-19 Resources page of our website.
In our discussion, on May 22, 2020, of the PPP Loan Forgiveness Application, we urged patience. See our post by clicking here.
We continue to urge patience. However, you may be able to act soon with regard to your forgiveness application.
Late Thursday, May 28, and by a 417-1 vote, the House of Representatives passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010). H.R. 7010 contains a number of provisions that make the PPP more flexible and that make complete forgiveness of the PPP loan more likely for more, if not most, qualified PPP loan borrowers. Among other changes, H.R. 7010 provides:
- The earlier of a 24-week period or the period ending December 31, 2020 to spend the PPP loan proceeds in order to receive loan forgiveness (the “covered period”). The covered period begins with the funding of the loan. The CARES Act provided an eight-week covered period.
- Amendment of the limitation of 25 percent of loan proceeds being applied to qualifying non-payroll costs. This limitation was imposed by the Small Business Administration. The new limitation in the bill is 40 percent for such costs.
- Extension of the June 30 safe-harbor rehiring date until December 31, 2020. There are other favorable changes to the workforce reduction limits on forgiveness.
- A minimum maturity of five years for the PPP Loan.
- Elimination of the exception to the deferral of payment of certain payroll taxes provided in the CARES Act. Even if the PPP loan is completely forgiven, H.R. 7010 provides that payment of the subject payroll taxes can be deferred until December 31, 2021 (50 percent payment) and December 31, 2022 (50 percent payment).
The Senate reconvenes this week after a recess and is expected to take up this legislation this week or next. We understand that the Senate is not in complete agreement with the House bill. For example, the Senate is said to favor a 16-week covered period, rather than 24-week covered period. Nevertheless, observers expect that a compromise between the House and Senate will substantially benefit PPP loan borrowers and can be expected quickly.
One item not addressed in this bill (or probably in the Senate’s version) is the deductibility of expenses paid with PPP loans that are forgiven tax-free. Knowledgeable sources tell us that the odds are in favor of passage of a law providing for deductibility of such expenses. “They just have to find a piece of legislation to which to attach the provision.” (Under the rules of Congress, it is very unlikely that it can be part of the pending legislation discussed herein.)
In summary, relief is on the way. Before you try to calculate and secure the forgiveness of the loan, you need to know the rules. We’ll keep you informed. We are here to help.
For more information check out HM&M’s COVID-19 Resources page.
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