This week, the Small Business Administration (SBA) released a revised Paycheck Protection Program (PPP) loan forgiveness application and a new EZ application for PPP loan forgiveness along with instructions for the revised and EZ forms. The applications include changes that became law in early June when the Paycheck Protection Flexibility Act of 2020 (PPFA) was signed. The PPFA extended the term of PPP loans made after June 5, 2020 to five years and changed the ratio of payroll to non-payroll costs eligible for forgiveness from 75%/25% to 60%/40%. Additionally, it increased the forgiveness covered period to 24 weeks with an option to continue using an eight week period. The new application instructions added new limits on compensation and other eligible payroll costs for owners.
The SBA also issued a new interim final rule this week with guidance on calculating loan forgiveness related to employee and owner compensation during the new 24-week covered period described in the PPFA.
Revised PPP Loan Forgiveness Application
Revisions included in the updated PPP Loan Forgiveness Application include:
- Borrowers who received loans before June 5 can choose to use either the original eight-week covered period or the new 24-week covered period (note that currently there is no option for a forgiveness period between 8 and 24 weeks).
- Owners of S corporations (as well as partnerships, LLCs, and self-employed persons) cannot include health insurance costs in their payroll cost calculations since those costs should be included in compensation under IRS rules.
- Employee owners of S corporations can include retirement costs as additional eligible payroll costs (but not partnerships, LLCs and self-employed persons).
- Borrowers can apply safe harbors for reductions in salaries or the number of full-time equivalent (FTE) employees as of the date they submit the loan forgiveness application and do not have to wait until December 31, 2020.
- Other eligible non payroll costs cannot exceed 40% of the forgiveness calculation.
- See below discussion of new limits on owner’s compensation included in the forgiveness calculation.
New EZ Loan Forgiveness Application
Some borrowers may now use the new EZ Loan Forgiveness Application that requires less supporting documentation and fewer calculations than the revised application. The EZ Loan Forgiveness Application is for borrowers who meet any of the below:
- Are self-employed and have no employees;
- Did not reduce salaries/wages of employees earning less than $100,000 by more than 25% and did not reduce the number of employees or the average paid hours between January 1, 2020 and the end of the covered period (with certain exceptions);
- Experienced reductions in business activity as a result of the COVID-19 health directives and did not reduce salaries/wages of employees earning less than $100,000 by more than 25%.
New Interim Final Rule
This week’s updates to the interim final rule relate to determining payroll costs and owner compensation during the extended 24-week covered period when calculating PPP loan forgiveness along with the other changes mentioned above. The 24-week maximum payroll cost per individual eligible for full loan forgiveness is $46,154 (compared to the $15,385 maximum if using the eight-week covered period).
Limits for Owner Compensation
Based on the interim final rule, for businesses that file Schedule C (Profit or Loss from Business) or Schedule F (Profit or Loss from Farming) tax returns, the forgiveness calculation for the extended 24-week covered period is limited to $20,833 (2.5 times the monthly net profit limit based on $100,000 annually).
Based on the revised forgiveness application, this new limit of $20,833 also applies to all employee-owner’s compensation and partner’s and member’s income.
Contact WBL today to discuss your questions about the new PPP Loan Forgiveness Applications and the new Interim Final Rule. Check out WBL’s COVID-19 Business Support page for links to the applications and application instructions, blog articles, presentations and more resources to help your business during these uncertain times.