Coronavirus Aid, Relief and Economic Security Act (CARES Act)

The Paycheck Protection Program Flexibility Act of 2020 – What You Need To Know

The Paycheck Protection Program Flexibility Act of 2020 (Flexibility Act), which passed the Senate on June 3, 2020 and is awaiting President Trump’s signature, made significant changes to the Paycheck Protection Program rules. The new Act provides additional flexibility to PPP borrowers in several key areas as stated below.

What Has Changed

  • Extension of Covered Period – The Paycheck Protection Program has been extended to December 31, 2020 from June 30 2020.
  • Extension of forgiveness covered period – The covered period for the use of loan proceeds has been extended to the earlier of December 31, 2020 or 24 weeks. Extending the covered period from 8 weeks to 24 weeks will give businesses more latitude in the rehiring process. Businesses who have already received PPP loans prior to the enactment of the Flexibility Act may choose to keep the original 8-week covered period for their loan forgiveness.
  • Use of Proceeds – The requirement to spend 75 percent of the forgiveness amount of a PPP loan on payroll costs for maximum loan forgiveness has been changed. The current rule requires that 75 percent of the loan forgiveness amount must be used for payroll costs, with the balance used for mortgage interest, rent, and utilities, otherwise, the borrower’s forgiveness amount will be reduced.   To receive loan forgiveness under the Flexibility Act, an eligible recipient must use 60 percent of the covered loan amount for payroll costs and may use up to 40 percent for the payment of interest on any covered mortgage (which shall not include any prepayments), rent, and utilities.
  • Terms of repayment – The term for repayment of any unforgiven portion of PPP loans has been extended from 2 years to 5 years.  The interest rate of such loans remains at 1%.
  • Deferral of payments – The requirement for lenders to defer payments for not less than 6 months and not more than one year has been replaced. Under the Flexibility Act, the lender must provide complete payment deferment relief for borrowers until the date on which the amount of forgiveness determined is remitted to the lender. It also added a clause stating if an eligible recipient fails to apply for forgiveness within 10 months of the last day of the covered period, loan payments will begin on the day after the 10 month period.
  • Deferral of FICA tax – Borrowers can continue to defer employer FICA taxes on payroll through December 31, 2020. Previously, recipients of PPP loans were permitted to defer employer FICA taxes on payroll until they receive their forgiveness confirmation from their lender.  The Flexibility Act allows borrowers to continue deferring such taxes through December 31, 2020, like businesses that did not receive PPP loans.  These deferred taxes will be due 50% on December 31, 2021 and 50% on December 31, 2022.
  • Employee Rehires – The date by which staffing levels and salary/wage reductions must be restored in order to meet the safe harbor requirements has been extended from June 30, 2020 to December 31, 2020. In addition, a safe harbor has been created for businesses that are unable to rehire employees up to previous staffing levels or to return to previous levels of business activity as a result of COVID-19. Businesses will not be penalized in their loan forgiveness calculation if they have documented evidence of their inability to restore staffing levels to pre-February 15, 2020 levels or have documented evidence of their inability to return to their pre-February 15, 2020 level of business activity as a result of restrictions imposed relating to social distancing, sanitation, or any other safety requirement related to COVID-19.

 

How Can KatzAbosch Help?

Although the new legislation provides more latitude for employers to decide how they wish to use their PPP funds, we realize that borrowers may still need assistance and have more questions. Each borrower has their own individual set of circumstances, and the answers are not always black and white. It is important for borrowers to “get in front” of their loan forgiveness calculation and make adjustments before the end of the covered period if necessary. KatzAbosch helps businesses through the process by providing consulting and guidance for Paycheck Protection Plan (PPP) funds.

We are here to help guide and assist borrowers through this process and help gather required documentation for your lender. If you have questions about your unique situation, please reach out to your KatzAbosch representative or contact us.

 

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