On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (Flexibility Act) to ease the loan forgiveness rules for businesses.
Following are the major changes to the Paycheck Protection Loan Program:
Period to Use Paycheck Protection Loan Funds Extended from 8-weeks to 24-weeks
Under the Flexibility Act, Paycheck Protection funds expended on covered expenses during the 24-week period following the receipt of the loan will be eligible for forgiveness. Businesses may, however, elect to retain the original 8-week period.
Paycheck Protection Funds Required for Payroll Reduced to 60%
The Flexibility Act reduces the minimum amount of the loan required to be expended on payroll from 75% to 60%, thus increasing the amount of funds available for other covered costs (e.g. rent, mortgage payments, utilities) from 25% to 40%.
Paycheck Protection Loan Repayment Term Extended from 2 years to 5 years
Borrowers will have five years at 1% interest to repay their unforgiven portion of the Paycheck Protection loan.
Employee Rehiring Requirements Eased
The date borrowers must return to pre-pandemic employment and wage levels was changed from June 30, 2020, to December 31, 2020.
Exemption Based on Employee Availability and Business Activity
The Flexibility Act allows borrowers to avoid the forgiveness reduction based on the employee head count if the borrower, in good faith, is able to document one of the following two scenarios:
Scenario 1: Is unable to rehire individuals who were employees on February 15, 2020 and unable to hire similarly qualified employees on or before December 31, 2020.
Scenario 2: Is unable to return to the same level of business activity as the business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the US Department of Health and Human Services, Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration.
Payroll Tax Deferral Now Available to Paycheck Protection Program Borrowers
The Flexibility Act also allows Payroll Protection Program participant employers deferral, through December 31, 2020, for the employer portion of certain payroll taxes. Previously, deferral for businesses participating in the Paycheck Protection Program was limited to the employer portion through the participant’s loan forgiveness date.
Reese Henry is Here to Help
Please contact your Reese Henry professional with any questions related to your loan forgiveness calculations or other matters you may need help with during these challenging times.