On June 3, 2020, President Trump signed into law a bill that gives small business owners more flexibility when using Paycheck Protection Program (PPP) funds and applying for loan forgiveness.
The Paycheck Protection Program Flexibility Act (PPPFA) was passed nearly unanimously by the Senate and House in response to complaints by employers who are struggling to meet the requirements for forgiveness.
The changes give borrowers greater flexibility in how they spend their loan, and in the length of the time they have to spend it.
The U.S. Small Business Administration, in consultation with the U.S. Department of the Treasury, issued new and revised guidance.
Here’s what you need to know:
- Borrowers now have 24 weeks from the disbursement of their loan (instead of 8) to use the PPP funds, or until Dec. 31 when the program is now set to end. (Note: Borrowers can still opt to use funds in the original eight-week period.)
- It cuts the share of aid recipients need to use on payroll costs to 60% from 75%. Borrowers will be eligible for proportionally-reduced forgiveness if they spend less than 60% of the loan proceeds on payroll, rather than no forgiveness. Payroll costs include:
- Salary, wages, commissions and tips—up to $100,000 annualized for each employee
- Employee benefits, including paid leave, severance pay, insurance premiums and retirement benefit
- State and local taxes assessed on pay
- Payroll costs for sole proprietors and independent contractors include wages, commissions, income or net earnings from self-employment (up to $100,000 annualized)
- Employers now have until Dec. 31 (vs. June 30) to rehire laid-off workers and be elgible for full forgiveness, even if their 24-week period expires sooner.
- It extends the maturity date of the PPP loans, for any portion of a PPP loan that is not forgiven, from two years to five years for loans issued on or after June 5, 2020. Loans issued before June 5, 2020, will continue to have a two-year maturity period for any portion of the loan not forgiven.
- Companies receiving loan forgiveness will also be able to defer payroll taxes.
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