On Wednesday, June 3, 2020, the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020 (H.R. 7010), which was approved by the House late last week. President Trump is expected to sign the Act into law. As a part of the larger Coronavirus Aid, Relief, and Economic Security (“CARES”) Act, the Paycheck Protection Program (“PPP”) provides loans to small-to-mid-sized businesses suffering from the COVID-19 pandemic. As enacted, the PPP loans are to be forgivable when used for specific business and payroll expenses during a specified timeframe. Any forgiven loan amounts are excluded from businesses’ taxable income. However, due to insufficient funding and lengthier pandemic-related shutdowns, the PPP relief became inaccessible for many businesses.
The changes made to the PPP by the new legislation include:
- Allowing businesses 24 weeks (or until December 31, 2020, if it comes first) post-loan origination to use loan money that will qualify for forgiveness. This applies to both new and existing loans.
- Reducing the amount of loan money required to be spent on payroll expenses from 75 percent to 60 percent, allowing more funds to be spent on rent, utility payments, and mortgage interest.
- Extending the time period for the rehiring exception to forgiveness reduction from June 30, 2020 to December 31, 2020 and adding new exceptions for employers who could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19-related operating restrictions.
- Extending the loan terms from two to five years, unless otherwise modified by lenders and borrowers.
- Permitting payroll tax deferment for businesses that receive PPP loans regardless of loan forgiveness. Under the CARES Act and subsequent interpretive guidance, payroll tax deferral could only be utilized up until a business received notification of loan forgiveness.
- Replacing the six-month deferral of PPP payments due with deferral until the date on which the amount of loan forgiveness is provided to the lender.
The legislation does not clarify the parameters of the required PPP certification that “[c]urrent economic uncertainty makes [a] loan request necessary to support the ongoing operations of the Applicant.” It also does not address the deductibility of expenses paid for by PPP loan funds, as previously discussed in a prior post. Further PPP corrections and guidance are expected.