The Paycheck Protection Program (PPP) was very popular when it was introduced, particularly because of the prospect of the loan being fully forgiven if all criteria were met. However, the application forms were long and complicated. On June 16, the Small Business Administration (SBA), in consultation with the Department of Treasury, published a simplified version of the PPP loan forgiveness application form, implementing the modifications made by the PPP Flexibility Act of 2020. The SBA also published a new, EZ version for certain employers. The new application forms were published alongside revised interim rules on how to calculate employee and owner compensation for loan forgiveness as a result of the Flexibility Act.
Revised Application Form
The revised form incorporates the changes made by the Flexibility Act and include:
- eligible and non-eligible costs: S corporation owners cannot include their health insurance costs when calculating payroll, but their retirement costs are eligible.
- using safe harbors before December 31. These safe harbors will apply as of the date the loan forgiveness application is submitted and cover the exclusion of salary, hourly wage and full-time equivalent employee reductions.
- allowing borrowers who received loans before June 5 (when the Flexibility Act was signed into law) to chose either the original eight-week covered period or the new 24-week covered period.
The EZ version of the application for forgiveness requires fewer calculations and less documentation. It is for borrowers who:
- are self-employed and have no employees; OR
- did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number of hours of their employees; OR
- experienced reductions in business activity due to pandemic-related health directives but did not reduce the salaries or wages of their employees by more than 25%.
Revised Interim Final Rules
As outlined in the Flexibility Act, the covered period for PPP loans has been extended from eight weeks to 24 weeks if the loans were received before June 5.
Under the original covered period of eight weeks, borrowers could receive forgiveness for annualized payroll costs of up to $100,000 per employee. This worked out to $15,385 per individual over the eight-week covered period. Now that the covered period is for a maximum of 24 weeks, the new interim final rule increases that amount for full forgiveness to $46,154 per individual.
However, where owner compensation is concerned, the calculations are not the same. While forgiveness for the owner compensation replacement was originally limited to eight weeks of their net profit from 2019 (up to $15,385), the new interim final rule changes that to 2.5 months of 2019 net profit (up to $20,833) for a 24-week covered period. The interim final rule states that the calculations were structured this way to prevent owners from reaping PPP windfalls that Congress did not intend.
If you need more information or help with your PPP loan forgiveness application, please contact your Smith & Howard advisor or fill in the form below.
The interim final rules can be found here.