Senate Passes the Paycheck Protection Program Flexibility Act (H.R. 7010)

Last evening the Senate passed the Paycheck Protection Program Flexibility Act (H.R. 7010) as it was presented to them by the House.  This presents yet another significant change to the rules of the payroll stimulus which has been impossible to plan for due to its ever-changing landscape.  This bill is expected to be signed by the President in the near future.

Key changes include:

• Extension of period to use the loan proceeds from 8 weeks to 24 weeks
  • That indicates the $15,384 compensation limit per employee is increased to $46,154
  • You can opt to continue to use an 8 week period – say for example if you spend the full loan amount within 8 weeks and want to seek forgiveness at that time
• Changed the ratio of spending on eligible payroll costs to non-payroll costs (rent, utilities, mortgage interest) from 75% Payroll / 25% non-payroll to 60% payroll / 40% non-payroll
  • However, this bill creates a new criteria that if the borrower does not spend at least 60% on payroll then there will be no forgiveness
• 6/30/20 deadline to rehire or reinstate wage/salary rates to 2/15/20 levels was extended to 12/31/20
• Companies that receive PPP loan forgiveness can now also defer employer portion of social security tax (6.2%) until the end of 2021 (50%) and 2022 (50%) – formerly you could not benefit from both incentives
• If there is a loan at the end (which will be less common given these changes) there are some changes to the loan:
  • Repayment term may extend beyond 2 years to up to 5 years
  • Extended deferral period for payment of principal and interest from 6 months to the date the SBA determines forgiveness amount

Conspicuous in its absence from the bill is any mention about deductibility of expenses that lead to forgiveness.  IRS Notice 2020-32 states that expenses used in generating forgiveness of the PPP loan will not be deductible to the extent of loan forgiveness. Despite initial indications that Congress would pass legislation to overturn this position, there has been no further progress on this issue.

We fully expect a revision to the SBA’s forgiveness application form and related instructions along with more guidance to be issued from the SBA and US Treasury.

This information is current as of June 4, 2020.