New Law Revamps Rules for Paycheck Protection Program


The President has just signed off on the Paycheck Protection Program Flexibility Act (PPPFA), marking substantial changes Congress made to the Paycheck Protection Program (PPP).

Jun 5th 2020
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The massive Coronavirus Aid, Relief and Economic Security (CARES) Act created the PPP back in March. Under the CARES Act, employers may qualify for special SBA loans that may be fully or partially forgiven if certain requirements are met. The new law generally loosens the rules for borrowers.

Some of the main provisions of the PPPFA are as follows:

Period for using loan proceeds: Initially, forgiveness of PPP loans was based on payments over the eight weeks following the distribution of the loan proceeds. Now the new law extends this eight-week period to the earlier of 24 weeks or December 31, 2020. Borrowers who received their money before the PPFA’s enactment can elect to user the shorter eight-week period.

Use of loan proceeds: To qualify for forgiveness of PPP loans, borrowers were required to use at least 75 percent of the loan proceeds for payroll costs (e.g., wages and health plan benefits). Notably, in response to public pressure, Congress has lowered the requirement to 60 percent of payroll costs. Note, however, that the new law doesn’t change the rules restricting use of proceeds to payroll costs and benefits, mortgage interest, rents and utilities. 

Maturity date: The new law extends the maturity date of PPP loans that aren’t forgiven from two years to five years. This provision specifically applies to borrowers who receive money from the PPP after the new law’s date of enactment. For existing loans, the parties can come to their own mutual agreement.

Staffing safe-harbor rule: As before, loan forgiveness remains based on retention of full-time equivalent employees (FTEs), as compared to prior staffing levels. But the new legislation extends the safe-harbor deadline for rehiring workers from June 30, 2020 to December 31, 2020. Borrowers who bring back furloughed or laid-off workers in time won’t be penalized by reduced loan forgiveness.

Exemptions from forgiveness penalties: The new law adds two exemptions from the rules requiring reduction of loan forgiveness.

  1. The forgiveness amount won’t be reduced based on a lower FTE count if the borrower can show that it unsuccessfully attempted to rehire workers who were employed on February 15, 2020 and it’s unable to hire similarly qualified workers before December 31, 2020. (This codifies informal guidance from the IRS.)
  2. Loan forgiveness won’t be reduced if the borrower can show that it is unable to return to the same level of business activity it had before February 15, 2020 due to conditions such as social distancing, sanitization and/or worker or customer safety issues.

Payroll tax deferrals: The CARES Act carved out special rules allowing employers to defer the Social Security tax portion of payroll taxes if they didn’t have PPP loans forgiven The new law removes this restriction for PPP borrowers.

These are just the highlights of the PPPFA. The government is expected to provide additional guidance in the form of new regulations. Keep appraised of all the latest developments so you can better assist your clients.

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