The U.S. Small Business Administration (SBA) has released a revised Paycheck Protection Program (PPP) loan forgiveness application.  In addition, there’s now a new EZ application for forgiveness of PPP loans as well.

This revised application reflects changes as a result of the PPP Flexibility Act (PPPFA), which was signed into law June 5, 2020.  The new forgiveness applications are available through the links below:

The SBA also issued a new interim final rule, which provides guidance on how to calculate employee and owner compensation for loan forgiveness in the new 24-week covered period created by the PPPFA.

Revised Forgiveness Application Highlights

The revised PPP Loan Forgiveness Application includes a number of notable items:

  • Health insurance costs for S corporation owners cannot be included when calculating payroll costs; however, retirement costs for S corporation owners are eligible costs.
  • Safe harbors for excluding salary and hourly wage reductions and reductions in the number of employees (full-time equivalents) from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted. Borrowers don’t have to wait until Dec. 31 to apply for forgiveness to use the safe harbors.
  • Borrowers that received loans before June 5 can choose between using the original eight-week covered period or the new 24-week covered period.

New EZ Application

The EZ application was created for borrowers that have more simple situations.  It requires fewer calculations and less documentation than the full application.  The EZ application can be used by 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 employees or the average paid hours of employees between 1/1/2020 and the end of the covered period; or
  • Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

New Interim Final Rule

The new interim final rule modifies previously released guidance for PPP loan forgiveness.

Payroll Costs Calculation

The PPPFA tripled the time during which the PPP loan funds needed to be spent, in order to qualify for loan forgiveness…known as the covered period.  The new interim final rule adjusts and adds to previously issued guidance for calculating loan forgiveness, when the covered period was only eight weeks.

The PPP provides loan forgiveness for payroll costs including salary, wages and tips, up to $100,000 annualized per employee, or $15,385 per individual over the 8-week period.  The new interim final rule sets the 24-week maximum for full loan forgiveness at $46,154 per individual.

Owner Compensation

While the employee compensation limit for the 24-week period is three times the eight-week amount, the interim final rule does NOT do the same for owner compensation.  Forgiveness for owner compensation is calculated as follows:

8-week period:  8 / 52 x 2019 Net Profit, up to a maximum of $15,385.

24-week period:  Forgiveness is limited to the lesser of $20,833 or 2.5 months’ worth (2.5/12) of 2019 net profit.

Owner’s compensation calculations are structured to prevent owners from taking advantage of PPP windfalls that Congress did not intend.

Other provisions

The new interim final rule also modifies earlier guidance for PPPFA changes:

  • The minimum term for PPP loans is raised to five years for all loans made on or after June 5. For loans made before June 5, the two-year minimum maturity remains in effect unless both the borrower and the lender agree to extend it to five years.
  • The proportion of PPP funding that must be used on payroll costs to qualify for full forgiveness drops to 60% from 75%.
  • The application deadline for PPP loans remains June 30

This continues to be an evolving situation, which we are monitoring closely.  Please reach out to your HW&Co. advisor with any questions.

Tony LaNasa, CPA/CFE

Jim Horkey, CPA/ABV, CFF, CM&AA