Updated 6/12/2020
What is the Payroll Protection Program?
With Covid-19 taking its toll on small businesses the CARES act was put into legislation on March 27, 2020 and the Paycheck Protection Program (PPP) is a part of the act administered by the SBA. PPP’s purpose is to provide relief to small businesses during these tough times and help to cover the cost of payroll, hire back employees who had to be laid off and cover applicable overhead. The best part is the loan can be 100% forgiven if you meet certain criteria!
Who can apply for a PPP Loan?
The PPP Loan is for small businesses, self-employed individuals, or independent contractors (if they meet program size standards and were operating before February 15th).
The last date applications can be approved is June 30, 2020. So, if you have not already applied and your business can use the funds, we suggest you do this fast!
How can the PPP Loan be forgiven?
Now, to qualify and maximize forgiveness you must:
- Use it for eligible expenses – See chart of eligible and forgivable expenses.
- Keep your employee headcount up
- Do not reduce an employee’s wages by more than 25%
- Document everything and keep clear records.
- Forgiveness is not automatic, so you must fill out a forgiveness application.
Exactly what changes were made by the PPP Flexibility Act fully passed on June 5, 2020?
As of June 5, 2020, new legislation was signed to loosen the regulations for Loan forgiveness as many businesses were struggling with the original rules and the program was not acting as it initially intended. Now it should be easier for businesses to receive forgiveness! The Key changes are as follows:
- Covered time period extended—The period of time to use loan money has been extended from 8 to 24 weeks. This means that you have more time to apply funds to qualified expenses that maximize loan forgiveness, but you can stick with the 8 weeks if need to.
- Employer payroll tax deferred—Originally under the Cares Act, employers who received the PPP Loan could not also defer employer social security tax payments. The Flexibility Act adjusted this. Now, any employer with social security payments due between March 27, 2020 and December 31, 2020 can pay half of the amount due by the end of 2021 and the remainder by the end of 2022. – we do not suggest anyone differs their payroll taxes if possible – we actually advise against it.
- Loan payment deferral extended—The original 6-month deferral for repayment of PPP loans has been extended to 10 months. Payments are only required on the amount of the loan that is not forgiven.
- Payroll threshold adjusted—Originally, the Department of Treasury and the SBA determined that 75 percent of a PPP loan had to be used for payroll in order for the loan to be forgiven. The 75 percent threshold has been adjusted to 60 percent. Loan forgiveness will only be granted if 60 percent of funds are used for payroll.
- Safe harbor date extended—The original Cares Act included safe harbor exceptions to restore or attempt to restore full-time employees and any pay reductions by June 30, 2020. These exceptions still exist, but the date to restore has been adjusted to December 31, 2020.
- Loan term date extended—All new PPP loans effective after June 5, 2020; the passing of The Flexibility Act will have a five-year term. Businesses that received a loan prior to the new legislation can adjust the loan term from two to five years. Individuals will need to work with their lender to amend loan terms.
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