Earlier this week, the Treasury Department released a new Paycheck Protection Program (PPP) Loan Forgiveness Application. You can access the application here and the related filing instructions here.
The revision was necessary to take into account the changes made to the loan program as a result of the recently enacted Paycheck Protection Program Flexibility Act. You can read more about those provisions here.
The application makes it clear that payroll costs must be at least 60% of the forgiveness amount. Partial forgiveness is available if payroll costs do not make up 60% of the loan amount. It is important to note that borrowers are free to spend more than 60% of their loan proceeds on payroll costs to obtain forgiveness. There is no cap on the amount attributable to payroll.
A borrower who received their loan proceeds before June 5 may elect either an 8-week covered period or a 24-week covered period (those who received their loans after June 5 must use a 24-week covered period). The annual $100,000 limit on compensation eligible for forgiveness depends on the covered period chosen as well as employee status:
Owner-employee has now been defined to include S corporation shareholders. While previously owner-employees were not permitted to include their health insurance costs or retirement plan contributions in payroll expenses, the new application permits S corporation shareholders to include employer retirement contributions in the forgiveness calculation.
New EZ Forgiveness Application
Certain borrowers will be able to take advantage of a simplified forgiveness application. You can access the application here and the related filing instructions here. In order to qualify for the short form, you must meet ONE of the following requirements:
- The borrower is a self-employed individual, independent contractor, or sole proprietor who has no employees.
- The borrower did not reduce:
- any employee’s salary by more than 25 percent during the covered period compared to the period between January 1, 2020 and March 31, 2020 (employees who made more than $100,000 in 2019 are excluded from this calculation) AND
- the number of employees or average paid hours of employees between January 1, 2020 and the end of the covered period
- The borrower:
- did not reduce any employee’s salary by more than 25 percent during the covered period compared to the period between January 1, 2020 and March 31, 2020 (employees who made more than $100,000 in 2019 are excluded from this calculation) AND
- was unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
The SBA continues to promise additional guidance on the provisions of the PPP. As such, we are recommending you wait to submit your forgiveness application until mid-July at the earliest. There is still much guidance needed and due to be issued. The forgiveness application is not due until 10 months after the end of your covered period, so there is no rush to apply early.
We will keep you informed as we learn more. As always, contact your DunlapSLK team member with any questions you may have.