PPP Changes: The PPP Flexibility Act

In an effort to amend the widely criticized paycheck protection program within the CARES Act, the House & Senate have agreed upon some favorable changes noted as the “Paycheck Protection Program Flexibility Act of 2020”.

Loan Maturity has been extended to a minimum maturity of 5 years.

Covered Period has been increased from 8 weeks to the earlier of 24 weeks after funding of the loan or December 31, 2020. With this extension, businesses now have until December 31, 2020 to rehire employees back as opposed to June 30, 2020. Businesses who received the loan before this Flexibility Act may elect to still use the 8 week covered period.

Issues with Rehiring Employees will not reduce loan forgiveness if business is able to document (A) an inability to rehire individuals who were employees as of February 15, 2020 or qualified employees for unfilled positions on or before December 31, 2020 or (B) is unable to return to the same level of business activity comparable to February 15, 2020 due to compliance with requirements established by the CDC for health & safety requirements in the workplace.

Payroll Costs versus Nonpayroll Costs Allocation has been changed to a minimum of 60% of the loan must be used on payroll costs (reduced from 75%) and now up to 40% may be used on nonpayroll costs (mortgage interest, rent, utilities)

Deferral Period on Loan Payments has been changed to end after the amount of forgiveness determined is remitted to the lender. Should a recipient fail to apply for forgiveness within 10 months after the last day of their covered period, their deferral period will end and they shall begin to make payments.

Deferral of Payroll Taxes may continue for businesses beyond receipt of PPP loan forgiveness. Reminder, this is a deferral of the employer’s portion of social security taxes, 50% of the deferral amount due December 31, 2021 and the remaining due December 31, 2022. Please refer back to our previous posting for the full details of payroll tax deferrals.

Ralph Cetrulo, CPA Tax Partner [email protected]