On June 5, 2020, the president signed H.R. 7010, the Paycheck Protection Program Flexibility Act, into law.
This law clarifies terms of the PPP loan, eligibility, and loan forgiveness. Highlights include:
Expanded repayment period
There is now an expanded, five-year repayment period for the PPP loan for those who did not receive loan forgiveness, an increase from two years in the original guidelines.
Technically, this expanded period only applies to loans made after the passage of this bill, but lenders have the flexibility to negotiate the terms of existing PPP loans.
Easier PPP loan forgiveness
It is now much easier to get PPP loan forgiveness. The covered period during which the loan funds can be used has expanded from eight weeks to an optional 24.
The previous requirement to spend at least 75% of the loan on payroll costs to be eligible for loan forgiveness has also been lowered to 60%. Companies may need to be careful with that number; if they don’t use at least the full 60% of the loan on payroll costs, it appears, based on the text, that none of the loan will be forgiven. However, the U.S. Treasury is expected to issue further guidance on this.
Deferred social security taxes
Employers can now defer their 6.2% portion of social security payroll taxes all the way through 2020, regardless of loan forgiveness or repayment. The PPP loans granted under the CARES Act had previously allowed employers to defer their share of the tax only until the loan was forgiven.
Now, PPP loan borrowers may defer their entire 6.2% portion of social security tax through the end of 2020, even after some or all of the loan has been forgiven. They can repay half of that deferred amount in 2021 and the remaining 50% in 2022.
Of course, questions remain regarding PPP loan forgiveness. Nextep will continue to stay on top of the situation and keep you informed.
UPDATE: on June 10, the US Treasury and SBA released additional guidance on the PPPFA, amending some of the terms listed above. Check out our post for more info.
For helpful information, please visit our COVID-19 resources page.
