June 22, 2020

Updated Guidance on PPP Loan Forgiveness Now Available

Written by Dean Krech

On Tuesday, June 16th, the US Treasury released an updated version of the often-criticized PPP Loan Forgiveness Application, and the SBA released a new Interim Final Rule. The key provisions of these important releases are briefly summarized below.

1. Maximum payroll costs eligible for forgiveness have increased for both employees and owners when utilizing the new 24-week covered period allowed under the PPP Flexibility Act (PPPFA) passed recently.

A. For employees, the payroll costs eligible for forgiveness include salaries, wages and tips up to $100,000 in annualized pay per employee, with a maximum of $46,154 per employee. This equates to 24/52 x $100,000. Also eligible are covered benefits including health insurance, retirement contributions, and state taxes paid by the employer.

B. For self-employed workers and general partners/members, the amount eligible for forgiveness is now limited to 2.5 months’ of 2019 self-employment profit, up to a maximum of $20,833. This is also true for owner-employees, who can forgive compensation up to that $20,833 amount. This equates to 2.5/12 x $100,000.

2. The updated SBA ruling, modifies several elements of the FTE requirements included in the original PPP literature and later updated in the PPPFA.

A. The original guidance allowed an exception to the FTE reduction for employees that refused to return to work when the employer made a good-faith, written offer to rehire. While this exception remains, the employer must now also document an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.

B. The original guidance included a safe harbor date of June 30. This was later revised in the PPPFA to December 31, 2020. The latest guidance now states the safe harbor date is the "earlier of December 31, 2020 or the date the application was submitted."

C. We also now have exceptions in the latest guidance to the FTE requirements when the borrower is unable to return to normal business levels due to government mandates (such as those related to standards of social distancing or any other work or customer safety requirement related to COVID-19). This exception was detailed in the PPPFA. Further guidance will still need to be released to clarify if the business reduction, and resulting FTE reduction, must be a direct result of the government mandates, or if the poor economy and an inability to recover would suffice.

3. The SBA released a new Forgiveness Application form, which was badly needed. But also, we now have a simplified version of the form that should work for many borrowers, Form 3508EZ. This new form is three pages, and fairly easy to complete. To qualify for the new short form, the borrower must be able to meet one of the following criteria:

A. The borrower is a self-employed individual, independent contractor, or sole proprietor with no employees.

B. The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the covered period compared to the period between January 1, 2020 and March 31, 2020, AND the borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period.

C. The borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the covered period compared to the period between January 1, 2020 and March 31, 2020, AND the borrower was unable to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance with recent government mandates related to COVID-19.

The new guidance provides many answers and importantly, the new simpler form. But questions remain. We will continue to keep our clients apprised of changes as they happen.

Please let your JHM contact know if you have additional questions. We will do our best to help in anyway necessary.

Helpful Links

Form 3508EZ

Form 3508EZ Instructions