On May 22, 2020, the Small Business Administration (SBA) and U.S. Dept. of Treasury released their interim final rule on loan forgiveness for the Paycheck Protection Program (PPP) business loans.
This release supplements the previously posted interim final rules in order to help PPP borrowers prepare and submit loan forgiveness applications as provided for in the CARES Act and to inform borrowers of the SBA’s process for reviewing PPP loan applications and loan forgiveness applications.
Below are some highlights from this recent release.
- Borrowers will submit their loan forgiveness application and documentation to their lender. The lender has 60 days from receipt of a complete application to issue a decision on forgiveness to the SBA. The SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to the SBA.
- Clarification on when payroll costs must be incurred and/or paid to be eligible for forgiveness.
- Clarification that salary, wages, or commission payments to furloughed employees; bonuses; or hazard pay during the covered period are eligible for loan forgiveness.
- Clarification on caps on the amount of loan forgiveness available for owner-employees and self-employed individuals. Specifically, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than the lesser of 8/52 of 2019 compensation or $15,385 per individual. In particular, owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. Also, no additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners.
- Nonpayroll costs are eligible for forgiveness if paid during the covered period or incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period. This clarification may allow for more than eight weeks of expenses eligible for forgiveness if past due amounts were paid during the covered period. The Release acknowledges this and allows it due to simplification and noting the 25 percent cap on nonpayroll costs will avoid excessive inclusion of nonpayroll costs.
- Borrower may exclude any reduction in full-time equivalent employee headcount that is attributable to an individual employee if:
- the borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
- the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
- the offer was rejected by such employee;
- the borrower has maintained records documenting the offer and its rejection; and
- the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.
- A borrower’s loan forgiveness amount will not be reduced if an employee is fired for cause, voluntarily resigns, or voluntarily requests a schedule reduction.
In addition to this new release, Congress has recently expressed the desire for enhancement of the PPP loan program, including an extension to the eight-week covered period and adjustment to the allocation of nonpayroll costs. The IRS has also issued guidance on the deductibility of expenses forgiven under PPP. The amount of PPP loan forgiven is excludable from gross income under the CARES Act. The IRS has taken the position that expenses forgiven as part of the PPP loan are not deductible. Congress has indicated that this was not their intent and may legislatively cure this IRS position.
Click here to view the full release of the interim final rule.
As a reminder, we have created a COVID-19 Resource Page, which we are updating frequently with current information. We encourage you to visit this page for additional updates and information directly relevant to you and/or your business.
Please know that we are working hard to keep you informed and stay informed ourselves while simultaneously carrying on with completing your work in an accurate and timely fashion. If you have any questions, please do not hesitate to contact us.
Farkouh, Furman & Faccio LLP