PPP Forgiveness Changes Coming as Senate Passes House Bill

The President is Expected to Sign

On June 3, 2020, the Senate passed the House version of the Paycheck Protection Flexibility Act (H.R. 7010). The President is expected to sign it into law. This legislation makes several key updates to the PPP loan forgiveness rules aimed at helping businesses better align forgiveness requirements with real-world recovery timelines.

Key Provisions of the PPP Flexibility Act

1. Payroll Expenditure Threshold Lowered

   • Reduces required payroll spending from 75% to 60% of total loan amount for forgiveness.

   • Important: The 60% threshold acts as a cliff—if not met, none of the loan will be forgiven.

2. Covered Period Extended

   • Borrowers may now use a 24-week covered period (up from 8 weeks).

   • Optional: Borrowers can still elect to use the original 8-week period.

3. FTE and Wage Restoration Deadline Moved

   • The deadline to restore full-time equivalent (FTE) headcount and/or wages has moved from June 30, 2020 to December 31, 2020.

4. New Exceptions for FTE Reductions

   • Loan forgiveness will not be reduced if:

     • The business is unable to rehire former employees or find similarly qualified workers.

     • The business is unable to return to pre-pandemic operating levels due to COVID-19 safety or health guidance.

5. Loan Term Extended

   • The term for any unforgiven portion of the loan is extended from 2 years to 5 years.

   • Interest remains at 1%.

Forgiveness Application Timing and Concerns

• The expanded 24-week period means forgiveness applications may begin as late as December 31, 2020.

• This raises questions about 2020 tax planning, particularly if forgiveness amounts or disallowed expenses remain unresolved at year-end. Businesses may need to consider:

  • Filing extensions

  • Preparing for amended returns in 2021

Strategic Considerations

• Businesses nearing the end of their original 8-week period and struggling to ramp up may benefit from slowing down rehires.

• The ability to spread payroll over 24 weeks can better align employee compensation with business reopening and recovery.

• Those who rehired early may find themselves at a disadvantage if business has not returned to sustainable levels of activity.

Loan Forgiveness Observations

• The new maximum payroll cost per employee under the 24-week period is $46,154 (24/52 of $100,000).

• Businesses need to carefully evaluate whether continuing payroll now or preserving funds for later periods makes better strategic sense.

Stimulus Payment Update

• Over 159 million stimulus payments have been issued.

• Non-filers must submit information through the IRS Non-Filers Tool by October 15.

• Eligible tax filers who did not receive a payment may claim it as a credit on their 2020 tax return.

• For assistance, call the IRS Economic Impact Payment line at 800-919-9835.

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