Updated PPP Loan Forgiveness Rules and Application

Although it has been quiet on the Paycheck Protection Program (PPP) front as of late, there are still many issues and topics being worked on behind the scenes at the U.S. Treasury Department and SBA. As a result, On June 16th, 2020, the SBA (in consultation with the US Treasury department) issued additional updates and revisions on the Paycheck Protection Program (PPP) Loan Forgiveness application. The SBA also unveiled a new EZ application for forgiveness of PPP loans. Note that the new application and the additional EZ application will supersede the version previously released by the SBA on May 15th, 2020.

In combination with the most recent interim rules issued by the SBA on June 5th, (https://www.congress.gov/bill/116th-congress/house-bill/7010/text), the revised PPP Loan Forgiveness Application and instructions include several notable or previously unanswered items, including:

• Health insurance costs for S Corporation owners cannot be included when calculating payroll costs; however, retirement costs for S corporation owners remain eligible costs.
• Safe harbors for excluding salary and hourly wage reductions and reductions in the number of employees (full-time equivalents) from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted. Borrowers do not have to wait until Dec. 31st to apply for forgiveness to use safe harbors.
• Borrowers that received loans before Jun 5th can choose between using the original eight-week covered period or the new 24-week covered period. The new instructions do not suggest that there is an additional form required for the 8-week election.
• Prior to this latest guidance, owner compensation was limited to eight weeks’ worth (8/52) of 2019 net profit, up to $15,385. PPP Loan borrowers using the 24-week covered period can now include 2.5 months’ worth (2.5/12) of 2019 net profit up to $20,833
• PPP loan borrowers can obtain forgiveness for cash compensation in the maximum amount of $46,154 per employee, calculated as $100,000 as prorated over the 24-week covered period, or $15,385 over the 8-week covered period.

New EZ Application: Form 3508EZ

The EZ PPP Loan Forgiveness Application (https://home.treasury.gov/system/files/136/PPP-Forgiveness-Application-3508EZ.pdf) requires fewer calculations and less documentation than the full application. It is important to note, however, that each lender may still have varying requirements for documentation required when submitting the application for loan forgiveness. The EZ application can be used by borrowers that:

• Are self-employed (or an independent contractor or sole proprietor) and had no employees at the time of the PPP loan application and did not include any employee salaries in computation of average monthly payroll in the PPP loan application form;
• Did not reduce the salaries or wages of their employees by more than 25% during the covered period or compared to the period between January 1, 2020 – March 31, 2020 and did not reduce the number or hours of their employees between January 1, 2020 and the end of the covered period;
• Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25% during the Covered Period or compared to the period between January 1, 2020 and March 31, 2020