The Senate just passed the bill that the house passed last week making some needed changes to the Payroll Protection Program (PPP). Here are some of the key changes and things to be worked out:
- Instead of a 8 week covered period it is now 24 weeks or December 31, 2020.
- You are only required to spend at least 60% on payroll costs instead of the current 75%.
- However if you don’t spend at least 60% on payroll costs you get no forgiveness.
- Any unforgiven amounts will now be amortized over at least five years instead of two years.
- The forgiven amount remains tax-free however they did not fix the expenses being non-deductible therefore essentially the forgiven amount is taxable.
- Current loans can elect to keep the current eight week period.
Now for the parts that need to be clarified:
- The limit on payroll is $15,385. Will that remain the limit? The amount of loan available was capped at this amount so the assumption is the cap will not rise but that was not clarified in the Code changes.
- 24 weeks sounds great but what happens if your FTE drops substantially durIng the 24 week period. You may be better off with the 8 week period. This means if you have a reduction in forgiveness due to FTE after 8 weeks you will likely wait the full 24 weeks before sending in the application.
- It appears the 60% minimum spend on payroll applies to all loans not just new loans. But with 24 weeks to spend it that appears to be much easier to meet. Only spending 59% on payroll gets you no forgiveness.
We will provide more details as we receive guidance.