PPP Loan Flexibility & Maximizing Forgiveness

Orange County Business Journal Masthead
The Paycheck Protection Program Flexibility Act recently became law to provide additional flexibility on the use of Paycheck Protection Program (PPP) funds and make it easier for businesses to qualify for full loan forgiveness. Among the changes are an expansion of the “covered period” for loan forgiveness to 24 weeks from 8 weeks, a reduction of the proportion of proceeds that must be spent on payroll costs to 60% from 75%, and the establishment of a safe harbor for businesses that have been unable to return to the level of business activity they had before the COVID-19 pandemic due to compliance with health and safety guidelines.

On June 16th, the SBA also revised the PPP Loan Forgiveness Application, changing several notable items. The revisions include:

  • The maximum compensation eligible per employee is increased to $46,154 plus covered benefits such as healthcare and retirement contributions.
  • For owners, the compensation is capped at 2.5 months of 2019 compensation, with a maximum of $20,833.
  • Eligible payroll costs do not include any health insurance contributions made on behalf of self-employed individuals, general partners, or S corporation owner-employees.
  • Retirement contributions on behalf of owner-employees are capped at 2.5 months’ worth of the 2019 contribution amount.
  • 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. 31 to apply for forgiveness to use the safe harbors.
  • Borrowers that received loans before June 5 can choose between using the original eight-week covered period or the new 24-week covered period.
  • The minimum term for PPP loans was raised to five years for all loans made on or after June 5. For loans made before June 5, the two-year minimum maturity remains in effect unless both the borrower and the lender agree to extend it to five years.
  • Businesses that get loan forgiveness are allowed to defer employer social security taxes until 12/31/20.

The EZ PPP Loan Forgiveness Application requires fewer calculations and less documentation than the full application and can be used by borrowers that:

  • Are self-employed and have no employees.
  • Have employees but are not subject to any loan forgiveness reduction due to salary or FTE employee reductions.

The COVID-19 Resource team at RJI CPAs can help you navigate the new law and its impact on your business.

Manuel J. Ramirez, CPA MST FABFA
Manuel is Chairman/International Tax Partner at RJI CPAs, with specific experience in international and multi-state taxation, M&A transactions, and representation before the IRS and state regulatory agencies. Manuel can be reached at 949-852-1600 or MRamirez@rjicpas.com.
Fernando Jimenez, CPA, MST, CEO
Fernando Jimenez is the Chief Executive Officer and tax partner of RJI CPAs. Fernando has experience in corporate re-organizations, buy/sell transactions, representation before the IRS and state agencies, succession and operations planning, and transactional analysis. He can be reached at 949.852.1600 or fjimenez@rjicpas.com.

About RJI CPAs
Established in 1980, RJI CPAs specializes in audit, accounting, corporate and international tax issues for publicly traded and privately held companies. RJI CPAs is PCAOB-registered and is the Southern California member firm of DFK International, the 7th largest global accounting network.