In a somewhat surprising turn of events, the Senate cleared changes to the Paycheck Protection Program first passed by the House, and has sent the bill to President Donald Trump for his signature.
The bill extends the covered period to 26 weeks, and allows businesses five years to repay the loan instead of two. It also confirms that only 60 percent of loan proceeds need be used for payroll costs, and so 40 percent can be used for non-payroll costs.
Importantly, the rehire date of June 30 (which required furloughed or terminated employees to be rehired by then in order to avoid a reduction in loan forgiveness) has been extended to Dec. 31.
So, if a business had 50 employees before the pandemic reduced its workforce to 25 employees, it will still receive complete forgiveness of its loan if it spends the proceeds on permitted uses during that period, and as long as it has fifty employees (not necessarily the same ones) by Dec. 31.
An exception is also provided from a reduction in loan forgiveness for employers that have reduced their workforce if, during the period Feb. 15 to the end of 2020, the employer, in good faith, can document that it either:
1. Could not find qualified employees to hire on or before Dec. 31.
2. Could not restore its business to a comparable level of activity as of Feb. 15, because of social distancing or other governmental requirements.
Finally, the bill permits borrowers to defer the employer’s share of Social Security taxes (6.2%) regardless of whether their loan is forgiven. This permits current borrowers to defer the payment of the employer’s share until 2021, when 50 percent of the deferred share must be paid, with the remaining 50 percent paid in 2022.
Notably, the bill makes no mention of the IRS pronouncement that expenses paid with forgiven PPP loan proceeds will not be deductible. Therefore, the payroll and non-payroll costs paid with those proceeds continue to be non-deductible on borrowers’ tax returns.