Updates to Clients

The U.S. Small Business Administration (SBA), in consultation with Treasury, released a revised loan forgiveness application for the Paycheck Protection Program (PPP). The SBA also unveiled a new EZ application for forgiveness of PPP loans.

The releases came only hours after the SBA issued a new interim final rule providing guidance on how to calculate employee and owner compensation for loan forgiveness in the new 24-week covered period created by the Paycheck Protection Flexibility Act.

  • The changes:
    • An expansion of the “covered period” for loan forgiveness to 24 weeks from eight weeks,
    • A reduction of the proportion of proceeds that must be spent on payroll costs to 60% from 75%,
    • 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 for slowing the spread of the virus.

The Application:

The revised PPP Loan Forgiveness Application and instructions include a number of notable items. Among them are:

  • S Corporation
    • Health insurance costs for S corporation owners cannot be included when calculating payroll costs;
    • Retirement costs for S corporation owners are 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 don’t 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.

New EZ application details

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

  • Are self-employed and have no employees;
  • Did not reduce the salaries or wages of their employees by more than 25% and did not reduce the number or hours of their employees; or
  • 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%.

New interim final rule published

The SBA issued rules for determining payroll costs and owner compensation in calculating PPP loan forgiveness under the new 24-week covered period.

The Paycheck Protection Flexibility Act tripled the duration during which PPP recipients could spend the funds and still qualify for loan forgiveness — a span of time called the covered period. The interim final rule adjusts and adds to previous guidance for calculating loan forgiveness under the original eight-week covered period.

The PPP allows loan forgiveness for payroll costs — including salary, wages, and tips — for up to $100,000 annualized per employee, or the 24-week maximum for full loan forgiveness at $46,154 per individual.

Owner compensation replacement calculations

While the employee compensation limit for the 24-week period is three times the eight-week limit, the interim final rule does not do the same with the owner compensation replacement for businesses that file:

  • Schedule C, Profit or Loss From Business,
  • Schedule F, Profit or Loss From Farming, tax returns.

For those businesses, forgiveness for the owner compensation replacement is calculated:

  • For the eight-week period as 8 ÷ 52 × 2019 net profit, up to a maximum of $15,385.
  • For the 24-week period, the forgiveness calculation is limited to 2.5 months’ worth (2.5 ÷ 12) of 2019 net profit, up to $20,833.

The owner compensation replacement calculations are structured to prevent owners from reaping PPP windfalls that Congress did not intend.

Other provisions

The interim final rule also modifies earlier guidance to account for changes included in the Payroll Protection Flexibility Act.

  • The minimum term for PPP loans is 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.
  • The proportion of PPP funding that must be used on payroll costs to qualify for full forgiveness drops to 60% from 75%.
  • The application deadline for PPP loans remains June 30.

FYI

Nationwide Unemployment Scam Targets Massachusetts Claimants

The Massachusetts Department of Unemployment Assistance (DUA) issued a press release alerting Massachusetts residents of a large-scale criminal scheme that steals personal identities in order to file illegitimate unemployment assistance claims.

According to the DUA, “criminal enterprises in possession of stolen personal information from earlier national data breaches have been attempting to file large amounts of illegitimate unemployment claims through the Massachusetts DUA system.”

If you believe you may have had a false unemployment claim filed using your identity, contact the DUA here or at 877.626.6800.

Additional information on this will be posted here as it becomes available.

MA: Q2 Will be Worst in Recorded History
The Mass Benchmarks Editorial Board, comprised of leading economists and financial experts in Massachusetts, recently suggested that the Q2 of 2020 is likely to be the worst financial quarter in recorded Massachusetts history. Between March 15 and May 30, the Department of Unemployment Assistance received over 1.4 million new claims, representing one-third of the Massachusetts workforce and led to a 15% unemployment rate in April.

MA Health Connector Enrollment Period Extended

The Health Connector extended its enrollment period through May 25 due to the COVID-19 outbreak. If you’ve lost your health insurance due to a job loss and want to see if you qualify for health coverage, click here.

Main Street Lending Program Forms and Agreements:

 

The lender portal for the Federal Reserve’s Main Street Lending Program has opened as the long-awaited alternative to the problem-plagued Paycheck Protection Program after weeks of delays.

The Main Street Lending Program’s loans are not forgivable, although they are at low interest rates. The program is being offered through the Federal Reserve rather than the SBA and was originally aimed at large and midsize businesses.

However, the Fed and the Treasury have been expanding the criteria. Last week, Federal Reserve chairman Jerome Powell announced that the minimum loan size would be lowered from $500,000 to $250,000, and the term of each loan o==option has increased from four years to five years.

https://www.bostonfed.org/supervision-and-regulation/supervision/special-facilities/main-street-lending-program/information-for-lenders/docs.aspx

 

Reminders:

Taxpayers that estimated tax payments for tax year 2020, originally due April 15 and June 15, are now due July 15. This means that any individual or corporation that has a quarterly estimated tax payment due has until July 15 to make that payment without penalty.