With the passage of the Paycheck Protection Program Flexibility Act (PPPFA), the SBA has released two new loan forgiveness applications. These are designed to make the process a little easier for borrowers who’ve met the PPP requirements and are eligible for loan forgiveness. In either case, you may apply for PPP loan forgiveness up to 10 months after the last day of the covered period; at the end of the 10 months, you will begin making principal and interest payments on any portion of the loan that has not been forgiven.
EZ Loan Forgiveness Application
The EZ Application is for PPP borrowers who meet one of the following:
- Are self-employed, independent contractors, or sole proprietors with no other employees at the time they submitted their PPP loan application, OR
- Did not reduce the salaries or wages of their employees by more than 25% AND did not reduce their headcount or hours of their employees, OR
- Business activity was reduced by the pandemic, but they did not reduce salaries/wages by more than 25% during the covered period (now 24 weeks from the date of receipt of funds).
Remember, you only need to meet one of the criteria above to use the EZ form, which will streamline the entire process. In lieu of providing Schedule A worksheets or disclosing payroll reductions, the EZ form allows borrowers to self-certify that they meet the criteria by checking a box. We strongly recommend keeping all documentation to prove that you’ve met the requirements for using the EZ form so that you’re prepared in the event that the SBA or your bank would choose to audit your application.
Full Loan Forgiveness Application, Revised June 16, 2020
If you don’t qualify to use the EZ application, you’ll need to complete the newly released forgiveness application that accounts for the changes introduced by the PPPFA. Those include:
- An expansion of the covered time period to 24 weeks, beginning on the loan disbursement date and ending no later than December 31, 2020. This includes your time to use the loan funds and to make up for reduced head count.
- Changing the minimum percentage of the loan that must be used for payroll to 60%. If your percentage falls below 60%, you’re no longer eligible for any forgiveness. The remaining loan amount can be spent on utilities, rent, and mortgage interest (up to 40%).
- Loan repayment terms of up to 5 years.
Tax Considerations for PPP Recipients
From the very beginning, legislators assured borrowers that forgiven PPP funds would not count as taxable income. However, that doesn’t mean there aren’t tax implications for PPP borrowers. The business expenses that you pay with PPP funds (salaries and wages, utilities, rent, mortgage interest) cannot be deducted against taxable income. Businesses whose revenue has remained relatively stable through COVID-19 may be in for a surprise at tax time. We strongly recommend meeting with your tax advisor to update your tax plan for the year if you haven’t already done so. We can help you adjust your tax projections and look for opportunities to offset some of the tax consequences based on your cash position.