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Interim Final Rule – June 22, 2020

PPP - Loan Forgiveness

We’re proud to partner with NBT Bank in providing informative, timely updates on the ever-changing PPP Forgiveness regulations. Please review our webinars, EZ application update details and more to help support your business in this forgiveness process. To learn more about NBT Bank, visit: NBT Bank – Business.

New Guidance on PPP Forgiveness – Cover Period and Other 

On Monday night, June 22nd the U.S. Small Business Administration (SBA) with the Treasury Department issued a new interim final rule (IFR).  The 34-page ruling addressed various issues with the Paycheck Protection Program (PPP) loan forgiveness.  We have highlighted the important rulings in the IFR that all business owners should know about. 

Apply Early – Cover Period 

The biggest news to come out of the IFR was that borrowers can choose to apply for forgiveness anytime between 8 and 24-weeks.  Borrowers do not need to choose 8-weeks or 24-weeks, but anytime in between, if before December 31, 2020.  For example, iall the PPP funds are spent on eligible expenses by week 14, a borrower can then apply for forgiveness right away and not have to wait the full 24-weeks.  The IFR notes that: 

 A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan—including before the end of the covered period—if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. 

The downside is if the borrower has reduced Salaries/Hourly Wages of any employees by more than the allowable 25%, they would need to extrapolate the Salary/Hourly Wage Reduction over the 8 or 24-weeks regardless of the date they apply for forgiveness.  For example, if forgiveness is applied for after week 14, borrowers will need to extrapolate the Salary/Hourly Wage Reduction over the full 24-week period. The IFR further breaks it down: 

 A borrower is using a 24-week covered period. This borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the covered period. The employee continued to work on a full-time basis during the covered period, with an FTE of 1.0. In this case, the first $250 (25 percent of $1,000) is exempted from the loan forgiveness reduction. The borrower seeking forgiveness would list $1,200 as the salary/hourly wage reduction for that employee (the extra $50 weekly reduction multiplied by 24 weeks). If the borrower applies for forgiveness before the end of the covered period, it must account for the salary reduction for the full 24-week covered period (totaling $1,200). 

Remember that this is only applicable if the borrower reduces Salary/Hourly Wages more than 25%.  By applying early, the borrower is forfeiting the December 31st safe harbor to restore wages.  

A borrower can apply for forgiveness anytime between the 8 and 24-weeks covered period and have up to 10 months after the covered period ends to submit the application for forgiveness.  The Bank then has 60 days to review the forgiveness application to issue a decision.  

If the borrower does not apply for forgiveness of a loan within 10 months after the last day of the covered period, the PPP loan is no longer deferred, and the borrower must begin paying principal and interest. 

S Corporations 

The IFR also clarified that S corporations employer health insurance contributions cannot be included when calculating payroll costs; however, employer retirement contributions for S corporation owners are eligible costs.  However, S corporation owners are still capped at $20,833 (or $15,385 for 8-weeks). 

Economic Injury Disaster Loan Advance  

If applicable, the SBA will deduct any EIDL Advance payments ($1,000 – $10,000) from the forgiveness amount remitted to the Lender, regardless of what the money was spend on.  

 What’s Next? 

We are still waiting for legislation to be passed by the U.S. Federal Government to address the adverse tax consequences of the forgiveness of PPP loans.  Any expenses being forgiven from the PPP are not allowed to be included as a deduction.  It was not the intent for the PPP loans to have an adverse tax impact and we are hopeful that Congress will pass legislation to fix this.