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ArticleThe New Paycheck Protection Flexibility Act – Key Highlights

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By Ryan Graham, CFA, CFP®, Senior Financial Advisor

The Paycheck Protection Flexibility Act (H.R. 7010 or “PPFA”) was signed into law on June 5, 2020 as the next phase of federal assistance for small businesses amid the COVID-19 pandemic. Although you’ll find many important changes to the Paycheck Protection Program (PPP) included in this legislation, the PPP application deadline is still June 30, for those who have yet to apply.

We’ve summarized some key changes in the PPFA here:

 

  • Forgiveness clock extended to 24 weeks. You are no longer limited to spending your PPP loan on forgiveness-eligible expenses during an eight-week period. The covered period is now the earlier of 24 weeks (after the PPP loan hits your bank account) or Dec. 31, 2020. You may still choose to use the eight-week “covered” period if your loan was taken prior to the enactment of the PPFA, if this gives you a greater chance of full forgiveness. The use of an “alternative payroll period” that begins on the first day of the first pay period following loan disbursement should still be available with this new bill (see more about this option in my previous article).

 

  • The 75% payroll rule is now the 60% payroll rule. Congress provided greater spending flexibility by increasing the percentage of your loan that can be used on non-payroll expenses (rent, utilities, etc.) and still remain forgivable. Some have interpreted this new rule as a 60% “cliff.” For example, if you received a $50,000 loan and only $15,000 is spent on payroll (less than 60%), then none of loan would be forgivable. Members of Congress have clarified that this was not their intention. Additionally, Treasury Secretary Steven T. Mnuchin and SBA Administrator Jovita Carranza released a joint statement indicating a borrower that uses less than 60% on payroll will still be eligible for partial loan forgiveness.

 

  • Payroll tax deferral is now available to PPP loan recipients. Previously, Congress did not allow PPP loan recipients to also take advantage of a provision to postpone the payment of payroll taxes. With the PPFA, an employer can now take advantage of the deferral of payroll taxes (only the 6.2% Social Security tax portion) incurred before Dec. 31, 2020.  The payroll tax can be paid in halves, the first owed by Dec. 31, 2021, and the remainder by Dec. 31, 2022.

 

  • Five-year loan term vs two-year loan term. Instead of repaying the loan over a two-year period, borrowers can now work with their lender to establish a five-year term (or potentially even longer), as the act identifies the five-year term as a “minimum” for new loans.

 

  • More rehiring flexibility. The PPFA extends the 2020 deadline by which employers can rehire employees and remain eligible for full loan forgiveness from June 30 to Dec. 31. Additionally, two new exceptions to this requirement were introduced: 1) When a firm cannot find similarly qualified employees to rehire; or 2) If government or health operating restrictions prevent the business from rehiring.

 

  • Longer payment deferral. Rather than keeping the SBA’s six-month deferral period, the new act says you do not need to begin repaying your PPP loan “until the date on which the amount of forgiveness determined under section 1106 of the CARES Act is remitted to the lender.” That is, payments begin once your lender determines what portion of your loan will be forgiven.

We don’t yet know the full ramifications of these changes, and Congress did not convey any further information about whether the intention was for PPP-related expenses to remain tax-deductible. As you’ve likely heard many times by now, there should be more guidance to come.

 

Looking to discuss the PPFA, or another financial topic? Schedule a complimentary consultation with an Altfest advisor.

 


 

Opinions expressed herein are solely those of Altfest Personal Wealth Management, unless otherwise specifically cited.  Material presented is believed to be from reliable sources, but not representations are made by our firm as to other parties’ informational accuracy or completeness.  All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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