The US Treasury Department recently released an updated version of the Loan Forgiveness Application, along with the Small Business Administration (SBA) releasing a new Interim Final Rule. Read below for the key highlights from this guidance, along with links to the appropriate government webpages.

1. The maximum payroll costs eligible for forgiveness have increased for both employees and owners when utilizing a 24-week Covered Period.

a. For employees, the payroll costs eligible for forgiveness include salary, wages, and tips, up to $100,000 of annualized pay per employee (a maximum of $46,154 per individual), as well as covered benefits including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer.

b. For self-employed individuals and general partners, the owner compensation replacement eligible for forgiveness is now limited to 2.5 months’ worth (2.5/12) of 2019 net profit, up to $20,833. Similarly, the maximum amount eligible for forgiveness related to owner-employees is also capped at $20,833.

2. Previously the guidance allowed for an exception to the FTE Reduction for employees that refused to return to work when the employer made a good-faith, written offer to rehire. This exception still exists, however, the employer must now also document an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.

3. The previous version of the Loan Forgiveness Application referenced a Safe Harbor date of June 30, 2020 to restore the reductions in salary/hourly wages and FTEs. This date was later modified to December 31, 2020 by the Paycheck Protection Program Flexibility Act (PPPF). The latest guidance now clarifies the Safe Harbor date to be the ‘earlier of December 31, 2020 or the date the application was submitted.’

4. The revised Loan Forgiveness Application references the exceptions to the FTE requirements when the borrower is unable to return to normal business levels due to government mandates (such as those related to standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19). This exception was detailed in the PPPF. Further guidance will still need to be released to clarify if the business reduction, and resulting FTE reduction, must be a direct result of the government mandates, or if the poor economy and an inability to recover would suffice.

5. In addition to the revised Loan Forgiveness Application form, the SBA has released a second, simplified version titled ‘PPP Loan Forgiveness Application Form 3508EZ.’ This shortened version will be easier for borrowers to complete, however, it can only be used if one of the following criteria are met:

a. The Borrower is a self-employed individual, independent contractor, or sole proprietor with no employees.

b. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period compared to the period between January 1, 2020 and March 31, 2020, AND the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period.

c. The Borrower did not reduce annual salary or hourly wages of any employee by more than 25 percent during the Covered Period compared to the period between January 1, 2020 and March 31, 2020, AND the Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with recent government mandates related to COVID-19.

While this additional guidance does provide some answers, there are clearly many questions that remain. Click the links below to read more about these latest updates from the government, and be sure to stay connected to WG for future updates as they’re released.

Questions? Ask a WG Advisor

Dan Fiorentino

Author Dan Fiorentino

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