After the House passed the bill last week 417 to 1, the Senate reconvened this week and the bill now advances to President Trump to be signed into law. He is expected to sign the bill on Friday, June 5th.
Update 1:44pm ET: The bill was signed by the President later this morning, Friday June 5th.
The bill would provide further relief for the businesses who received Paycheck Protection Program (PPP) loans amid the coronavirus pandemic.
The “Paycheck Protection Program Flexibility Act” would do the following if signed into law:
Extends the amount of time businesses have to spend PPP funds
Small businesses would have 24 weeks to use PPP funds instead of the 8 weeks granted in the initial PPP. Extending the due date for businesses to use PPP funds was a must, considering most states are about mid-way through Phase 1, which limits popular industries like Restaurants, Hair and Nail Salons from operating even at 50% or half capacity. The 24-week term covers that period or by December 31, 2020- whichever comes first.
Lowers the percentage businesses must use towards payroll costs
Small businesses would be required to use 60% of PPP funds towards payroll costs for full loan forgiveness, leaving the other 40% to be used towards non-payroll expenses. This is down from the initial 75%/25% ruling, giving business owners more money to use towards expenses such as rent, mortgage payments, and utilities.
This is also favorable for businesses who can’t bring their employees back to work just yet due to the Pandemic Unemployment Assistance (PUA) payment which is an extra $600 per month on top of regular state unemployment benefits. Due to PUA pay, the average recipients weekly wage is higher while collecting unemployment than when actually working, preventing employees from returning quickly back to work. PUA pay is set to expire July 31, 2020.
Extends amount of time to pay back loans
Businesses would have 5 years, instead of 2, to repay their loans. This only applies to loans made on or after the date on which the PPP Flex Act becomes law. Yet, The Flex Act does not prohibit lenders and borrowers from amending terms for preexisting loans. Please contact your loan officer or bank for further clarification. Loan payment and interest deferral still remains at 6 months from the loan issue date. If you received your PPP funds in April 2020, principal payments would be due in October 2020
Extends rehiring date and refines the deferral payment of payroll taxes
The deadline to rehire furloughed employees would be extended from June 30, 2020 to December 31, 2020.
Borrowers who have PPP loans that are forgiven are permitted to delay payment of the employer portion of social security taxes through the end of 2020.
The payment of payroll tax deferred with 50% of the tax payable by December 31, 2021 and the remaining 50% due no later than December 31, 2022. This deduction can be taken immediately by reducing the amount of your payroll deposits directly on Form 941.
The is great news for small businesses as we progress in the Phase re-openings. The 60%/40% rule would especially help out numerous small businesses and entrepreneurs, allowing you to spend more of your loan on other expenses that are key to staying in operation. Be sure to follow us across social media for the latest updates on tax relief for your small business.
Chris Boyer, EA
Guest editorial: Kaitlin Boyer