Michael Bosma: Key takeaways from PPP Flexibility Act documents (Voices)
Covering Your Assets
While many borrowers welcomed the passage of the Paycheck Protection Program Flexibility Act of 2020 (PPP Flexibility Act), it still left them with questions about how the Small Business Administration (SBA) would apply the law.
On June 16 and 17, the SBA released new loan forgiveness applications and an Interim Final Rule (IFR).
Here are some key takeaways from these new documents.
New Form 3508EZ available
The new EZ form is available to use if you meet one of three criteria:
- You are self-employed and do not have any employees, or
- You did not reduce annual salary or hourly wage rates of any employee by more than 25%, and you did not reduce the number of employees or the average paid hours between January 1, 2020, and the end of your covered period; or
- You did not reduce annual salary or hourly wages of any employee by more than 25%, and you were unable to operate during the covered period at the same level of business activity as before February 15, 2020
Form EZ … not quite as “EZ” as it seems
While the EZ form is significantly shorter, you will still need to quantify a number of amounts and submit information to support each assertion made.
So while you will save some effort in not needing to perform the wage reduction and FTE reduction tests (because you are representing you have met one of the safe harbors), you will still need to put in a significant amount of time accumulating the information needed.
Clarity on limits for 8- and 24-week covered periods
Borrowers had many questions about how limits in effect for the eight-week covered period would apply to the 24-week covered period. The new applications and IFR include that detail and answer some outstanding questions regarding costs eligible for forgiveness:
- $100,000 cash compensation limits updated for 24-week covered period.
- • Employees are capped at $15,385 for eight weeks for $46,154 for 24 weeks
Owner compensation is determined based on 2019 compensation amounts, capped at $15,385 for eight weeks or the lower of $20,833 or the two-and-half-month equivalent of the owner’s applicable compensation in 2019 for the 24-week period.
Health insurance benefits only include the employer-paid portion of health insurance premiums and exclude amounts for all owners, regardless of owner type (e.g., self-employed individuals, general partners, or owner-employees of S-corporations).
Retirement plan benefits only include the employer-paid portion of the retirement plan contributions and exclude amounts for self-employed individuals and general partners.
Amounts contributed on behalf of owner-employees of S-corporations are includable, but are capped at two and a half months’ worth of the 2019 contribution amount.
Application of safe harbors
On the previous loan forgiveness application, the safe harbors for both salary/hourly wage reduction and FTE reduction were measured using corresponding salary/wage and FTE amounts determined as of June 30, 2020.
Under the revised guidance in the new application, the safe harbor for whether any reduction in salary/wage or FTE was eliminated can now be assessed using amounts determined on the earlier of December 31, 2020, or the date the forgiveness application is submitted.
Additionally, the new FTE reduction safe harbor that is available if you were unable to operate at the same level of business activity as before February 15, 2020, only looks at your operating status through the end of the covered period, not all the way through December 31, 2020.
This updated guidance should be beneficial for many borrowers, because it provides additional flexibility, depending on the timing of a borrower’s application.
This article is general in nature. Contact a CPA to discuss how the law applies to your specific facts.
Michael Bosma, CPA, is Principal-in-Charge of the Reno office of CliftonLarsonAllen LLP. His NNBW column, “Covering Your Assets,” focuses on effective planning strategies for every business owner. Reach him for comment at email@example.com.
Tiffiany Howard, a UNLV professor and recent Congressional Black Caucus Foundation senior research fellow, is the lead author of the study aimed at identifying ways banks can help support and invest in Black entrepreneurs.