Paycheck Protection Program Flexibility Act of 2020
Cross References • Public Law 116-142
The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll. The Small Business Administration (SBA) will forgive loans if all employees are kept on the payroll and the money is used for payroll, rent, mortgage interest, or utilities. The program was originally enacted by the CARES Act (Public Law 116-136), which was signed into law on March 27, 2020.
On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020 was signed into law, which makes the following modifications to the Paycheck Protection Program:
Prior Law (CARES Act Version):
For loans that still have a remaining balance after the government forgives part of the loan, a covered loan has a maximum maturity of 10 years from the date on which the borrower applies for loan forgiveness.
New Law:
For loans that still have a remaining balance after the government forgives part of the loan, a covered loan has a minimum maturity of 5 years and a maximum maturity of 10 years from the date on which the borrower applies for loan forgiveness.
Prior Law (CARES Act Version):
The “covered period” is the period in which the loan proceeds may be used to pay for expenses (payroll, mortgage interest, rent, etc.) that may result in loan forgiveness if the number of employees are not reduced. The covered period is from February 15, 2020 to June 30, 2020.
New Law:
The “covered period” is the period in which the loan proceeds may be used to pay for expenses (payroll, mortgage interest, rent, etc.) that may result in loan forgiveness if the number of employees are not reduced. The covered period is from February 15, 2020 to December 31, 2020.
Prior Law (CARES Act Version):
Loan forgiveness equals the sum of the payments made for qualified expenses (payroll, mortgage interest, rent, etc.) during the 8-week covered period beginning on the loan’s origination date.
New Law:
Loan forgiveness equals the sum of the payments made for qualified expenses (payroll, mortgage interest, rent, etc.) during the period beginning on the loan’s origination date and ending on the earlier of either (A) the date that is 24 weeks after the loan’s origination date, or (B) December 31, 2020. For recipients that received a covered loan before June 5, 2020, the recipient may elect to have the covered period end on the date that is 8 weeks after the loan’s origination date.
Prior Law (CARES Act Version):
To receive loan forgiveness, the employer must use at least 75% of the covered loan amount for payroll costs and 25% for mortgage obligations, rent or utilities.
New Law:
To receive loan forgiveness, the employer must use at least 60% of the covered loan amount for payroll costs and 40% for mortgage obligations, rent or utilities.
Prior Law (CARES Act Version):
Repayment of a covered loan is deferred for a period of not less than 6 months, including payment of principal, interest, and fees, and not more than 1 year.
New Law:
Repayment of a covered loan is deferred, including payment of principal, interest, and fees, until the date on which the amount of loan forgiveness is remitted to the lender. If the recipient fails to apply for loan forgiveness within 10 months after the last day of the covered period, the recipient must make payments of principal, interest, and fees beginning on the day that is not earlier than 10 months after the last day of the covered period.
New exemption based on employee availability. Under the original version, loan forgiveness was reduced if, during the covered period, the number of employees were reduced or the wages of certain employees were reduced. The new law provides an exception to this rule. During the period beginning February 15, 2020, and ending on December 31, 2020, the amount of loan forgiveness is determined without regard to a proportional reduction in the number of full-time equivalent employees if the recipient, in good faith:
- A) Is able to document:
1) An inability to rehire individuals who were employees of the employer on February 15, 2020, and
2) An inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or
- B) Is able to document an inability to return to the same level of business activity as the business was operating at before February 15, 2020, due to compliance with regulations related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
Delay of payment of employer payroll taxes. Under the CARES Act, employers and self-employed individuals are allowed to delay the deposit or payment of the employer’s share of Social Security taxes, and the equivalent portion of self-employment taxes (the 6.2% portion of wages, compensation, or net earnings from self-employment). In order to be eligible to defer such payments, the employer or self-employed person may not have had indebtedness forgiven under the Paycheck Protection Program.
The new law allows employers and self-employed individuals to take advantage of the delay of payment of employer payroll taxes or self-employment taxes, regardless of whether the employer or self-employed individual has loans forgiven under the Paycheck Protection Program
