Contracts & Agreements

Information on the Paycheck Protection Program (PPP) and the Paycheck Protection Program Flexibility Act (PPPFA).

FAQs

Could I still apply for a PPP Loan?

PPP Application Deadline Extended to August 8, 2020:  The Paycheck Protection Program (PPP) expired at midnight on June 30th, 2020. But, on July 4th, the President signed the PPP Extension Act, which extended the deadline to apply for PPP loans to August 8, 2020. The SBA resumed accepting applications on Monday, July 6th, 2020, at 9:00 am EDT. 

Various reports indicate that there is still over $100B available in PPP funds (out of the initial $660B that was allocated to the program). You can apply using the PPP Borrower Application Form (Revised 06/12/20), and learn more about the PPP on the SBA website, as well as our COVID-19 Resources page.

What is the Paycheck Protection Program Flexibility Act (PPPFA) and what did it change?

On June 5th, 2020, Congress enacted the Paycheck Protection Program Flexibility Act (PPPFA) as a way to help small businesses more effectively use their Paycheck Protection Program (PPP) loan proceeds. 

In an effort to help small businesses and clarify some confusing aspects of the PPP, the PPPFA changed a number of the forgiveness requirements, namely:

  • 24-week “covered period”: Under the PPP, you could request forgiveness for PPP funds spent within 8 weeks (56 days) after your loan disbursement date. Under the PPPFA, this period was extended to 24 weeks (168 days) (but in any event no later than December 31, 2020). (Note: If your disbursement date was before June 5, 2020, you may elect to retain the original 8-week “covered period”). See “How long do I have to use the PPP funds?” below.
  • 60% on payroll costs: Under the PPP, you had to spend at least 75% of your forgivable amount on “payroll costs”. Under the PPPFA, this requirement was reduced to 60%. If less than 60% of your PPP funds are spent on payroll costs during the 24-week “covered period”, you are still eligible for partial loan forgiveness, but the forgivable amount spent on rent, utilities, and mortgage interest will be reduced accordingly. See “What percentage do I have to spend on payroll costs?” below.
  • 5-year repayment period: Under the PPP, you had to repay any unforgiven (or unused) PPP funds within 2 years after your disbursement date. Under the PPPFA, the repayment period was extended to 5 years. However, it appears that this extension only applies to loans made after the PPPFA was enacted on June 5, 2020 (based on the date the SBA assigns a loan number.) In other words, loans made before June 5, 2020 (still) must be repaid within 2 years, unless the borrower and lender agree to extend the repayment period (up to 5 years). 
  • 12/31/20 deadline to restore employee FTE and cash compensation: Under the PPP, if you reduced your overall employee FTE or the cash compensation of certain employees during your 24-week “covered period”, your maximum amount of forgiveness would be reduced proportionately unless you restored these levels by June 30, 2020. Under the PPPFA, this deadline was extended to December 31, 2020. See “How do I determine my average FTE?” below.
  • New safe harbors for maintaining employee FTE levels: Under the PPPFA, there are additional “safe harbors” that allow you to avoid any reduction in your forgivable amount based on a reduction in your overall employee FTE if you can demonstrate that the reduction was because you were either (a) unable to rehire an individual who was an employee on or before February 15, 2020, (b) unable to hire a similarly-qualified employee on or before December 31, 2020, or (c) unable to return to the same level of business activity as they were operating at prior to February 15, 2020. See “What happens if I do not (or cannot) rehire people?” below.
  • No limits on payroll tax deferral: Under the PPP, you could defer payment of your payroll taxes until you received notice from your lender in response to your application for forgiveness. Under the PPFA, you may defer payment of payroll taxes the same as any other business (i.e. through December 31, 2020). Half of the deferred amount is due on or before December 31, 2021 and the other half is due on or before December 31, 2022. (Read more about the IRS guidance on payroll tax deferrals here.)

How long do I have to use the PPP funds?

Originally, under the Paycheck Protection Program (PPP), borrowers could request forgiveness for PPP loan proceeds spent (on allowable expenses) during the 8-week (56-day) period after their disbursement date. 

But, on June 5th, 2020, Congress enacted the Paycheck Protection Program Flexibility Act (PPPFA), which extended this period to 24 weeks (168 days). 

If your loan proceeds were disbursed before June 5, 2020, you can elect to retain the original 8-week (56-day) “covered period” or you can opt to use the extended 24-week (168-day) “covered period”. 

If your loan proceeds were disbursed on or after June 5, 2020, you must use the 24-week (168-day) “covered period”. 

However, if you have a biweekly (or more frequent) payroll schedule, you may elect to use an “alternative payroll covered period”, which allows you to calculate (for purposes of forgiveness) your eligible payroll costs based on a period that begins on the first day of your first pay period following the disbursement date of your PPP loan proceeds (rather than beginning on the disbursement date). Note that this only applies to payroll costs, though, not rent, utilities, or mortgage interest payments. 

See the PPP Loan Forgiveness Application (Revised 06/16/20) and related Instructions (Revised 06/16/20) for more information. 

What are the allowable uses of the PPP funds?

Under the original Paycheck Protection Program (PPP) statute and related guidance, there was a lot of uncertainty around the allowable uses of funds. But the SBA provided significant clarification on this question in the PPP Loan Forgiveness Application (Revised 06/16/20) and related Instructions (Revised 06/16/20)

Generally, the allowable uses of PPP funds include (1) payroll costs and (2) non payroll costs.

The SBA defined “payroll costs” as including the following: 

  1. cash compensation (i.e. gross salary, gross wages, gross tips, gross commissions, paid leave – including vacation, family, medical, or sick leave, but excluding leave covered by the Families First Coronavirus Response Act – and allowances for dismissal or separation), excluding any amount in excess of an annualized salary of $100,000 prorated for your “covered period” of either 24 weeks ($46,154) or 8 weeks ($15,385), which includes: 
  2. employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after tax contributions by employees
  3. employer contributions to employee retirement plans, excluding any pre-tax or after-tax contributions by employees
  4. employer contributions for employee health insurance, including employer contributions to a self-insured, employer-sponsored group health plan, but excluding any pre-tax or after tax contributions by employees
  5. employer payments of state and local taxes assessed on employee cash compensation and non-cash compensation (e.g. state unemployment insurance tax), excluding any amount withheld from employee compensation  
  6. federal taxes assessed on employee cash compensation and non-cash compensation 

The SBA said that eligible “payroll costs” include amounts that are either paid or incurred during your 24-week (168-day) or 8-week (56-day) Covered Period (or Alternative Payroll Covered Period). 

The SBA also clarified that payroll costs are considered “paid” on the day that paychecks are distributed (or you originate an ACH credit transaction) and are considered “incurred” on the day that the employee’s pay is earned. (To be forgivable, payroll costs “incurred” during your “covered period” must be paid on or before your next regular payroll date.) 

The SBA defined “nonpayroll costs” as including the following: 

  • (a) covered mortgage obligations: payments of mortgage interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”);
  • (b) covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and
  • (c) covered utility payments: business payments for a service for the distribution of electricity, gas, water, telephone, transportation, or internet access for which service began before February 15, 2020 (“business utility payments”).

The SBA said that eligible “non payroll costs” include amounts that are either paid or incurred during your “covered period”. However, to be forgivable, non payroll costs incurred during your “covered period” must be paid on or before the next regular billing date (even if the billing date is after your “covered period”).

What percentage do I have to spend on payroll costs?

Originally, under the Paycheck Protection Program (PPP), you had to spend at least 75% of your forgivable amount on “payroll costs.” 

However, under the PPPFA (enacted on June 6, 2020), this requirement was reduced to 60%. 

Either way, if less than 60% of your PPP funds are spent on payroll costs during your 24-week (or 8-week) “covered period,” you are still eligible for partial loan forgiveness, but the forgivable amount spent on non payroll costs (i.e. rent, utilities, and mortgage interest) will be reduced accordingly.

For example, if your PPP loan is $100,000, and you spend $50,000 (50%) on payroll costs and $50,000 (50%) on non payroll costs, your maximum forgivable amount will be $83,333. In other words, your non payroll costs cannot exceed two-thirds of your payroll costs. In this example, $50,000 x 2/3 = $33,333. Thus, any non payroll costs in excess of $33,333 will not be forgiven. 

What happens if I do not (or cannot) rehire people?

Generally, under the Paycheck Protection Program (PPP), your maximum forgivable amount will be reduced proportionately if your average number of “full-time equivalent” (or “FTE”) employees during your (24-week or 8-week) “covered period” is less than the your average FTE during (at your election) either (a) February 15, 2019 to June 30, 2019 or (b) January 1,2020 to February 29, 2020. 

However, there are several exceptions. Any reductions in the following cases do not reduce your maximum forgivable amount: 

  1. any positions for which you made a good-faith, written offer to rehire an individual who was an employee on February 15, 2020 and you were unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020; 
  2. any positions for which you made a good-faith, written offer to restore any reduction in hours (at the same salary or wages) during your “covered period” (or the “Alternative Covered Period”) and the employee rejected the offer; and 
  3. any employees who, during your “covered period” (or the “Alternative Covered Period”): 
    1. were fired for cause, 
    2. voluntarily resigned, or 
    3. voluntarily requested and received a reduction of their hours. 

Additionally, there are “safe harbors” that exempt you from any reduction in your maximum forgivable amount, including: 

  1. If you, in good faith, are able to document that you were unable to operate between February 15, 2020, and the end of your “covered period” at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020, by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19. 
  2. If you reduced your employee FTE levels during the period beginning February 15, 2020, and ending April 26, 2020, but then restored your employee FTE levels in your pay period that included February 15, 2020.

See “How do I determine my average FTE?” below.

How do I determine my average FTE?

In the Interim Final Rule re: Loan Forgiveness for the Paycheck Protection Program (PPP), the SBA offered some more clarification on FTE calculations, stating:

  • For any employee who works 40 hours or more (on average) per week, their FTE is 1.0. (Note: The FTE cannot exceed 1.0, regardless of how many hours a given employee works on average per week.) 
  • For any employee who works less than 40 hours (on average) per week, their FTE is calculated as a proportion of a 1.0 FTE, and you may elect to calculate this in one of two ways:
    • divide the (average) number of hours worked by 40 (e.g. 30 / 40 = 0.75 FTE), or
    • use a fixed 0.5 FTE for all part-time employees.

How do I apply for forgiveness?

You must submit a request for forgiveness to your lender. The process is (generally) discussed in the SBA PPP Loan Forgiveness Application (instructions) and the EZ PPP Loan Forgiveness Application (instructions).

You can submit your forgiveness application anytime after the expiration of Your Covered Period until 12/31/20. (Note that if you have already met the criteria for any of the “safe harbor” exemptions with deadlines of 12/31/20, you do not have to wait until 12/31/20 to submit your application.)

There are many resources available online to help you with the forgiveness application process. For example, this BenchCo article includes step-by-step instructions.

Which Forgiveness Application should I use?

There are two applications for forgiveness:

  1. the (revised) PPP Loan Forgiveness Application (instructions), and
  2. the EZ PPP Loan Forgiveness Application (instructions).

Unless you satisfy certain conditions (discussed below), you should use the (revised) PPP Loan Forgiveness Application (instructions).

You can use the EZ PPP Loan Forgiveness Application (instructions) if you satisfy any of the following three criteria:

(1) Self-Employed Individuals:

  • you are a self-employed individual, independent contractor, or sole-proprietor

AND

  • you did not have any employees when you applied for your PPP loan and did not include any employee salaries in your calculation of your “average monthly payroll costs”

(2) No reduction in compensation or employees:

  • you did not reduce the compensation of any employee (who earned an annualized salary of less than $100K) by more than 25% during Your Covered Period (or the Alternative Payroll Covered Period) compared to the period between 01/01/20 and 03/31/20

AND

  • you did not reduce the number of employees (or “average paid hours”) between 01/01/20 and the end of Your Covered Period (excluding any reductions resulting from an inability to rehire employees if you were able to rehire before 12/31/20)

(3) No reduction in compensation and unable to return to previous business levels:

  • you did not reduce the compensation of any employee (who earned an annualized salary of less than $100K) by more than 25% during Your Covered Period (or the Alternative Payroll Covered Period) compared to the period between 01/01/20 and 03/31/20

AND

  • you were unable to operate during Your Covered Period at the same level as before 02/15/20 due to compliance with HHS, CDC, or OSHA requirements or guidance issued between 03/01/20 and 12/31/20

If at least one of these three criteria is true, you can use the EZ PPP Loan Forgiveness Application (according to the instructions). Otherwise, if none of these apply to you, then you have to use the (revised) PPP Loan Forgiveness Application (according to the instructions).

Can I deduct expenses paid with PPP funds on my 2020 taxes?

No – unfortunately, you cannot deduct any amounts that were paid with PPP loan proceeds that were forgiven.

The IRS stated in Notice 2020-32 (published April 30, 3020): “Specifically, this notice clarifies that no deduction is allowed under the [Code] for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a covered loan pursuant to section 1106(b) of the [CARES Act]”.

This prevents you from enjoying a double tax benefit by deducting expenses that were paid using your (forgiven) PPP loan proceeds.

However, Congress is considering legislation that would allow businesses to deduct the expenses that are paid with (forgiven) PPP loan proceeds.

Connect with Us

We look forward to connecting with you.

Connect With Us

Email us using the form below.

Schedule a Free 15-Minute Consultation