New PPP Interim Rule Updates Loan Forgiveness

The Paycheck Protection Program has been the focus of many news stories over the past few weeks. This popular loan program seems to be in a constant state of flux as many businesses begin to prepare for loan forgiveness. On May 15, 2020, the Small Business Administration (SBA) issued the PPP Loan Forgiveness Application which included new guidance on several topics. Concurrently, Congress has proposed and is scheduled to vote on legislation that would make several changes. Right before the Memorial Day weekend, Treasury issued an updated Interim Final Rule on loan forgiveness requirements (the Rule). The updated rule includes information about the Alternative Covered Period, bonuses and hazard pay, full-time equivalent (FTE) reductions, and more. Since the CARES Act does not require a comment period for rule changes, the updates made Friday are effective immediately. To help clients, prospects and others come up to speed on the latest round of loan forgiveness changes, Wilson Lewis has provided a summary of key provisions below.

What is the Latest?

• Tips, Bonuses & Hazard Pay – There has been some question about an employer’s ability to receive forgiveness for compensation including salary, wages, and commissions, to furloughed employees. Yes, the Rule states that as long as an employee’s total compensation does not exceed $100,000 on an annualized basis, additional wages such as tips, hazard pay, and bonuses are eligible for loan forgiveness.
• Advance Payment of Mortgage Interest – Many borrowers have wanted to know if advance payments of mortgage interest can be included as a non-payroll expense for forgiveness. The answer is no. The rule explicitly prohibits these expenses from being eligible for forgiveness. It is also important to remember that any principal payments of mortgage obligations are also ineligible.
• FTE Reductions – The recent guidance around whether employers who successfully attempt to rehire laid-off workers is reiterated. However, the Rule provides additional information on the conditions under which loan forgiveness would not be impacted. This includes a certification the borrower made a good faith written offer to rehire the employee during the covered period, the offer was for the same salary, wages and number of hours earned on the employee’s last day of employment, the offer was rejected and the borrower maintained relevant documentation. Finally, the borrower must inform the state unemployment insurance office of the rejected offer within 30 days.
• Loan Forgiveness Limits for Self Employed – The Rule also clarified there are limits to the amount of loan forgiveness available to owner-employees and the self -employed. Specifically, payroll compensation can be no more than the lesser of 8/52 of 2019 compensation or $15,385 per individual, in total, across all businesses. Specifically, owner-employees are limited to the amount of their 2019 cash compensation and employer retirement and healthcare contributions. Schedule C filers are limited by the amount of owner compensation determined by 2019 net profit. Finally, general partners are limited to the amount of their 2019 net earnings from self-employment times .9235. There is no additional forgiveness for the latter groups with respect to healthcare and retirement contributions because these expenses are paid out of net self-employment income.

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As the end of the Covered Period for many Atlanta businesses quickly approaches it is essential to carefully review all guidance, as it is issued, to ensure an opportunity is not missed. Given much of the guidance is technical and can be confusing, it is important to consult with a qualified advisor. If you have questions about the information outlined above or need assistance with another COVID-19 tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.