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Partial Forgiveness for PPP Still Possible If 60% Threshold on Payroll Costs Are Met

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Business owners who received a PPP loan will no longer fret over the original 75% requirement to use their loan towards payroll costs. On Monday, U.S. Treasury Secretary Steven T. Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza issued a statement regarding updates and improvements to the Paycheck Protection Program (PPP) Flexibility Act (HR 7010).

When the original PPP forgiveness information was published, we found the lack of clarification explaining how to calculate payroll costs difficult to interpret. With the passage of HR 7010, (page 2, §8), the following provides additional details and clarity regarding the limitation on forgiveness:

‘‘(8) LIMITATION ON FORGIVENESS.—To receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs, and may use up to 40 percent of such amount for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment.’’

In their press release, Mnuchin and Carranza explained that the SBA, in consultation with the U.S. Treasury, will promptly issue rules and guidance; a modified borrower application form; and a modified loan forgiveness application implementing these legislative amendments to the PPP.  The modifications will implement a change to the eligibility requirements for loan forgiveness including:

“Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”

If you have questions regarding your forgiveness application, we recommend that you speak with your loan provider. If you need additional assistance, or have questions on how to proceed, please know we are available to speak with you by phone at 215-675-8364.

 

 

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

Partial Forgiveness for PPP Still Possible If 60% Threshold on Payroll Costs Are Met

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Business owners who received a PPP loan will no longer fret over the original 75% requirement to use their loan towards payroll costs. On Monday, U.S. Treasury Secretary Steven T. Mnuchin and Small Business Administration (SBA) Administrator Jovita Carranza issued a statement regarding updates and improvements to the Paycheck Protection Program (PPP) Flexibility Act (HR 7010).

When the original PPP forgiveness information was published, we found the lack of clarification explaining how to calculate payroll costs difficult to interpret. With the passage of HR 7010, (page 2, §8), the following provides additional details and clarity regarding the limitation on forgiveness:

‘‘(8) LIMITATION ON FORGIVENESS.—To receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs, and may use up to 40 percent of such amount for any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation), any payment on any covered rent obligation, or any covered utility payment.’’

In their press release, Mnuchin and Carranza explained that the SBA, in consultation with the U.S. Treasury, will promptly issue rules and guidance; a modified borrower application form; and a modified loan forgiveness application implementing these legislative amendments to the PPP.  The modifications will implement a change to the eligibility requirements for loan forgiveness including:

“Lower the requirements that 75 percent of a borrower’s loan proceeds must be used for payroll costs and that 75 percent of the loan forgiveness amount must have been spent on payroll costs during the 24-week loan forgiveness covered period to 60 percent for each of these requirements. If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”

If you have questions regarding your forgiveness application, we recommend that you speak with your loan provider. If you need additional assistance, or have questions on how to proceed, please know we are available to speak with you by phone at 215-675-8364.

 

 

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

Time for Businesses to Review and Revise Budgets for 2020

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We are in month six of 2020. The halfway mark for some, and year-end for others. We should be thinking about vacation schedules or driving to the shore, but for many businesses, including most nonprofits, June is your year-end and the month to plan your budget for the next year. Some business leaders will have difficult decisions to make as world events continue to affect all aspects of our personal and professional lives.

If your budget is based on a calendar year, and you haven’t already assessed your financial situation, now is the time to look at the financial health of your organization by shifting your priorities and decide if you need to revise your budget for the remainder of 2020.

A budget is more than subtracting costs from income.

  • Business owners need to decide if they can or should maintain a place of business.
    • Will their employees continue to work from home as part of your new business model?
    • Is there a need to renew or renegotiate a lease for space?
    • Should you sell off owned properties?
  • What will be the mix of sales for the remainder of the year?
  • Has there been an impact in the supply chain of product?
  • Are you able to maintain your existing employee count?
  • Will your new budget include early retirement incentive packages or layoffs?
  • Focus on driving income. Are you invoicing more frequently?
  • What are you doing about collection efforts?
  • What costs can you eliminate or reduce?
  • How are you addressing borrowing and repayment of debt in your budget?
  • Do you have an emergency cash fund or is your business surviving on credit?

Each business will have different perspectives when they review an existing budget or create a budget for the upcoming year. If you have questions on how to proceed, or how to begin in this new cycle, please know we are available to speak with you by phone at 215-675-8364.

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

ROTH IRA Conversions in the SECURE Act Environment

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The passing of the SECURE Act in December 2019 drastically altered some of the assumptions previously used to generate retirement planning strategies. Chief among these strategies was the ‘stretch period’ – the time period in which a beneficiary of a decedent bequeathed IRA is able to draw minimally from the inherited account via the required minimum distribution (RMD) over his or her lifespan. This period was reduced to 10 years under the SECURE Act meaning many beneficiaries now stand to take on additional income tax burdens as larger amounts are drawn out over fewer years. As a result, the strategy of converting a traditional IRA to a ROTH IRA has become a potentially appealing option.

The main benefits of a ROTH IRA include the tax advantages (tax-free growth within the plan as it was funded with post-tax dollars) and no required minimum distributions.

Beneficiaries inheriting ROTH IRAs figure to have a simpler tax situation as well. While the balance is still required to be withdrawn over the 10-year stretch period, the distributions would not be taxable. This is vital for those who may inherit a plan during their peak earning years – the distributions from a traditional plan would increase taxable income during the reduced stretch period and potentially push the beneficiary into a much higher tax rate.

The obvious downside to a ROTH conversion is the tax incurred by the account owner at the time of the conversion. Some choose to take a one-time hit and convert the entire account at once. Others choose to do it piecemeal over a number of lower income years in order to take advantage of lower marginal tax rates.

No matter the method, the ROTH conversion may make sense when taxes on the conversion can be paid with funds outside of the account or the owner will not need to access the account within his or her own lifetime. The conversion would also make sense if the owner expects to be in the same or a higher tax bracket in retirement, or if the funds are intended for heirs whose tax bracket is likely to be at least as high as the account owner’s. A retiree might not want to convert if the money will be left to beneficiaries in lower tax brackets.

Based on the changes under the SECURE Act, as well as the current economic climate, now is the perfect opportunity to revisit your estate plan to evaluate if or when a ROTH conversion makes sense. We here at Wouch Maloney can help you analyze the potential tax impact of such a move to aid in the overall decision-making process.

 

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

PPP Flexibility Act Signed into Law by POTUS

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As another work week concludes in America, PPP borrowers have received a new set of changes to the SBA PPP program that has drastically altered the program as we know it.  As many of our loyal readers are aware, frequent changes “come with the turf” as the rules surrounding PPP loans are modified on a weekly, if not more frequent basis.

Round 1 borrowers are particularly impacted as they approach the end of their 56-week covered period.  These borrowers are left wondering “what do we do now” given that a new law has just been passed.  Of course, the SBA will still have to weigh-in on the PPP Flexibility Act and issue new Interim Final Rules (IFR) creating regulations for borrowers to follow.  If the CARES Act is any indication, new IFRs could take weeks if not months to be created and may cause even more confusion than the law itself.

Our team has reviewed the most recent version of the PPP Flexibility Act. The following is a summary of the key changes to the PPP that were created by the PPP Flexibility Act. We also provide additional insight into the questions that still remain.

To read our complete summary, please click here.

 

PPP FLEXIBILITY ACT SIGNED INTO LAW BY POTUS published June 5, 2020.

DISCLAIMER:  The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

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Senate Passes Paycheck Protection Program Flexibility Act, Sent to POTUS for Signature

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Last night, the Senate passed the Paycheck Protection Program Flexibility Act of 2020 which is designed to loosen the restrictions placed on the original Paycheck Protection Program (PPP). This added legislation provides two major changes. The first relates to extending the original eight-week period of the PPP to 24 weeks that business owners have to use the money from the loan and the second changes how the money may be spent. This legislation will become law when signed by the POTUS.

As we wrote last week, some highlights of the bill include:

  • Extending the application window from a June 30, 2020 deadline to apply for a PPP loan to a deadline of December 31, 2020.
  • An expansion of the loan forgiveness period from eight weeks to 24 weeks.
  • Extending the deadline to rehire employees from June 30, 2020 to December 31, 2020.
  • For future borrowers only, the Paycheck Protection Program Forgiveness Application would establish a minimum loan maturity period of five years, eliminating the two-year deadline under current SBA rules. This will not apply to borrowers who already applied.

We will continue to update our COVID-19 Business Resource Page and Client News Alerts page as new information is received.

If you have an urgent concern, please know we are available to speak with you by phone at 215-675-8364.

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

The Impact of a Declined Re-Hire Offer on Loan Forgiveness

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While we wait to find out if the Senate approves the bill to loosen restrictions on the Paycheck Protection Program that the House approved on May 28th (which includes an extended deadline to rehire employees from June 30, 2020 to December 31, 2020 as well as expansion of the loan forgiveness period from eight weeks to 24 weeks), we will continue to provide information about the program that is relevant to the majority of business owners who received a PPP loan.

As many taxpayers are now in the midst of the current eight-week Paycheck Protection Program (PPP) period, questions regarding company specifics and nuances are continuously being raised. One commonly asked question was addressed in the SBAs recently released interim final rule: “Will a borrower’s loan forgiveness amount be reduced if the borrower laid-off or reduced the hours of an employee, then offered to rehire the same employee for the same salary and same number of hours, or restore the reduction in hours, but the employee declined the offer? No. Employees whom the borrower offered to rehire are generally exempt from the CARES Act’s loan forgiveness reduction calculation.”

Section 1106 of the CARES Act calls for a reduction in the loan forgiveness amount based on reductions in full-time equivalent employees (FTEs) subject to a statutory exemption for those who have either rehired employees or restored hours and wage levels by June 30, 2020. If this ‘safe harbor’ is met, a company may be exempt from this forgiveness reduction test.

In the case of an employee declining a re-hire offer, which would clearly impact the head count in an FTE test, the SBA and Treasury have adopted a regulatory exemption to the reduction rules to resolve this dilemma. As long as the following criteria are met, employees who decline a re-hire offer can effectively be excluded from this calculation:

  • The borrower made a good faith, written offer to re-hire the employee (during the covered period or alternative covered period)
  • The offer was for the same salary or wages (and same number of hours) as earned by the employee in the last pay period prior to the reduction
  • The offer was formally rejected by the employee
  • The borrower maintained records documenting the offer and its rejection
  • The borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection

With the covered period presumably coming to an end in the next couple of weeks for many Round 1 Borrowers, companies are starting to put together preliminary forgiveness calculations, and this is a key component when determining what could be forgiven.

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

May 28, 2020 Update: Summary of Paycheck Protection Program Loan Forgiveness Application

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On May 15, 2020, the SBA released the Paycheck Protection Program (PPP) Loan Forgiveness Application which included detailed instructions.  This was the first piece of official SBA guidance devoted to loan forgiveness since the Interim Final Rule issued April 15, 2020.

Our new white paper dated May 28, 2020, supersedes our white paper issued on May 20, 2020. In this updated version, we incorporate the additional guidance provided in the IFR concerning PPP loan forgiveness. The purpose of this update is to assist borrowers in completing their PPP Loan Forgiveness Application by incorporating the most up to date guidance available.

As mentioned in earlier correspondence, on May 22, 2020, the SBA released PPP Interim Final Rule – Requirements – Loan Forgiveness.

The Interim Final Rule (IFR) is designed to supplement the guidance previously issued in the Paycheck Protection Program (PPP) Loan Forgiveness Application and help clarify many of the new rules created by the SBA.  While the IFR provides additional guidance on the loan forgiveness program, we fully expect that the SBA will continue to release additional FAQs to address new questions that are posed by borrowers. We will continue to provide timely updates as new guidance is issued.

The attached white paper dated May 28, 2020, by Stephen J. Slade, CPA, is a summary of the highlights of the Paycheck Protection Program forgiveness instructions that have the largest impact on borrowers.

PPP Loan Forgiveness Application IFR Update May 28 2020.

This content was updated on May 28, 2020 and May 29, 2020.

DISCLAIMER:  The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

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House Passes Bill to Loosen Paycheck Protection Program Restrictions

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The House passed a bill today to loosen restrictions of the Paycheck Protection Program. If this bill is approved by the Senate and signed by the President, there will be significant changes to the PPP. These changes will overhaul the program as we know it.

Some highlights of the new bill include:

  • Extending the application window from a June 30, 2020 deadline to apply for a PPP loan to a deadline of December 31, 2020.
  • An expansion of the loan forgiveness period from eight weeks to 24 weeks.
  • Extending the deadline to rehire employees from June 30, 2020 to December 31, 2020.
  • For future borrowers only, the Paycheck Protection Program Forgiveness Application would establish a minimum loan maturity period of five years, eliminating the two-year deadline under current SBA rules. This will not apply to borrowers who already applied.

We will continue to navigate these uncertain times and stay abreast of news that we believe is relevant for you and your business.

 

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

Pennsylvania Real Estate Reopening

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We were pleased to hear Gov. Tom Wolf gave the green light to real estate businesses statewide to resume operations during the coronavirus pandemic, as long as new guidance issued by his office is followed:
 
This is good timing for those who are buying or selling residential, commercial or industrial properties.
 
Highlights of the New Guidance for the Real Estate Industry:
 
  • Must follow all applicable provisions of the Guidance for Businesses Permitted of Operate During the COVID-19 Disaster Emergency.
  • People at sale properties, offices or business locations must wear masks and use separate vehicles to drive to visit properties.
  • All in-person activities should be scheduled and limited to no more than the real estate professional and two people inside a property at any time, exercising appropriate social distancing.
  • Must not provide food or conduct in-person group showings including open houses, broker opens or office tours.
  • Must maintain records of all appointments, including contact information for all participants.
To read all of the guidelines regarding reopening of the real estate industry in Pennsylvania, click here.
 
We will continue to navigate these uncertain times and stay abreast of news that we believe is relevant for you and your business. Our COVID-19 Business Resource Page and Client News Alerts page will be updated as new information is received.
 
If you have an urgent concern, please know we are available to speak with you by phone at 215-675-8364.
 
 
 
 
 
 
DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

Additional Articles by Wouch Maloney

Two New Interim Final Rules Released by SBA on PPP

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Happy Memorial Day Weekend. While this is not the way most of us are accustomed to celebrating the unofficial start to summer, we find ourselves reading two new Interim Final Rules published by the Small Business Administration (SBA).

Both IFRs became effective May 22, 2020. The first provides additional clarification regarding requirements for the Paycheck Protection Program (PPP) loan forgiveness. This document is intended to supplement the loan instructions with more regulations.

The second update involves Business Loan Program Temporary Changes. This IFR is designed to describe the SBA procedures for reviewing program applications.

Our team will review and analyze the updates in order to provide you with further commentary and our WM wisdom.

To read the most up-to-date SBA Interim Final Rule guidance, we have included a link below.

https://www.sba.gov/document/support–ppp-interim-final-rule-requirements-loan-forgiveness

DISCLAIMER:  The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties,expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.

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