Coronavirus and Taxes Part 9
Paycheck Protection Program Loan Forgiveness Changes
All for the Good
Update on Stimulus Payments
June 5, 2020
Well that didn’t take long. I wrote on May 23 that there will probably be changes to the forgiveness rules of the Paycheck Protection Program. Well it happened as the Paycheck Protection Flexibility Act was signed into law on June 5.
Washington, a town not known for speed, saw this happen quickly as the initial eight-week window recently expired for the first recipients of PPP loans.
Following is a summary of the revised rules:
o Current PPP borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period. New PPP borrowers will have a 24-week covered period, but the covered period can’t extend beyond Dec. 31, 2020. This flexibility is designed to make it easier for more borrowers to reach full, or almost full, forgiveness.
o The rules reduce the amount to be spent on payroll to 60% from 75% but is now a cliff - borrowers must spend at least 60% on payroll or none of the loan will be forgiven.
o Borrowers can use the 24-week period to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness. This must be done by Dec. 31, a change from the previous deadline of June 30.
o The legislation includes two new exceptions allowing borrowers to achieve full PPP loan forgiveness even if they don’t fully restore their workforce. Previous guidance already allowed borrowers to exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to Feb. 15, 2020, levels due to COVID-19 related operating restrictions.
o New borrowers now have five years to repay the loan instead of two. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. The interest rate remains at 1%.
o The bill revises the deferral period for paycheck protection loans, allowing recipients to defer payments until they receive compensation for forgiven amounts. Recipients who do not apply for forgiveness shall have 10 months from the program's expiration to begin making payments.
o The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
All of this was in response to business’ that complained that they could not spend their loan money in such a short time frame as they were still closed and workers did not have much to do.
In addition, Congress emphasized that the application deadline remains June 30.
SBA Funds Remaining: As of June 3, the SBA reported that 4.5 million firms had received approvals for loans totaling $510.6 billion. About $130 billion remain from the second round of $320 billion that Congress approved for PPP. The initial round of $349 billion was tapped in just 13 days.
More Relief on the Way? There are two bank lobbying organizations asking Congress to automatically forgive small Paycheck Protection loans of less than $150,000. The lobbying groups are arguing that blanket forgiveness of small loans would save recipients substantial time and money. Using a $150,000 threshold, 26% of all PPP loan dollars would qualify for automatic forgiveness representing 85% of PPP loan recipients. “Their time and resources would be better focused on getting the economy safely back up and running, not processing burdensome paperwork,” the banking trade groups wrote. In addition, the blanket loan forgiveness would also help banks reduce cost as the amount of servicing on these loans would not be needed.
Is this the end to the changes to the PPP program? I doubt it as I still expect technical corrections. As always stay tuned.
Stimulus Payment Update: As my part 7 update (Coronavirus and Taxes - Part 7) explained the schedule as to when to expect your stimulus check, it turns out that about 4 million are being sent stimulus payments by prepaid debit card instead of a paper check.
Excuse me? – I was expecting a paper check. Be alert that if you were expecting a paper check or direct deposit, you may be receiving an unmarked envelope with a stimulus debit card instead.
What Are Economic Impact Payment Cards? Economic Impact Payment (EIP) cards are Visa-branded debit cards issued by the government and stocked with your stimulus check money. This started the week of May 18. If the IRS did not have your banking account information and their tax return was process in Andover or Austin processing center, they may get the Visa Card. The prepaid debit card resembles a regular debit card bearing the words "Visa" and "debit" on the front and the issuing bank, is MetaBank, N.A. The card will arrive in a plain envelope from Money Network Cardholder Services. Review your mail carefully to ensure you don't toss it in the trash. You'll need to activate your card by visiting EIPCard.com or calling 1-800-240-8100.
Tax Returns: Lastly, in trying to keep in compliance with social distancing guidelines, I am now offering to pick up your tax documents and discuss your tax situation either over the phone or via Zoom or Skype. You can also scan your documents into a PDF and email (HunterTaxConsulting@gmail.com) to me. Also, they can be mailed to my P O Box.
As more information becomes known I will keep everyone informed. Feel free to reach out to me to discuss your situation. Be safe everyone.
Harry E. Hunter
Hunter Consulting, Inc.
June 5, 2020