The US Small Business Administration and Treasury released on June 17th a revised loan forgiveness application for the Paycheck Protection Program that reflects recent changes made by Congress to make the program more borrower-friendly. SBA and Treasury also unveiled a new EZ application for PPP loan forgiveness, in addition to a new interim final rule issued on June 16th.
Following is a summary of the legislation’s main points compiled by the AICPA:
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.
Under the language in the House bill, the payroll expenditure requirement drops to 60% from 75% but is now a cliff, meaning that borrowers must spend at least 60% on payroll or none of the loan will be forgiven. Currently, a borrower is required to reduce the amount eligible for forgiveness if less than 75% of eligible funds are used for payroll costs, but forgiveness isn’t eliminated if the 75% threshold isn’t met. Rep. Chip Roy (Texas), who co-sponsored the bill in the House, said in a House speech that the bill intended the sliding scale to remain in effect at 60%. Senators Marco Rubio and Susan Collins indicated that technical tweaks could be made to the bill to restore the sliding scale.
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.
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.
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%.
The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited under the CARES Act.
UPDATE: The government is working to fund additional monies to the SBA programs including the PPP so you should still put in your application should the funds be approved.
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Small businesses and sole proprietorships hoping to secure a loan through the federal Paycheck Protection Program can begin applying Friday. The Treasury Department has released information for borrowers and lenders, posted an application and urged applicants to act quickly. Contact your bank for participation details.
On March 27, an emergency relief bill now known as the CARES Act became law to help bolster the U.S. economy as the country battles the coronavirus. The new law covers a broad cross-section of the economy — including the freelance sector. Of particular note, the relief package gives jobless workers bigger unemployment checks over a longer period of time, including freelancers and the self-employed, who are typically excluded from collecting these benefits.
Here’s what freelancers can expect to receive in terms of financial relief under this new law:
· All self-employed workers, contractors, government employees, individuals seeking part-time work, and workers who quit their job or can’t reach their place of work as a result of COVID-19 are among those eligible for unemployment benefits.
· The law allows individuals to claim unemployment benefits for an extended period of time (up to four months) and waives the typical one-week waiting period to start receiving benefits.
· Weekly unemployment benefit payouts are increased by $600.
· The law revives the “Emergency Unemployment Compensation” program for 13 additional weeks on top of states’ standard programs, meaning that if your state’s usual benefit period for unemployment payments is 26 weeks, you could receive up to 39 weeks with this federally funded extension.
· Federal funds will be distributed to state unemployment agencies, and all benefits will be administered through your state. If you have not yet done so, submit your application to your state's unemployment assistance program now. Each state may require different supporting documentation; find your state and its requirements here.
One-time Stimulus Payment
· On an individual basis, freelancers are eligible to receive a direct cash payment of up to $1,200 for each adult ($2,400 for couples), as well as $500 for each child if they meet the income limit of $75,000. People with no federal tax liability will receive only $600. It is anticipated that checks will be cut April 6.
· The individual checks start to phase out from $75,000 to $99,000 ($150,000 to $198,000 for couples filing jointly) in adjusted gross income based (AGI) on 2019 income tax returns. (Your 2018 returns will be used to calculate your AGI if the more recent information is not available). Ultimately, the package will be “reconciled after the fact” with your 2020 earnings, meaning if you earn more or less this year, you may have to pay back some of the relief money or get a bigger rebate next year.
· The law allows corporations to delay estimated tax payments until October 15, 2020. Self-employed people can also delay payroll taxes.
Disability insurance for freelancers
· In addition, the Department of Education is suspending student loan payments until September 30, 2020 without penalty.
The Paycheck Protection Program May Help Freelance Businesses
Another element of the CARES Act is the Paycheck Protection Program. Under this program, the Small Business Administration (SBA) will distribute $350 billion in small business loans that can be partially forgiven if companies meet certain requirements. The objective of the program is to provide up to eight weeks of cash-flow assistance through 100 percent federally guaranteed loans.
Here are the key points about the Paycheck Protection Program:
· The program is expected to be enacted no later than two weeks from the date the CARES Act was signed into law.
· The program is retroactive to Feb. 15, 2020. This is to help bring workers who may have already been laid off back to work.
· The loans are only available to companies with 500 or fewer employees that were in business on Feb. 15, 2020. This includes freelancers, independent contractors, and sole proprietorships.
With all the questions being asked about loans, keeping employees employed, and sick leave, here is a brief summary of our understanding. Also, please know that whether to keep employees hired is an employment law question that should be addressed to an attorney prior to midnight tonight as the law goes into effect April 1st, midnight. From a business counsel point of view, if you cannot afford to continue to pay employees without them working (without the company generating any income) for the next few months, unfortunately the advice we are hearing from various business advisors is to lay off employees prior to midnight tonight; however it is important you first consult with an attorney. These decisions may also affect loan qualifications so make sure to speak to a loan officer and/or attorney about this as well. These are legal matters and not all are tax matters however, we want to provide the general opinions that we are hearing from other sources. Each business is unique and has its own decisions to make. Please review the 3 attachments provided by a nation-wide Employment Law Attorney. If you need a referral for an attorney, please contact us.