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SBA Issues New PPP Forgiveness Applications and Interim Final Rule

June 22, 2020

Last week, the Small Business Association (“SBA”) and Treasury Department published their 19th Interim Final Rule (“IFR”) regarding the Paycheck Protection Program (“PPP”).  In addition to the IFR, the SBA also published a revised, user-friendly Paycheck Protection Program loan forgiveness application (Form 3508) and a companion “EZ” version (Form 3508EZ) when implementing the PPP Flexibility Act (“PPPFA”).

New Information Provided in the 19th IFR

Employee Compensation. Payroll costs include wages, capped at $100,000 of annualized pay per employee, as well as covered benefits for employees (but not owners): 

  • For an eight-week covered period, a maximum of $15,385 per individual.
  • For a 24-week covered period, a maximum of $46,154 per individual (see below for owner compensation).

Owner Compensation. Based on 2019 compensation amounts:

  • For an eight-week covered period, a maximum of up to the lesser of $15,385 or 8/52 of 2019 compensation or net profit applies.
  • For a 24-week covered period, a maximum of up to the lesser of $20,833 or 2.5/12 of 2019 compensation or net profit applies.
  • It appears that the 24-week limit also applies to S-Corp and C-Corp owner-employees. 
Forgiveness Applications

The “EZ” version of the forgiveness application may be used for borrowers who:

  • Are self-employed and have no employees; OR
  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
  • Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

Application Highlights

  • Health insurance costs for S corporation owners cannot be included when calculating payroll costs; however, retirement costs for S corporation owners are eligible costs.
  • Safe harbors for excluding salary and hourly wage reductions and reductions in the number of employees (full-time equivalents) from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted. Borrowers don’t have to wait until December 31, 2020 to apply for forgiveness to use the safe harbors.
  • Borrowers that received loans before June 5, 2020 can choose between using the original eight-week covered period or the new 24-week covered period.
Conclusion

Overall, the new IFR and forgiveness forms are borrower-friendly, but many questions remain.  We anticipate continued clarification to be provided by the SBA and Treasury, and we will keep you informed.

For assistance with your PPP Loan Forgiveness questions, please don’t hesitate to reach out to your Beaird Harris advisor. We’re available and happy to help!

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