Please note that this blog is based on laws effective on June 22, 2020 and may not contain later amendments. Please contact Cray Kaiser for most recent information.
On June 16 and 17, 2020 the Small Business Administration (SBA) released revised loan forgiveness application forms and also provided additional guidance for a few provisions under the Paycheck Protection Program (PPP) loans. We believe further guidance may be forthcoming; however, the following information will be helpful as borrowers begin the process of applying for loan forgiveness.
Loan Forgiveness Form Applications
The SBA provided a revision to the previously released Form 3508 PPP Loan Forgiveness Application and also introduced a new form, Form 3508EZ. Form 3508EZ provides a simplified two-page presentation consisting of numerical computations and certifications that can be completed if a borrower meets one of the three provisions below:
- They are self-employed, an independent contractor, or sole proprietor who had no employees and therefore no employee salaries were included in average monthly payroll on the initial application.
- Annual salary or hourly wages of an employee were not reduced by more than 25% during the covered period/alternative payroll covered period in comparison to the period of January 1, 2020 through March 31, 2020. In addition, the number of employees or average paid hours were not reduced during the covered period/alternative payroll covered period. You are allowed to ignore reductions for inability to rehire or find qualified employees for this provision to be valid.
- Annual salary or hourly wages of an employee were not reduced by more than 25% during the covered period/alternative payroll covered period in comparison to the period of January 1, 2020 through March 31, 2020 and business was unable to operate at the same level of business activity as before February 15, 2020 due primarily to government orders and safety requirements related to COVID-19.
If the borrower does not fall into one of the categories above, they will need to complete the longer version of the application. This application was revised primarily to account for the expansion of the covered period from 8 weeks to 24 weeks and the lowering of the payroll/nonpayroll costs allocation from 75/25% to 60/40%.
A few clarifying points provided in the revised guidance (Revisions to the Third and Sixth Interim Rules) were first introduced in the Paycheck Protection Program Flexibility Act of 2020 and discussed in our previous blogs, but we are also highlighting them below.
Use of 8-Week or 24-Week Covered Period
A borrower who received its PPP loan prior to June 5, 2020 can elect to use either an 8-week (56 days) or 24-week (168 days) period. Loans received after June 5, 2020 will utilize a 24-week (168 days) period.
Maturity Date of PPP Loan
PPP loans issued after June 5, 2020 have a maturity date of five years rather than two years. However, there is a caveat that loans issued prior to June 5, 2020 can be extended to five years if the borrower and lender both mutually agree to the extension.
Individual Employee Limitations for Payroll Costs
Individual payroll costs are limited for those individuals earning greater than $100,000 of annualized pay. The caps are based upon whether you are using an 8-week period or 24-week period:
- Cap for 8-week period is $15,385
- Cap for 24-week period is $46,154
Limitations on Payroll Costs for Owners
Owner employees, self-employed individuals or general partners are limited to the lesser of $100,000 or the 2019 compensation. Once again, the caps are based upon whether you are using an 8-week period or 24-week period:
- Cap for 8-week period is $15,385
- Cap for 24-week period is $20,833, which is the 2.5-month equivalent of $100,000
The loan forgiveness process is still evolving. Please do not hesitate to contact Cray Kaiser with any questions surrounding the PPP loan forgiveness revised forms.
CK OFFICE OPERATIONS
These are certainly trying times and we want to reiterate that Cray Kaiser is here for you. As things continue to evolve in light of the COVID-19 pandemic, we at CK are taking additional precautions for the benefit of our team members and our clients.
- No clients or guests will be allowed in our suite.
- All in-person meetings are cancelled. Instead, we will be utilizing phone calls and/or email to communicate with our clients.
- Our team members are being encouraged to work remotely. All staff are equipped with the appropriate technology and resources to continue to securely and confidentially serve you from home.
- We will no longer have in-person drop offs of accounting/tax data. Instead, please drop off any packages outside the office door of our suite in the box provided.
- All paper files, tax returns etc. will no longer be mailed by our office to you. We will be holding these items in our office to send to you at a later date.
CK PORTAL ACCESS
We want to remind our clients of our portal access and your ability to safely and securely share your information with our team. We ask that you email firstname.lastname@example.org to request your portal access. This will eliminate the need for you to drop off your tax information at our office.
Thank you for your patience and understanding during this challenging time. We wish you, your family, and your business health and safety. We will continue to support you as best as we can while keeping each other’s health a priority. If any changes occur during the course of the next few days, we will update our website.