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All Rights Reserved, This is a BETA experience. If you received an EIDL advance, your forgiveness eligibility will be reduced by the amount of that advance, but you should still receive some forgiveness funds. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender. However, these are state-specific processes and policies, so it’s best to check with a qualified CPA and the revenue authorities in the state(s) where you do business to ensure you meet all local tax obligations. Will PPP loan forgiveness be extended? The SBA defines forgiveness-eligible payroll costs as any of the following: Beyond these constraints, PPP loan proceeds used to cover payroll expenses are eligible for forgiveness up to the full principal amount. This is still a high-quality loan that can benefit your business. The loan amount was based on 2.5 times monthly salary expenses, but business owners must spend the amount within eight weeks for it to be forgiven. The Economic Aid Act which became law on December 27, 2020, extends the authority to make PPP loans through March 31, 2021, and revises certain provisions of the original PPP law included in the CARES Act. We may have financial relationships with some of the companies mentioned on this website. 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PPP loan repayment is extended to 5 years from the previous 2 years for borrowers. But few expect the stimulus measures and fiscal policies announced thus far to be all that’s necessary to get the economy back on track, especially not if a severe second wave prompts large swathes of the country to lock down into 2021 and beyond. This Forgivable Loan May Help Keep Your Business Afloat During The Lockdown, First Look: Expanded Paycheck Protection Program Throws Small Businesses Another Lifeline, I am a military veteran, writer, and entrepreneur. If you instead put just $4,000 (40%) toward eligible nonpayroll expenses and reserved $6,000 (60%) for eligible payroll expenses during the covered period, you’d be eligible for forgiveness on the entire loan balance. The Rules provide the following example: “if a borrower’s PPP loan is disbursed on June 25, 2020, the 24-week period ends on December 10, 2020. Unfortunately, many small businesses that applied for the PPP Loans haven’t been able to continue operating under current social distancing rules that forced many nonessential businesses to completely or partially close their doors until states and municipalities reopened. © 2021 Money Crashers, LLC. Does shares of income paid to crew as compensation on a fishing vessel count for PPP loan forgiveness, even though it is documented through a 1099? That could necessitate additional rounds of funding for PPP or a similar successor program, giving businesses and independent professionals that missed out on the first round another chance to take advantage.window.googletag = window.googletag || {cmd: []}; These funds were designed to keep small businesses solvent and help to reduce the number of individuals drawing unemployment benefits. A subsequent rule issued by the Small Business Administration (SBA), the federal agency charged with overseeing PPP, clarified that loan recipients don’t need to meet the 60% payroll threshold to qualify for partial loan forgiveness as long as they used at least 60% of the forgiven amount for payroll expenses. Extended Coverage; Deadline for Forgiveness Application: The PPP2 Act and the rules specify that the “loan forgiveness covered period” is the period beginning on the ‎date the lender disburses the PPP loan and ending on any date selected by the borrower that occurs during the period (i) beginning on the date that is 8 weeks after the date of disbursement and (ii) ending on the date that is 24 weeks after the date of disbursement. PPP loans extended for small businesses until May 31 ... At least 60% of the money must be spent on maintaining payroll in order to receive full forgiveness. The bill was signed into law by President Trump on June 5, 2020. Payroll Costs Incurred, But Not Paid. The borrower did not reduce the salary or wages of any employee by more than 25% during the covered period AND the borrower did not reduce the headcount (number of employees) or the average paid hours of employees between January 1, 2020, and the end of the covered period. For self-employed borrowers who received loans before June 5, 2020, forgiveness eligibility is capped at $15,835. This will not help small business owners who need an answer soon. The PPPFA allows all PPP borrowers to apply for forgiveness on loan proceeds put toward eligible expenses on or before Dec. 31, 2020, during a 24-week period following the disbursement of the loan. That said, the skyrocketing unemployment rate, near-cessation of international travel, and collapse in demand at U.S. restaurants and retailers provide stark glimpses of its extent. PPP Loans: Availability of Paycheck Protection Program (PPP) loans was recently extended to May 31, 2021, or until all allocated funds are disbursed.First-time borrowers must have 500 or fewer employees and meet other eligibility criteria. One additional note: Borrowers whose loans originated before June 5, 2020, have the option to restrict forgiveness eligibility to the period stipulated in the CARES Act, which enacted the PPP. The PPP loan repayment period has been extended to five years from the original two while retaining the original 1% interest rate. But forgiveness is far from automatic, so it pays to understand how the program works before you spend the money. Depending on whether the borrower chooses to begin this period on the actual loan disbursement date or the date of the first pay run after disbursement, it’s known as the “payroll covered period” or “alternative payroll covered period,” respectively. My PPP loan was approved prior to June 5, 2020. File A 2020 Tax Return For A Rebate Credit Even If You Don’t Owe Taxes, No, There’s No Such Thing As ‘Investing’ In Eldercare, Your Pension Board Thinks It’s Smarter Than Warren Buffett—It’s Not, Correction On Its Way For IRS Publication With RMD Illustration Error On Inherited IRAs, Expand Medicare In The American Families Act? For self-employed borrowers who received loans after June 5, 2020, loan proceeds up to $20,833 are eligible for forgiveness, regardless of how they were spent. Businesses could have the loans forgiven if they used the funds for qualified expenses, such as payroll and benefits, rent, interest on mortgage payments, and utilities. Most likely. SBA also set aside roughly $6 billion for PPP loans that are on hold, requiring more information in order to be approved. PPP Loan Deadline May Be Extended as SBA Issues New Rules Relating to Loan Forgiveness and Eligibility; California Looks to Pass Legislation Concerning Business Interruption Coverage Due to COVID-19; June 29, 2020. After days of tense negotiations -- and Democrats twice blocking the nearly $2 trillion package -- the Senate and Treasury Department appear to have reached important compromises on legislation to shore up the economy during the COVID-19 pandemic. A signature feature of the program — PPP loan forgiveness — is one reason why it was in such high demand. PPP lenders are not permitted to levy prepayment penalties or any other charges for loan payments made ahead of schedule. If the timeline is not extended, then the portion of your loan that is not forgiven will be assessed at a 1% interest rate over a two-year period, with no payments due for the first six months. After days of tense negotiations -- and Democrats twice blocking the nearly $2 trillion package -- the Senate and Treasury Department appear to have reached important compromises on legislation to shore up the economy during the COVID-19 pandemic. However, only expenses incurred during the 8-week period after the loan was issued are eligible for forgiveness. Senator Marco Rubio (R-FL), the chair of the Senate Small Business and Entrepreneurship Committee, is lobbying to extend the eight-week loan forgiveness period. Advertiser Disclosure: The credit card and banking offers that appear on this site are from credit card companies and banks from which MoneyCrashers.com receives compensation. googletag.pubads().setTargeting('subcat', []).setTargeting('category', ['savings']); Updates to PPP loan forgiveness rules; Extended repayment period for PPP loans; New rules on payroll expenditure minimums for PPP loans; Breakdown of Paycheck Protection Flexibility Act; The Senate passed H.R.7010, known as the Paycheck Protection Flexibility Act, on June 3, 2020. The Paycheck Protection Flexibility Act (enacted June 5, 2020) and the Economic Aid Act (enacted December 27, 2020) expanded the list of qualified expenditures on which you can use the 40% of your PPP loan that isn’t dedicated to payroll. Expenses eligible for forgiveness are those that are incurred over the 8 to 24 week period, starting from the day you receive your PPP loan from your lender. You can still apply for forgiveness on nonpayroll expenses up to 40% of your total loan amount and on the entirety of your payroll expenditure during the covered period. The PPP limits compensation to an annualized salary of $100,000. Fears of a late-October PPP surprise came to the SBA’s attention because the program’s loan forgiveness application forms (3508, 3508EZ, and 3508S) display an expiration date of “10/31/2020” in the upper-right corner. In addition, second PPP loans are available to businesses with 300 or fewer employees that received a PPP loan previously and meet other eligibility criteria. We can’t predict whether or not the PPP Loan program will be extended, but with the growing bipartisan support, this appears to be something that could be acted upon quickly. Existing PPP loans can be extended up to 5 years if the lender and borrower agree. Forgiven PPP loan balances are not subject to federal taxation. Today, I run the websites TheMilitaryWallet.com and CashMoneyLife.com, I serve in the Air National Guard, I write about. Among other things, we may receive free products, services, and/or monetary compensation in exchange for featured placement of sponsored products or services. The maturity date of a Second Draw PPP Loan is 5 years. References to products, offers, and rates from third party sites often change. The maturity for loans availed after June 5, 2020, is 5 years. This is not necessarily the date on which you signed your loan agreement. The borrower did not reduce the annual salary or hourly wages of any employee by more than 25% during the covered period AND the borrower was unable to operate during the covered period at the same level of pre-pandemic business activity due to COVID-related requirements or guidance issued at any point in 2020 by certain recognized health or labor authorities (such as the Centers for Disease Control and Prevention). 116-142, extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period. If a PPP loan received an SBA loan number before June 5, 2020, the loan has a two-year maturity, unless the borrower and lender mutually agree to extend the term of the loan to five years. 116-142) was signed into law to, among other things, extend the time period allowed for businesses to spend PPP loan proceeds. Borrowers may submit a loan forgiveness … The SBA has approved about 1.9 million PPP loans worth nearly $140 billion so far this year, ... McHale expects the program will be extended if money is left over. The date of the loan is the most important consideration for borrowers with questions about PPP loan repayment. If your business or sole proprietorship received a PPP loan before June 5, 2020, you’ll most likely need to repay any unforgiven amounts within about two years. The promissory note for the PPP loan will state the term of the loan. Fortunately, PPP wasn’t the only lifeline thrown to struggling businesses in the first months of the pandemic. Be sure to check with your lender, as they are responsible for assessing loan forgiveness and reporting back to the SBA. © 2021 Forbes Media LLC. This 8-week forgiveness period is what Congress is currently looking at expanding. The interest rate on all PPP loan balances is 1%. On June 5, 2020, President Donald Trump signed a law modifying key provisions of the Paycheck Protection Program (PPP), one of the highest-profile coronavirus-related financial aid and stimulus measures passed by the United States Congress in the opening months of the COVID-19 pandemic. Notably, other restrictions on forgiveness eligibility (for instance, for borrowers who also received EIDL relief from the SBA) remained. Loan Forgiveness For PPP As Expanded By The Paycheck Protection Flexibility Act & The Economic Aid Act. PPP Loan Forgiveness – A Quick Overview. The House also has a fix included in the HEROES Act, which was put forth by the Democratic Party. Advertiser partners include American Express, Chase, U.S. Bank, and Barclaycard, among others. Businesses that cannot operate under current conditions will not be able to have their loans forgiven in full. Markets. This means that under current guidelines, many small business owners will only be able to have a portion of their loans forgiven, while the remainder would turn into a low-interest loan. However, borrowers that meet one of three criteria can use the much simpler PPP Loan Forgiveness Application Form 3508EZ: The SBA requires your lender to determine whether to forgive your PPP loan within 60 days of receiving your application for forgiveness. So if you use 100% of your loan’s proceeds to cover eligible payroll expenses for employees earning less than $100,000 per year, you … Is October 31, 2020 the deadline for borrowers to apply for forgiveness? While we do our best to keep these updated, numbers stated on this site may differ from actual numbers. First, the time during which wages, group health plan contributions and retirement plan contributions can be paid is extended from eight weeks to 24 weeks after the loan disbursement date, but no later than December 31, 2020. On June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA – P.L. Any funds not used for eligible expenses would be converted to a low-interest loan with a two-year payoff period. The borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan application. The Paycheck Protection Program was hailed for its promise to help small businesses survive the COVID-19 crisis. To apply for loan forgiveness: 1. Failing to reach the 60% payroll expense threshold won’t jeopardize your eligibility for partial forgiveness — you’ll just have to repay your excess nonpayroll expenses. We can’t predict whether or not the PPP Loan program will be extended, but with the growing bipartisan support, this appears to be something … This compressed time frame was designed to keep the doors of small businesses open so they could continue operating and paying employees during the COVID-19 crisis. If your loan originated on or after June 5, 2020, you have five years from the origination date (a 60-month maturity date) to repay all unforgiven balances. Fortunately, with the passage of the Paycheck Protection Program Flexibility Act of 2020, the covered period was extended from 8 weeks to 24 weeks to allow some of the most significantly impacted companies enough time to ramp up operations and incur payroll costs necessary to qualify for loan forgiveness. Yes. Salaries, wages, tips, and commissions, up to $100,000 annualized per employee, Employee benefits, such as paid leave and vacation time, group insurance benefits, severance pay, and retirement benefits, State and local employer-paid payroll taxes, Self-employment net income and income from contract work, up to $100,000 annualized per employee, Put $5,000 (50%) toward eligible nonpayroll expenses during the covered period, Put the remaining $5,000 (50%) toward eligible payroll expenses during the covered period, Hire similarly qualified employees to replace laid-off employees who decline to return, Made a good-faith effort to rehire laid-off employees or hire similarly qualified workers and were unable to do so, Have been unable to return your business activity to its pre-pandemic state (with Feb. 15, 2020, as the benchmark) due to government health and safety mandates, such as social distancing requirements that prevent operation at full capacity. (Photo by Chip Somodevilla/Getty Images). Answer: No. Defy State and Local Executive Orders at Your Own Risk; June 22, 2020. fellow Republican senators and Treasury Secretary Steven Mnuchin as negotiations continue on a $2 trillion economic stimulus in response to the coronavirus pandemic March 24, 2020 in Washington, DC. This is the one exception to the 1099 rule. 8-Week Forgiveness Period Extended to 24 Weeks Under the original law, small businesses who received a PPP loan had eight weeks to use the … Some state legislatures are working to pass laws waiving tax requirements on forgiven balances or authorizing offsetting tax credits for PPP loan recipients who’ve already paid taxes on forgiven amounts. googletag.enableServices(); Should you need such advice, consult a licensed financial or tax advisor. However, even though the U.S. Treasury (through the IRS) won’t attempt to collect taxes on any forgiven amounts, approximately half of all states do consider PPP loan forgiveness to be taxable. Essentially, if businesses follow the rules and use the loan for permitted purposes, the balance is forgiven, and the PPP loan is more like a grant. WASHINGTON, DC - MARCH 24: Sen. Marco Rubio (R-FL) talks to reporters after leaving a meeting with ... [+] fellow Republican senators and Treasury Secretary Steven Mnuchin as negotiations continue on a $2 trillion economic stimulus in response to the coronavirus pandemic March 24, 2020 in Washington, DC. The deadline for new PPP loan applications was extended to August 8, 2020. The SBA is even more lenient with self-employed borrowers, forgiving loan amounts up to $20,833 regardless of how the funds were used, according to Forbes. Borrowers are eligible for forgiveness of payroll costs paid and … Revision is important in that unless specifically stated the revisions apply to both round 1 … You may opt-out by. Borrowers can apply for forgiveness any time up to the maturity date of the loan. Under the PPPFA, you can defer repayment of unforgiven loan funds until the SBA pays the loan forgiveness amount to your lender. To that end, the program’s forgiveness provision was and remains quite generous to businesses that reserve a majority of loan proceeds for payroll expenses. All Rights Reserved. So if you use 100% of your loan’s proceeds to cover eligible payroll expenses for employees earning less than $100,000 per year, you can apply for forgiveness of your entire loan. This compensation may impact how and where products appear on this site, including, for example, the order in which they appear on category pages. A two year deferral of employer’s share of payroll taxes for all employers that received a PPP loan is now allowed. America’s small-business community welcomed the PPPFA and the SBA’s follow-up action. This date will be extended, and when approved, the same forms with the new expiration date will be posted. When he's not investigating time- and money-saving strategies for Money Crashers readers, you can find him exploring his favorite trails or sampling a new cuisine. }); The content on MoneyCrashers.com is for informational and educational purposes only and should not be construed as professional financial advice. Bipartisan support is growing to give small business owners more time. Do I need any documentation to prove my expenses for forgiveness? The PPP was initially conceived to blunt the impact of a large-scale collapse in consumer demand on employer payrolls. The law makes a number of changes to help employers reach complete forgiveness of their PPP loans. Question: The PPP loan forgiveness application forms (3508, 3508EZ, and 3508S) display an expiration date of 10/31/2020 in the upper-right corner. We strive to write accurate and genuine reviews and articles, and all views and opinions expressed are solely those of the authors. In case the borrower does not apply for loan forgiveness, the payments will be suspended for 10 months till after the coverage period ends for loan forgiveness. I am a military veteran, writer, and entrepreneur. Technically, you’re not eligible for PPP loan forgiveness if you lay off employees during the covered period and fail to do one of the following before the covered period’s conclusion: However, there’s a decent chance you’ll qualify for one of the fairly broad exceptions to the rehiring requirement if you can substantiate that you: If either condition applies to your business, your chances of qualifying for forgiveness remain high, though are by no means assured. Amendments to PPP loan forgiveness. I write about personal finance, retirement, and military benefits. 4. Right now, there is growing bipartisan support for modifications to the PPP Loan program. googletag.defineSlot('/1035677/MoneyCrashers_', [[300, 139], [300, 360], [630, 139], [630, 475], [630, 250], [1, 1], [300, 250], [300, 475], [630, 360]], 'div-gpt-ad-1590780665633-0').addService(googletag.pubads()); The true scale of the COVID-19 pandemic’s economic impact will only become apparent in hindsight. 5 This gives … According to a Fox Business report, the Paycheck Protection Program Flexibility Act (PPPFA) allows loan recipients to use up to 40% of their loans’ proceeds for certain expenses unrelated to payroll (cash compensation) — specifically, rent or lease payments, mortgage interest, and utilities — without jeopardizing their eligibility for full loan forgiveness, provided they use the remainder for payroll expenses. The Paycheck Protection Program Flexibility Act of 2020 (“PPPFA”) was enacted on June 5, 2020, and it extended the covered period from 8 weeks to the earlier of December 31, 2020, or 24 weeks from the date of the loan. Many of the changes to the loan forgiveness provisions of the PPP loan involved extended deadlines, as well as to the covered period for loan forgiveness. However, until something is passed, small business owners should proceed under the assumption that nothing has changed. The interest rate remains at 1%. This will take time and there is no guarantee it will be passed. 13 Best Cash-Back Credit Cards – Reviews & Comparison, 8 Best Low APR Interest Credit Cards – Reviews & Comparison, 19 Best Travel Rewards Credit Cards – Reviews & Comparison, 15 Best Hotel Rewards Credit Cards – Reviews & Comparison, 12 Best Gas Credit Cards – Reviews & Comparison, 12 Best Credit Cards for College Students – Reviews & Comparison, 26 Best Small Business Credit Cards – Reviews & Comparison, 10 Best Secured Credit Cards to Rebuild Credit – Reviews & Comparison. You do not need to adjust your payroll schedule. The House had already passed this legislation 415-to-3 earlier this month, so it now moves to the President’s desk for his signature and certain enactment. Four types of expenses are eligible for forgiveness (forgivable) in any amount, including three types of nonpayroll costs: PPP’s forgiveness process is most generous with payroll costs, but all four types are subject to limitations. Brian Martucci writes about credit cards, banking, insurance, travel, and more. Extension of PPP Forgiveness Period to 24 Weeks: The PPP limits the period during which Borrower expenditures are eligible for forgiveness to 8 weeks … Yes, and notwithstanding the very low interest rate, you should if you can afford to do so. Question: The PPP loan forgiveness application forms (3508, 3508EZ, and 3508S) display an expiration date of 10/31/2020 in the upper-right corner. However, the HEROES Act is a massive, $3 trillion proposal that includes a variety of other spending bills, including a large stimulus check package. No, you do not need to do anything to take advantage of the extended loan forgiveness covered period, you will automatically benefit from it. While PPP unquestionably provided thousands of businesses with sorely needed support and probably saved many from bankruptcy, it wasn’t by itself sufficient to turn the tide. 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