June 5, 2020 - The Paycheck Protection Flexibility Act of 2020 was passed by the House and Senate and the President signed it into law on June 5, 2020. This Act provides changes to the Small Business Act and the CARES Act by modifying certain provisions regarding loan forgiveness under the paycheck protection program (“PPP”) and deferment of employer payroll taxes. These modifications include:

• Extending the covered period for use of loan proceeds from 8 weeks to 24 weeks or December 31, 2020, whichever comes first. Borrowers can elect to use the original 8 week period.
• Extending the time for maintaining the workforce from June 30, 2020 to December 31, 2020.
• Adding an exemption for maintaining the workforce based on employee availability. Loan forgiveness will be determined without regard to a proportional reduction in the number of full-time equivalent employees if the employer, in good faith, is able to document:

1. 1. An inability to rehire individuals who were employees as of February 15, 2020 and an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or
   2. An inability to return to the same level of business activity as the business was operating at before February 15, 2020.

• Increasing the threshold for use of loan proceeds to pay for non-payroll costs from 25% to 40%.  If the minimum threshold of 60% for payroll is not met, none of the loan is eligible for forgiveness.
• Extending the minimum maturity period for PPP loans from 2 to 5 years following an application for loan forgiveness. 
• Allowing PPP borrowers to defer principal and interest payments until the Small Business Administration compensates lenders for any forgiven amounts, rather than a six-month deferral period previously. This means borrowers would have at least 10 months after the PPP expires to start making payments if they don't seek loan forgiveness.
• Allowing employers to defer payroll taxes even if they are receiving loan forgiveness on a PPP loan.

The SBA will also be releasing FAQs to address various items and clarification soon.

Please contact your Dermody, Burke & Brown tax advisor to further discuss any questions you may have.

The information reflected in this article was current at the time of publication.  This article will not be modified or updated for any subsequent tax law changes, if any.