Recent Changes to the Paycheck Protection Program

On March 27, 2020, the U.S. Congress passed the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act in order to provide fast, direct financial assistance for American families, small businesses and workers affected by the COVID-19 pandemic.

The main stimulus program for small businesses found in the CARES Act is the Paycheck Protection Program (PPP). Understanding what the PPP is, how it works and how to apply can help you navigate this massive federal stimulus program and get the funds you need for your small business as quickly as possible. Here’s what you need to know.

What is the Paycheck Protection Program?

The Paycheck Protection Program (PPP) is a loan created to help businesses to remain viable and maintain their workforces during the coronavirus pandemic. The U.S. Small Business Association (SBA) will forgive all loans if employee retention criteria are met and the funds are used for eligible expenses.

The PPP was originally a $350 billion program intended to provide American small businesses with 8 weeks of cash-flow assistance through 100% federally guaranteed loans.

The program was expanded in late April, with an additional $310 billion in funding. The deadline to apply for a Paycheck Protection Program Loan expired on Aug. 8, 2020 but could be extended again if another relief bill is signed into law.

How does the PPP work?

Small businesses with 500 or fewer employees, sole proprietorships, independent contractors and self-employed individuals are all eligible for the program. Note that:

Sole proprietorships will need to submit a Schedule C from their tax return filed (or to be filed) showing the net profit from the sole proprietorship. Independent contractors will need to submit Form 1099-MISC in addition to their Schedule C. Self-employed individuals will need to submit payroll tax filings reported to the IRS.

The maximum amount your business can receive from an SBA-approved lender is your average payroll cost in 2019, multiplied by 2.5, up to a maximum of $10 million. Your PPP loan will be fully forgiven if you use the funds for payroll costs, interest on mortgages, rent, and utilities.

Loans have a 1% interest rate and a maturity rate of 2 years (although loans issued after June 5, 2020, have a maturity of 5 years). There’s no need to make loan payments until either your forgiveness application is processed or 10 months after your covered period ends. No collateral or personal guarantees are required, and neither the government nor lenders will charge small businesses any fees. 

How can I get my loan forgiven?

All or part of the loan your business receives under PPP could be forgiven if you keep all full-time equivalent employees (FTEEs) on the payroll, or if you rehire them within 24 weeks of receiving your loan (or by December 31, 2020, whichever comes first). Forgiveness essentially turns your loan into a non-taxable grant.

To be forgiven, at least 60% of your loan must be used to fund payroll and employee benefits costs. Only 40% of the amount forgiven can be used on non-payroll expenses, such as mortgage interest payments, rent and lease payments, and utilities.

Forgiveness won’t occur until the end of the 24-week employment period following receipt of your loan. Keep in mind that you’ll need to keep good records and have accurate bookkeeping to prove

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