You most likely know about the famous Paycheck Protection Program or PPP, that was initially passed by Congress as part of the CARES Act several months ago. The purpose of the PPP was to provide loans to small businesses – companies that generally had less than 500 employees –to help them get through the economic devastation caused by the coronavirus pandemic.
Unfortunately, as you may have heard, the initial launch of the PPP resulted in massive organizations like Shake Shack, Potbelly Sandwiches, and the L.A. Lakers obtaining “small business loans,” and taking the lion’s share of the money allocated to the program. While a number of large companies ultimately paid back the loans, the damage had been done. Shortly thereafter, Congress passed additional legislation to provide more funds so the Small Business Administration (SBA) could give out more PPP loans.
Most recently, on June 5, 2020, to be exact, the Paycheck Protection Program Flexibility Act of 2020 (“the Flex Act”) was enacted into law. The Flex Act makes a number of substantial changes to the PPP, allowing more flexibility for those who are taking out PPP loans and changing the way some of the PPP funds can be used
In this article, we are going to take a look at the Flex Act in some detail. If you are a small business that has been impacted by this devastating pandemic, you will want to learn more about this recently enacted law.
If you have additional questions, you need to speak with a tax planning attorney in Florida. We invite you to contact The Law Office of Mary King, P.L. We are tax planning attorneys in Florida who are laser-focused on tax strategies for small and mid-sized businesses. We provide services in all areas from debt settlement to planning. Call today at 941-906-7585, or fill out our contact form. We are here to help you.
Now, let us get into the significant changes you may find in the Flex Act.
1. Extended Spending Period, but the Same Deadline to Apply
You may recall that the CARES Act allowed loan borrowers to receive forgiveness on their loan for certain payments, including rent payments and utility payments. There was an important caveat, however. Loan borrowers could only get forgiveness for eight weeks worth of payments.
The Flex Act changes that to 24 weeks. Thus, borrowers can now take advantage of loan forgiveness on certain payments for a full 24 weeks (up until December 31, 2020), instead of the original eight.
One thing that has not changed since the CARES Act, however, is the application date for these PPP loans. A borrower must apply for, and receive approval of, a PPP loan before June 30, 2020. Thus, the Flex Act has not changed the deadline for applying for a PPP loan.
2. Extended Loan Term
Another Flex Act provision that is advantageous for borrowers is a term extension. For loans that are made after the Flex Act passage (June 5, 2020), the loan term is a minimum of five years. By contrast, the term of a loan that originated before the Flex Act was enacted stays at two years, unless the borrower and the lender come to a different agreement.
3. Payroll Cost Limits
Under the Cares Act, a borrower was only able to get loan forgiveness if they spent over 75% of their loan proceeds on payroll costs. The Flex Act recognizes that 75% is a high number, and reduced that to 60%. In addition, the SBA clarified (in a press release following the passage of the Flex Act) that even if the borrower uses less than 60% of the loan for payroll costs, they still will be eligible for at least partial loan forgiveness.
4. 10-Month Loan Deferral
The Cares Act does not set a time by which borrowers must apply for loan forgiveness. The Flex Act, however, has a provision that indicates that borrowers should apply within 10 months after the last day of their loan period. It is not clear whether the 10 months is mandatory, but it is highly recommended that any borrower should apply for loan forgiveness within 10 months after the last day of their covered period.
5. Tax Deferrals
The CARES Act allowed employers to defer payment of their portion of Social Security taxes, but that deferral option is not available to businesses that received PPP loan forgiveness. Under the Flex Act, borrowers whose PPP loans have been forgiven can delay payment of the employer portion of Social Security taxes for all payroll paid from March 27, 2020, through the end of the year. It should be noted, however, deferral still does not apply to employee income tax withholding, the employee or employer portion of the Medicare tax, or the employee portion of the Social Security tax.
Also, the Flex Act provides that the deferred taxes can be paid in two portions The first half of the deferred taxes should be ultimately paid by the end of 2021, and the second half must ultimately be paid by the end of 2022.
Get the Help of an Experienced Tax Planning Attorney in Florida
If you have questions about Covid-19 legislation like the Flex Act, are struggling with back taxes, or if you are a business that needs to plan tax payments throughout the year, then you need the help of an experienced tax planning attorney in Florida.
The Law Office of Mary King P.L. can help. We are an experienced tax planning law firm in Florida, and we offer complete services in all areas from tax implications of alimony to planning the most efficient tax strategy for individuals and businesses.
Call our IRS problem-solving services firm in Florida today to schedule an initial consultation. With years of experience, the Law Office of Mary E. King can make sure that your tax issues are resolved in your favor. Fill out our online contact form, or call us at 941-906-7585. Remember, at the Law Office of Mary E. King, we are focused on solving your tax issues for good.