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Yesterday the Senate passed a House-approved reform bill that makes major changes to the Paycheck Protection Program (PPP) created under the CARES Act, and the President is expected to sign it into law. The most significant change is that businesses will now have 24 weeks, rather than the original 8 weeks defined in the PPP, to spend their loan money and still qualify for loan forgiveness.

The main changes in the reform bill are:

 1. Covered Period Extended to 24 Weeks

Originally, borrowers had to spend the loan amount within eight weeks of receiving it. Now the covered period can be extended up to 24 weeks after loan origination (but cannot go beyond December 31, 2020.) It is up to the borrower to choose the end of its covered period, and a borrower that wishes to use their loan in less than 24 weeks and request forgiveness before the end of the covered period is able to.

2. Payroll Cost Spend Requirement

Previously, borrowers had to use at least 75 percent of their PPP loan on payroll costs to obtain maximum loan forgiveness. The payroll cost threshold has been lowered to 60 percent, but now borrowers must meet this threshold to receive any forgiveness of their PPP loan. If a borrower uses less than 60 percent of their loan on payroll, none of their loan will be forgiven.

3. New Exceptions to Forgiveness Reduction Based on Full-Time Equivalent Employees

The CARES Act said the forgiveness amount would be reduced if the borrower lost full-time equivalent employees (FTEs) during the covered period relative to the base period or if the borrower significantly reduced the average annual salary or hourly wage of certain employees during the covered period relative to the first quarter of 2020. For their loan to be fully forgiven, borrowers had to restore FTEs and wages to their original level by June 30, 2020. That deadline has been extended to December 31, 2020.

However, the new law provides some exceptions even to this. Borrowers will not face a reduction if they can document one of the following: (a) the borrower is unable to rehire a terminated employee and the borrower is unable to hire a similarly qualified employee to replace the terminated employee; or (b) the borrower is unable to restore business operation levels to their February 15, 2020 operation levels as a result of COVID-19 related operating restrictions (i.e. if business can only operate at 50 percent capacity by state order). This will be a tremendous help to businesses that remain fully or partially closed.

4. Payroll Tax Deferral

The law originally stated that businesses could defer the employer portion of their 2020 social security payroll taxes to December 31, 2021 (50%) and December 31, 2022 (remaining 50%). However, once a business had its loan forgiven, it was no longer eligible for this deferral.

Now, under the new law, all borrowers can defer their 2020 social security tax burden to 2021 and 2022, even if they have received loan forgiveness by December 31, 2020.

Anthros has already provided its clients with the Loan Forgiveness Application and will provide the payroll reports needed to complete the application.

Please do not hesitate to reach out to the Anthros Team if you have questions about the Paycheck Protection Program.

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