House to Act on PPP Changes Next Week
May 22, 2020
The U.S. House of Representatives is expected to vote next week on bipartisan legislation, the Paycheck Protection Flexibility Act, which would revamp the popular Paycheck Protection Program (PPP) to allow for more flexible terms. In Utah, for rounds one and two of funding, a total of 47,046 businesses have received PPP loans, amounting to nearly $5.3 billion.
Initially, the program required small businesses to spend their loan over an eight-week period following receipt of funds in order to qualify for loan forgiveness. In addition, 75% of the loan had to be used for payroll costs. Although intended to keep employees on the job, these strict requirements weren’t realistic for many small businesses amid shutdowns and stay-at-home orders.
The legislative “fix”, first introduced by Representatives Dean Phillips (D-Minn.) and Chip Roy (R-Texas), would increase the eight-week loan use period to 24 weeks and repeal the requirement that 75% of the forgiven loan amount be used for payroll. Other changes in the bill include extending the rehiring deadline from June 30 to align with the expiration of enhanced unemployment insurance and allowing employers to defer the deposit and payment of the employer’s share of Social Security taxes. Currently, employers can defer these taxes only until the loan is forgiven. The Democrat HEROES Act recently passed by the House but unlikely to be accepted by the Senate included a provision supported by some Republicans that would clarify that expenses paid with PPP loans that are forgiven are tax deductible. The IRS has said that expenses paid with forgiven PPP dollars cannot be deducted.
Although the Senate is scheduled to be in recess next week, returning to Washington June 1, Senator Cory Gardner has threatened to block the Senate from leaving for Memorial Day recess, citing the need to pass coronavirus legislation. While there is significant support in the Senate to make timely changes to PPP, it’s unclear when the Senate would act on the Paycheck Protection Flexibility Act passed by the House, or any substitute legislation. The hope is to approve changes before the first PPP loan recipients reach their deadline in early June.
Last week, the Treasury Department released updated guidance (FAQs) on PPP, noting among other clarifications, that loans under $2 million would be deemed certified and not be subject to scrutiny. Treasury also noted that businesses that received PPP loans can exclude laid-off employees from loan forgiveness reductions if the employees turn down a written offer to be rehired. The FAQs note that if the employee rejects such a good-faith job offer from the borrower, the employee may not be able to continue to receive unemployment compensation.