As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
The Coronavirus pandemic (COVID-19) continues to have a major impact on how small businesses have operated across the country. Small business owners have been forced to adapt to new regulations and environment due to the pandemic such as implementing new social distancing regulations, readjusting work from home strategies, etc. There have been opportunities for short-term relief through the Paycheck Protection plan and other loans.
Since the beginning of this pandemic, Congress has been responsive to addressing the Coronavirus’ impact on our economy. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provided major economic relief to individuals, businesses, and other entities. The Small Business Administration, led by Administrator Jovita Carranza, has implemented the Paycheck Protection Program (PPP) to provide payroll and other economic relief in terms of small loans.
Since the CARES Act passed, PPP has undergone new guidelines toward reviewing a PPP loan forgiveness program. The interim final rules, which became effect as of August 24, 2020, established a simpler loan forgiveness application process for the borrower’s PPP loan amount of $50,000 or less. The purpose of this article to provide an overview of how the interim final rule establishes PPP loan forgiveness, how it changes certain tax filings, and opportunities for future expansion in forgiving new PPP loans amounting to $150,000.
On March 27, 2020, the Paycheck Protection Program (PPP) was enacted through the passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). PPP is administered by the U. S. Small Business Administration (SBA) with support from United States Treasury Department led by Treasury Secretary Steven Mnuchin. The goal of the program is to provide small businesses relief with funds for payroll for up to 8 weeks of payroll costs as well as other costs. The funds could be used for anything but at least 60% of the amount must be used for payroll. Section 1102 of the Cares Act provides the basic standard for the loan forgiveness.
In addition to the CARES Act, there have been two additional laws which provided the Paycheck Protection Program more funding, authority to the SBA, and standards leading to forgiveness. On April 24, 2020 President Trump signed the Paycheck Protection Program Enhancement Act. This bill provided additional funding as well as gave the SBA more authority over PPP. On June 5, 2020, the Paycheck Protection Program Flexibility Act of 2020, establishes minimum maturity of five years for a paycheck protection loan with a remaining balance after five years. In addition, it allowed businesses to rehire former employees. In addition, this lower the requirements that the loan be used on payroll. From 75% to 60%. Both of these laws have helped small businesses maintain operations even though operations may be limited. In doing so this has led to the interim final rule.
According to the U.S. Small Business Administration, there have been 5,212,128 loans and a total of $525,012,201,124 for the cost of these loans since the Paycheck Protection Application process ended August 8, 2020. The Small Business Administration’s interim final rule has brought out more comprehensive guidelines for loan forgiveness for PPP borrowers. These guidelines were determined by Administrator Jovita Carranza. The interim final rule established a new loan forgiveness application for PPP borrowers with loans of $50,000 or less.
On October 8, 2020, the United States Small Business Administration (SBA) in coordination with the United States Treasury Department released new forgiveness applications for the Paycheck Protection Program. The new one-page PPP forgiveness application is available to borrowers who have loans of $50,000 or less. This loan forgiveness application is available to “any borrower with a total loan amount of less than $50,000, except for those borrowers that together with their affiliates received loans totaling $2 million or greater.”[i] This shorter and simplified application will assist in providing a faster loan review process.
The Loan Forgiveness Application SBA Form 3508 simplifies the loan forgiveness application process. You can access Form 3508 here. The goal of this application is to alleviate the burden as previous loan forgiveness applications were complicated and longer. Form 3508 requires the business’ information, the amount of loans it has made, as well as some other additional information that is required for certification.
Loan Forgiveness with Respect to the IRS
The Paycheck Protection Program has On September 22, 2020, the Internal Revenue Service (IRS) announced new rules for lenders who have PPP loans. should not file tax information return to report forgiveness of debt from the Paycheck Protection Program. The IRS has told lenders not to file a Form 1099-C with respect to forgiveness of a PPP loan. For lenders, it is important to review their announcement and make sure that tax filings follow the IRS. Form 1099-C is a form used to report a cancelled or forgiven debt totaling $600 or more. Under these circumstances, the IRS has reported not to complete this form in regard to PPP loan forgiveness. For further questions, I would recommend contacting the IRS about any filing questions or your CPA.
Congressional Perspectives on Potential Loan Forgiveness Bills for $150,000
Loan forgiveness greater than $50,000 is yet to be determined. As we are approaching the end of this election cycle, further Coronavirus relief is in flux. There are a couple of bills in Congress that would expand loan forgiveness to $150,000 and perhaps up to $2 million in loans. On July 27, 2020, Senator Marco Rubio of Florida introduced “Continuing Small Business Recovery and Paycheck Protection Program, or S. 4321. The purpose of the bill is to expand and provide further funding for the Paycheck Protection Program. This bill would expand loan forgiveness for borrowers between $150,000 to $2 million.
Similarly, Senate Democrats have proposed a loan forgiveness bill. On June 30, 2020, Senator Kevin Cramer of North Dakota introduced Paycheck Protection Small Business Forgiveness Act. This bill would automatically forgive paycheck protection program loans under $150,000. The lender would need to submit a form to show proof. Currently, there are 31 Senators cosponsoring this bill. Regardless, more progress on these bills will need to be done when Congress is back in session in mid-November following the elections
In addition to this topic, future economic relief packages will be determined following the November 3rd election. Recently, President Donald Trump has withdrawn from talks with Congressional Democrats on the next economic relief package until after the election or even later. By postponing these talks, future legislation may come after the new year depending on the election results. If Democrats are able to flip the Senate and even the Presidency, there are number of steps and commitments that can be made but won’t change until after January 20, 2021.
The Paycheck Protection Program has been a major source for economic relief for small businesses. Additional laws have provided the SBA the foundation to establish stronger guidelines, new processes for loan forgiveness, and making it easier for small business owners to obtain the access they need to survive. With the implementation and simplified loan forgiveness process for borrowers with $50,000 or less will help alleviate pressure and anxiety for small business owners. This new application will allow small business owners with PPP loans an easier approach to having their loans forgiveness. In coordination with these new guidelines, the IRS has sent out its new policies with respect to PPP loans forgiven.
As mentioned in the previous section, PPP loan forgiveness exceeding $50,000 is to be determined. Senate Democrats and Senate Republicans have proposed two similar bills toward expanding loan forgiveness. However, both bills differ by the amount of money. Both bills and any future Coronavirus relief packages will be determined following the election in November or possibly next year.
[i] “SBA Announces Simpler Forgiveness for Loans under $50K, Updates FAQs | NAFCU.” NAFCU, October 22, 2020. https://www.nafcu.org/newsroom/sba-announces-simpler-forgiveness-loans-under-50k-updates-faqs#:~:text=The%20Small%20Business%20Administration%20(SBA,loan%20forgiveness%20payments%20to%20lenders.