Good news! Congress has passed, and the President is expected to sign, a bill that adds considerable flexibility to the rules for PPP loan forgiveness. Under the previous rules, forgiveness required that at least 75% of business expenses in the 8-week period after the loan closing be used for payroll expenses. The new rules make the following changes:
- Reduce the payroll forgiveness threshold from 75% to 60%;
- Increase the time period from 8 weeks to 24 weeks;
- Extend the safe harbor date to re-hire employees from June 30th to December 31st; and
- Increase the maturity date for any loan funds not forgiven from 2-years to 5-years.
Despite these welcome changes, important questions remain. One of the most significant is the income tax consequences of PPP forgiveness. The IRS has stated that any PPP funds used to pay business expenses render those expenses non-deductible if the PPP loan is later forgiven. In effect, this means that a forgiven PPP loan is taxable. This result seems contrary to the intention of Congress, so we hope that Congress will reverse it in a later law.