PPP Forgiveness

New PPP Loan Rules Reduce Payroll Cost Requirement to 60%

The Paycheck Protection Program Flexibility Act (PPPFA) signed into law on June 5, 2020 had some extremely beneficial changes for practice owners. One of the more significant changes reduces the minimum percentage of the PPP loan proceeds required to be spent on payroll costs from 75% to 60% for the practice to still qualify for full forgiveness of the loan. This change allows for greater flexibility on how to allocate the PPP funds during the newly extended 24-week Covered Period.

See below for a detailed breakdown of the eligible costs when considering the new 60/40 rule:

Eligible payroll costs (60% or more):

  • Cash compensation (capped for employees earning more than $100k in 2019)
  • Employer Health Insurance Premiums paid during the covered period (excluding those paid on behalf of sole proprietors)
  • Employer Retirement Plan Contributions paid during the covered period (excluding those paid on behalf of sole proprietors)
  • State and local employment taxes paid during the covered period
  • Compensation to owners (limited to $15,385)

Eligible non-payroll costs (up to 40%):

  • Business mortgage interest paid during the covered period
  • Business rent or lease payments made during the covered period
  • Utility payments paid during the covered period

Please note that if a borrower is unable to use 60 percent of the original PPP loan amount for payroll costs, this does not completely disqualify loan forgiveness.  Instead, borrowers using less than 60 percent of the PPP funds on payroll costs during the covered period will reduce the forgivable amount proportionately.

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