President Signs the “Paycheck Protection Program Flexibility Act of 2020” into Law

Capital Corner – Sikich’s Analysis of Tax Developments in Washington


On June 5, 2020, the President signed H.R.7010, “The Paycheck Protection Program Flexibility Act of 2020” (“PPPFA”) into law. For more background on the legislation, click here.


The Paycheck Protection Program (PPP) loan program, under the CARES legislation, focused on providing funding to small businesses to assist them primarily with employee payroll, lease payments, interest on mortgages, and utilities. This loan provides the opportunity for borrower forgiveness if spent in the required manner over the eight-week period after the loan was disbursed. In mid-May, the SBA provided guidance on loan forgiveness to assist borrowers. However, the delay in issuing this guidance and a slowdown in operations concerned borrowers, as they feared they might be unable to maximize their PPP loan forgiveness.

Paycheck Protection Program Flexibility Act of 2020 Overview

Now that the Paycheck Protection Program Flexibility Act of 2020 (H.R.7010) has been enacted, here are several key features to pay attention to:

  • This legislation extends the PPP loan forgiveness “covered period” from eight weeks to 24. The 24-week period runs from the date the loan was originated and cannot extend beyond December 31, 2020. This longer extension period is crucial to many borrowers that were nearing the end of their initial eight-week timeframe and whose operations were closed or suspended under state law. Please note that employee compensation limits still apply, and forgiveness will continue to max out at $100,000 for annual salary (for 24 weeks, this would translate into $46,153). The SBA will hopefully issue guidance confirming this new compensation limit.
  • The PPP loan term was previously two years but, under this latest legislation, is pushed out to five years. In addition, this bill extends the date any loan payments begin until the date the lender receives notification of forgiveness from the SBA.
  • The bill defers to December 31, 2020 (from June 30, 2020) the date a borrower can have Full-Time Equivalents (FTEs) and employee compensation at the same threshold as the borrower had on February 15, 2020. If the borrower gets their payroll back to this level, the PPP loan forgiveness will not be reduced. Additional SBA guidance may be necessary to address this new date for FTE purposes.
  • It replaces the “75/25 rule” introduced by the SBA with a “60/40 rule:” with 60% for payroll costs and 40% for non-payroll costs. These other costs can account for a higher portion, but this is likely less of a concern due to 24 weeks of expenses being available now.A word of caution on the new 60% payroll threshold. The way this provision is written, the borrower must spend at least 60% of its PPP loan on payroll costs. If they miss this 60%, then none of the loan is forgiven. There is no partial forgiveness as was permitted under the rules before PPPFA was enacted. There are some in Congress who would like to restore partial forgiveness, but this will likely need additional legislation.
  • Another favorable change in the PPPFA provides that the PPP loan forgiveness will not be reduced as a result of a decline in FTEs if the borrower is able to show one of the following two situations apply:
  1. An inability to rehire individuals who were employees of the borrower as of February 15, 2020, and the inability to hire similarly qualified employees for unfilled positions by December 31, 2020.
  2. An inability to return to the same level of business activity as the business or borrower was operating at prior to February 15, 2020, due to the borrower needing to comply with requirements established by the CDC or other government agencies for the period starting on March 1, 2020 and ending on December 31, 2020. The compliance relates to maintaining standards for sanitation, social distancing, or any other worker or customer safety requirements from the Coronavirus pandemic. This exemption essentially states that by December 31, 2020, if a business (or borrower) is unable to open due to government orders, any drop in FTEs occurring from these restrictions will not be considered in determining a reduction in the loan forgiveness amount.
  • These two relief situations will need further SBA guidance.
  • It also allows borrowers that obtain PPP loan forgiveness to receive payroll tax deferral (another CARES provision). Thus, the 6.2% employer share of FICA for the period March 27 through December 31, 2020 can be deferred with 50% then due on December 31, 2021 and 50% due on December 31, 2022. Prior to the PPPFA, borrowers could not defer these payroll taxes after they received notification of their loan forgiveness.
  • Further, the bill provides that borrowers who received a PPP loan prior to PPPFA becoming law can still utilize the present eight-week period.


These changes in the PPPFA should be welcome news to most borrowers who applied for a PPP loan. The SBA, which has been busy providing a variety of guidance, will now need to re-focus their efforts on this latest PPP legislation. We will continue to provide updates about ongoing SBA developments. Please contact your Sikich advisor with any questions.


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