The SBA/Treasury released 2 new loan forgiveness forms this week, along with instructions and a new “interim final rule.” The “upshot” of these SBA releases is that “owner-employees, self-employed individuals/independent contractors and general partners of partnerships can now “count” 2 1/2 months of their 2019 net income as opposed to 8/52 of 2019 income IF they elect to use a 24 week covered period. The previous limitation on how much owner-employees/self-employed could use for PPP loan forgiveness costs for their own income was $15,385 (which is still the case for a 8 week covered period), and the increased limitation on “counting” owner-employee payroll costs for a 24 week period is 2 1/2 months’ worth of 2019, or $20,833 of costs over a 24 week covered period in 2020. This change will increase loan forgiveness for a self-employed individual or S corporation “owner-employee” by $5,448. For S corporations or partnerships with multiple shareholder-employees or general partners, EACH of those owners would have their limitation increased by $5,448—–so for multi-owner employers, the potential savings by selecting the 24 week “covered period” could be very significant. The result of this SBA new interpretation is that most self-employed individuals will receive 100% loan forgiveness since their original loan was based on 2 1/2 X their monthly net income (capped at $100K as with non-owner employees.)
The SBA forms and instructions also indicate that use of the 24 week period instead of 8 weeks for the covered period will increase the payroll costs limit for those earning over $100K per year from the $15,385 amount for the 8 week period to $46,154 for the 24 week period—-so it would seem that use of the 24 week period for employers with several highly compensated employees would increase loan forgiveness “caps” on those employees significantly.
The SBA released 2 brand new “loan forgiveness applications,” both of which are shorter than the previous SBA Form 3508, which was 11 pages long. A simplified version of the loan forgiveness form, called Form 3508EZ, can be used by self-employed individuals with no other employees AND also any employer who can certify that their employee “headcounts” (FTE’s) did not decrease from January 1, 2020 to the FTE’s during the 8 or 24 week covered period—–essentially, that the employer did not reduce their # of employees paid/hours paid from the beginning of 2020 through their 8 or 24 week covered period. The other condition for eligibility to use SBA Form 3508EZ is that the employer did not reduce payrates to their employees by greater than 25% during their covered period as compared to the payrates during Q1 of 2020. Essentially, Form 3508EZ can be used by employers who do not have any “reductions” in payrates or employee headcount #s, which is the most complex part of the longer SBA loan applications. We found an excellent, easy to read, guide to Form 3508EZ eligibility at a community bank website, which you can read here.
You should consult with your accountant and/or banker as to the very important decision to use the original 8 week “covered period” OR the recently amended 24 week “covered period.” Our previous PayDay articles about factors involved in selecting your optimum “covered period”, as well as all articles AccuPay has written about PPP loan applications, forgiveness concepts, various COVID-19 tax credits and tax deferrals, and even the FFCRA sick/paid leave provisions and tax credits can be found on our blog at https://accupay.com.