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Wednesday, June 24, 2020

The Cares Act, Loan Forgiveness and Your Business

New legislation has cast a confusing cloud on PPP loans – unless you know how to stay on top of yours

Dan Tillett is a CPA with Rudler PSC in Fort Thomas.

By Dan Tillett, CPA and Senior Tax Manager for Rudler, PSC

Signed into law this March, the Coronavirus Aid, Relief and Economic Security (CARES) Act was seen as a beacon of hope for small- and medium-sized businesses facing sizeable uncertainty in the wake of COVID-19 (novel coronavirus).

A $2 trillion economic relief package, the act’s main tenet, the Paycheck Protection Program (PPP), provided business owners with loans to cover business expenditures, such as payroll, mortgage interest, rent and utilities. However, given the sheer number of businesses seeking funds and the speed at which the legislation was passed, many working to secure the loans felt as if we were dealing with the financial equivalent of the Wild, Wild West.

Now, PPP loan recipients are facing a new, extremely pertinent – and potentially problematic – aspect of the CARES Act: Loan forgiveness, or rather the conditions businesses must meet to to have their PPP loans forgiven.


The Paycheck Protection Program Flexibility Act was signed into law on June 4, 2020 and provided generous expansions to PPP forgiveness opportunities. Originally, the CARES Act mandated that once the funds hit their bank account, business owners had eight weeks to spend their funds, 75% of which had to be used for qualified payroll costs. 

That percentage has now been reduced to 60%. Additionally, business owners now have the option to expand their time to spend PPP funds from 8 to 24 weeks. This is a significant change that may help restaurants and retail owners who, until recently, were ordered to remain closed until phased re openings began.

The new legislation also provided significant changes for those unable to, for whatever reason(s), spend or satisfy the terms of their PPP loan. Originally, unforgiveable loan amounts would become 2-year loans that must be paid back at 1% interest; the newly passed legislation has extended these into 5-year loans at the same 1% interest rate.

Another change with the new legislation affects business owners and payroll tax deferrals.

When first passed, business owners with PPP loans could only defer their employer portion of Social Security tax up through the date in which their PPP loan was forgiven. Now, all companies including those whose loans are forgiven are eligible for deferral of the employer’s portion of Social Security taxes this year.


Staying ahead of the changes to ensure your PPP loan is forgiven requires the utilization of some immediate next steps. With so many question marks and unknowns surrounding the new legislation, the best thing any business can do right now is actively monitor how they are using PPP funds. It is essential to ensure the right percentages are being met in terms of spending and that employees are meeting their full-time equivalency status. Maintain your annualized wages to make sure they meet the requirements for each employee; each individualized employee cannot experience a salary drop of more than 25%, as it will affect your loan forgiveness potential.

These are the steps we have been recommending to our clients to ensure they will be in the best possible position to secure the forgiveness of their PPP loans. In fact, we have developed a process internally where we can examine the use of PPP funds and then examine the percentages of payroll versus occupancy-related costs. With this information and a thorough analysis of possible payroll dollar or full-time equivalent (FTE) reductions, we are able to provide a complete picture on the outlook of PPP forgiveness. In doing so, small- and medium- sized business owners are giving themselves the best chance to maximize their loan and forgiveness of it.

As we continue to move forward in unprecedented times, simple record keeping – even as the legislation and its subsequent guidance is both complex and evolving – will help owners care for employees and their business alike.

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