Category Archives: CARES Act

Forgiveness Requirements Relaxed with Passage of Paycheck Protection Program Flexibility Act

Contributed by Rebecca Dobbs Bush, June 5, 2020

On June 5, 2020, President Trump signed the Paycheck Protection Program Flexibility Act. Notable changes will allow businesses more time to spend loan proceeds on permitted costs. This is significant relief for those businesses that were unable to continue operations and bring employees back to work.  With many of those employees being lower paid, paying them to stay at home was not well received as it interfered with the higher amounts of unemployment compensation they could otherwise receive.

The significant changes allowed by the PPP Flexibility Act are:

  • The period during which borrowers have to account for payroll and non-payroll expenses has been expanded from 8 weeks to 24 weeks.
  • Borrowers are only required to spend 60% on payroll costs and can spend 40% on non-payroll costs.  This is revised from the previous ratio of 75/25.  (Note that the definition of payroll and non-payroll costs remains unchanged).  This means a borrower has 16 weeks longer than originally legislated to cover rent and other permitted non-payroll costs.
  • Certain scenarios can provide for a borrower to be excused entirely from the FTE calculation. This means an employer that is unable to maintain the same employee levels during the 24-week period may not need to have the forgiveness of a loan prorated based upon a reduction in their average FTEs.
  • Repayment terms are modified.  Notably, the first payment will not be required to be made within 6 months of loan origination.  Instead, a borrower has 10 months from either the date the covered period ends or from 12/31/20 (whichever is later) to apply for forgiveness.  Initial payment is not due until forgiveness is determined.
  • The previous “cure” deadline of 6/30/20 where borrowers could rehire employees and/or reinstate salary levels has been extended to 12/31/20.
  • PPP borrowers are permitted to utilize the provision of the CARES Act that permits delay of payment of payroll taxes.

You Just Received Your PPP Loan Money. Now What?

Contributed by Rebecca Dobbs Bush, April 17, 2020

NOTE:  This is general information and should not be construed as legal advice.  New guidance is continually being published.  This information is only current through April 16, 2020.

So far, the CARES Act and related guidance published by the Treasury indicates that two general factors will be examined in determining forgiveness:

1: Were at least 75% of the funds spent on “payroll costs”?

2: Have you maintained the same headcount and salary levels for full-time equivalent (FTE) employees?

First factor to keep in mind:  AT LEAST 75% of the PPP Loan Proceeds were used on “payroll costs.”

  • Payroll cost” is referring to the same definition employers looked at when performing calculations for the amount of available loan proceeds.
    • This includes gross cash compensation up to $100k on a prorated basis
    • Employer monies spent on retirement plan funding (such as pension contribution payments or 401(k)/403(b) matching funds)
    • Employer monies spent on health plan premiums (do not include amounts charged to your employees and paid for by them)
    • Employer taxes paid to state and local government
      • This does NOT include employer portions of federal payroll taxes such as Social Security and Medicare
      • This DOES include employer payroll taxes paid to state unemployment agencies.
  • Absent fraud DO NOT be concerned if you don’t spend 75% of the funds on payroll costs.  There are multiple potential scenarios where that could innocently occur. Some examples:
    • You have a significant portion of your employee population eligible for paid leave through the FFCRA.  Since you will receive payroll tax credits to fund that paid leave, you cannot claim it as a payroll cost incurred by the Company.
    • You don’t have work to resume employment for individuals. And, depending upon an employee’s annual salary level, current unemployment levels may have provided them with an increase in compensation. You don’t have to interfere with that and disqualify them from unemployment by resuming their compensation.
  • How was the remaining percentage (of not more than 25%) spent?
    • Permissible expenses include interest on mortgages, rents, utilities.
    • Generally, the obligation or service agreement needs to have been in existence prior to 2/15/2020.

Next factor to keep in mind: Determining whether there’s a reduction in employee headcount OR in an employee’s salary.

  • Forgiveness is NOT all or nothing – it can be prorated.  Proration is based on headcount or salary levels – or both.
  • Calculation used to determine if reduction in headcount:
    • First divide A by B
      • A = 
        • Average number of full-time equivalent employees per month employed during the 8 weeks following receipt of loan proceeds
      • B =
        • the average number of full-time equivalent employees per month during 2/15/2019 through 6/30/19
        • OR, the average number of full-time equivalent employees per month during 1/1/2020 through 2/29/2020
    • Then, multiply that percentage by:
      • The total amount spent on permissible “payroll costs” and other permissible expenses such as business debt/mortgage interest and utilities during the first 8-weeks after you received loan proceeds
      • The resulting final number is the principal amount eligible for forgiveness.
  • Forgiveness can also be reduced if you reduce employee compensation:
    • Look at salaries paid during the 8 weeks following receipt of loan proceeds.
    • Loan forgiveness will be reduced by the amount of reduction in an employee’s wages.
      • Reduction is determined by looking at the total amount paid during the 8-week period after loan proceeds are received and comparing it to the total salary or wages of that employee during the most recent full quarter.
      • Factored in only where reduction greater than 25%
    • As long as a salary reduction does not cause an individual to fall below $100k prorated over the 8-week period, it should not factor into forgiveness.
      • This is a conclusion based on 2 different parts of the Act. One part allows complete disregard for any reductions made for someone making $100k or more a year, and another part of the Act which requires 75% of loan proceeds to be paid out as payroll costs (and with that same individually presumably counting for at least $100k in determining loan availability).

What about the option to fix things?

  • CARES provides an opportunity for employers to “fix” things and have headcount or salary reductions entirely disregarded in determining forgiveness.
    • Circumstances where “fix” is an option:
      • Employer reduced headcount or salary between 2/15/2020 and 4/26/2020 (30 days after CARES went into effect), but the employer fixes it by:
        • Increasing the headcount of full-time equivalent employees by 6/30/2020.
        • At least 1 employee had their salary reduced by more than 25%, and the employer eliminates that reduction by 6/30/2020.
      • There is zero clarification on what the “fixes” mean.  We presume averages of some sort will be published to eliminate the potential abuse of allowing for last minute corrections.

What documentation should I be maintaining?

  • CARES mentions the following as eligible documentation that can be provided to a lender to verify calculations for forgiveness:
    • Payroll tax filings (both state and federal)
    • Cancelled checks
    • Payment receipts
    • Transcripts of accounts verifying payments made
    • Certification from a person authorized to do so on behalf of the business that the documentation is true and correct and the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments.

Summary: Things to Do and Keep in Mind

  • Maintain a ledger of total loan principal received
    • Immediately calculate 75%:
      • This is the total minimum amount you must spend on employee payroll, unemployment taxes and employer share of costs of health and retirement benefits (including insurance premiums paid).
    • Note the remaining 25% number:
      • This is the total maximum amount you can put towards all utilities, all business interest expenses and any rental or lease obligations.
    • Keep in mind the documentation noted above.  These items may be required to verify the expenses you claim towards the required percentages.
  • The forgiveness calculations are complex with some potential implications not yet occurring and/or being outside of your control.  All you can do initially is carefully track how you spend the loan proceeds during the first 8 weeks after receipt.
  • Amounts you cannot receive forgiveness for will be subject to repayment and will be a loan on the following terms:
    • 2 – year term
    • 1% interest rate
    • No payments due for first 6 months
    • No personal guarantees
    • No collateral at-risk


TOTAL Loan received of $645,421.00

 A = ? (Possibly 14)**(Average FTE employees per month during 8 weeks following receipt of loan proceeds)
 B = 21(Average FTE employees per month for the period of 2/15/19 to 6/30/19 OR 1/1/20 to 2/29/20)
 66.7% = $430,281(Potential percentage ratio/ $ eligible for forgiveness)
 75% of  total loan amount = $484,065.75(Minimum amount of loan that must be spent on “payroll costs”)
 25% of total loan amount = $161,355.25(Maximum amount of loan that may be spent on rent, lease, utilities, and/or mortgage interest)
Amount of loan to be repaid at 1% interest —>$215,140Total loan proceeds less ratio described above

** Note that this example anticipates a scenario where wages are not paid to individuals in the event there is no work for them to perform with unemployment a better alternative for the individuals. If the estimated number for A increases, the amount of the loan available for forgiveness will also increase.

**Also note that this example does not account for any salary reductions for any individuals that earn less than $100k annually.

Retirement Plan Relief for Employees under the CARES Act – Expanded Distributions and Loans

Contributed by Kelly Haab-Tallitsch, April 7, 2020

concept of saving, economy and finance

Recent legislation providing COVID-19 relief to individuals and businesses includes provisions allowing more flexibility under retirement plans for individuals impacted by COVID-19. The CARES Act permits special hardship distributions of up to $100,000 from most tax-qualified retirement plans without early-withdrawal penalty taxes, increases the maximum 401(k) loan available for participants impacted by the pandemic and allows a delay in existing loan repayments. Required minimum distributions from defined contribution plans are waived for 2020.

Coronavirus-Related Hardship Distributions and Loans

The CARES Act allows plan sponsors to adopt special provisions expanding distributions and loans for “qualified participants.” A “qualified participant” is a plan participant who: (1) is diagnosed with COVID-19, (2) has a spouse or dependent diagnosed with COVID-19, or (3) experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, or being unable to work due to COVID-19.

  • Coronavirus-Related Distributions – A “qualified participant” may take a coronavirus-related distribution of up to $100,000 from an eligible retirement plan between January 1, 2020 and December 31, 2020. Eligible retirement plans include 401(k) and other profit sharing plans, 403(b) plans, government 457(b) plans and IRAs.

The 10% early withdrawal penalty does not apply to a coronavirus-related distribution. The distribution is taxable to the participant ratably over a three-year period, instead of all in the year of distribution. A participant can elect to repay the funds to the plan within three years and the taxable amount of the distribution will be reduced.

  • Increased 401(k) Loan MaximumThe maximum amount available for 401(k) plan loans taken between March 27, 2020 and September 23, 2020 by a “qualified participant” is doubled to the lesser of $100,000 or 100% of the participant’s vested account balance. The amount available is reduced by any other loans outstanding in the last twelve months.

Plan sponsors can choose to impose a lower loan maximum and may impose other limits that currently apply under a plan (minimum loan amounts, loans from only certain contribution sources, number of loans outstanding, etc.).

  • Delay in Loan Repayments – Loan repayment due dates between March 27, 2020 and December 31, 2020 may be delayed for up to one year for a “qualified participant.” Any subsequent repayment due dates may be adjusted to reflect the delay. The period of delay shall not be taken into account in determining the five-year term or repayment period of the loan.

Plans may begin taking advantage of these provisions immediately and do not need to be amended until the last day of the plan year beginning on or after January 1, 2022. 

Required Minimum Distributions NOT Required in 2020

Required Minimum Distributions (RMDs) from defined contribution plans (including 401(k), 403(b) and government 457(b) plans) and IRAs are waived for 2020 under the CARES Act.  RMDs that would otherwise been required to be made for those participants reaching age 72 during 2020 may be delayed until 2021. The delay does not apply to RMDs under defined benefit plans. Plans must be amended to reflect the waiver by the last day of the plan year beginning on or after January 1, 2022.