Good news for PPP loans for $50,000 or less

There are new rules for PPP loans which are $50,000 or less. The new rules ease and simplify the requirements of the loan forgiveness process.

As a result of the rule changes, the amount of your loan forgiveness may have increased to 100 percent even if you cut back on your employees.

Additionally, the new rule change has made the application for loan forgiveness much easier.

Before the $50,000 or less rule, you had to take a reduction in loan forgiveness or meet the exceptions that would allow you to reduce annual salaries or wages by more than 25 percent. These rules also applied to reducing the average number of employees or average hours paid.

With the new rule for a PPP loan of $50,000 or less, you don’t have to consider all the many rules about employees. Now you meet the requirements if you spent the PPP money on costs that are eligible for forgiveness and at least 60 percent of the forgiveness is for qualified payroll costs.

As an example, suppose you received a PPP loan $30,000 based on your 2019 Schedule C income and pay to your part-time employee. Due to COVID-19, you had to lay off your worker and your worker was never rehired. You will qualify for 100 percent forgiveness of your $30,000 loan if you spent $18,000 (60 percent) on the pay to yourself and the remainder on five months’ rent and utilities.

The new rule caps the Schedule C taxpayer’s loan amount and forgiveness at a maximum of $20,833 when Schedule C income is $100,000 or more.

The expiration date has changed for the SBA Form 3508S. The form has an expiration date of October 31, 2020, but the SBA says that date should be ignored. The date has been extended and will be printed on the new forms when they are printed. The old forms with the October 31, 2020 date can still be used.

Since many people were in a dire financial crisis and didn’t have the funds to continue paying their employees, they really had no choice but to lay them off. Fortunately, the new rule change will be very beneficial if you laid off employees as a result of the financial crisis.

David Zubler is a tax accountant in East Tennessee, the author of four books, and a philanthropist.  All of his proceeds from the books go to a charitable foundation he created for underprivileged children.  He is also the founder of Your Tax Care which provides tax education. David can be reached for questions and consultation at yourtaxcare.com.