PPP Loan Forgiveness Guidance from the SBA

Finally, Answers to Some of our Questions!

Last Updated:  August 10, 2020

On August 4, 2020, the SBA issued new FAQs specifically about the forgiveness process for PPP loans. The following is a brief summary of some of the topics our clients have been asking about.

• Which Form to Use?
  • Sole Proprietors, Independent Contractors, and Self-Employed Individuals who had no employees at the time of the PPP loan application are permitted to use the EZ Form when applying for loan forgiveness.

Payroll Questions:

• Payroll costs that were incurred during the Covered Period or the Alternative Payroll Covered Period but paid after the end of the applicable period may be counted toward forgiveness if they are paid on or before the next regularly scheduled pay date.
• Payroll costs that were incurred before the Covered Period but paid during the Covered Period may be counted toward forgiveness.
• Partial Pay Periods – If an employer pays biweekly or more frequently, to avoid having to calculate partial pay periods, the employer can elect to use the Alternative Payroll Covered Period (APCP). The APCP in essence ensures that the employer will be able to capture an entire pay period at the tail end of their covered period for loan forgiveness purposes. However, as the APCP is not an option for employers who pay semi-monthly or less frequently, they will need to calculate partial payroll costs for partial pay periods.
• All forms of compensation to an employee – salary, hourly wages, tips, commissions, bonuses, hazard pay, can be included in loan forgiveness up to the $100,000 annualized cap per employee.

Benefits:

• Employer expenses for employee group health care benefits that are either paid or incurred during the Covered Period or the APCP can be counted toward forgiveness. If an employer has an insured group health plan, insurance premiums will qualify as payroll costs as long as the premiums are paid during the applicable period or by the next premium due date after the end of the period. Forgiveness is not provided for health benefits costs that are “accelerated” from periods outside the Covered Period or the APCP.
• Employer contributions towards retirement benefits that are either paid or incurred during the Covered Period or the APCP can be counted toward forgiveness. Forgiveness is not provided for employer contributions for retirement benefits that are “accelerated” from periods outside the Covered Period or the APCP.

Owner Compensation:

• Owner-employees’ and self-employed individuals’ payroll compensation is capped at $20,833 per individual across all business in which the individual has an ownership stake for those using a 24-week Covered Period and $15,385 for those using an 8-week period. If their total compensation across businesses that received a PPP exceeds the cap, owners can choose how to allocate the capped amount across different businesses.
• In addition, the following restrictions depend upon the business type:
  • C-Corp – For an owner who is also an employee, no more than 2.5/12 of his or her 2019 employee cash compensation can be used towards forgiveness. Cash compensation is defined as it is for all other employees. Payments for employer state and local taxes on this compensation, amounts paid for employer contributions towards health insurance, and up to 2.5/12 of the 2019 employer retirement plan contributions should be included on lines 6-8 of the PPP Schedule A of the forgiveness application and do not count toward the $20,833 cap.
  • S-Corp – For an owner who is also an employee, no more than 2.5/12 of his or her 2019 employee cash compensation can be used towards forgiveness. Cash compensation is defined as it is for all other employees. Payments for employer state and local taxes on this compensation and up to 2.5/12 of the 2019 employer retirement plan contributions should be included on lines 7-8 of the PPP Schedule A of the forgiveness application and do not count toward the $20,833 cap. Employer contributions towards health insurance are not eligible for S-corporation employees with at least a 2% stake in the business including for employees who are family members of an at least 2% owner.
  • Self-Employed Schedule C (or Schedule F) Filers – For self employed individuals, including sole proprietors and independent contractors, no more than 2.5/12 of 2019 net profit as reported to the IRS can be used towards forgiveness. Payments for health insurance, retirement or state or local taxes are not eligible as they are paid out of net self-employment income. If the IRS 2019 Schedule C (or F) was not provided at the time of the loan application, it must be provided with the forgiveness application.
  • General Partners – No more than 2.5/12 of 2019 net earnings from self-employment that is subject to self-employment tax as reported to the IRS can be used towards forgiveness. Payments for health insurance, retirement, or state or local taxes are not eligible. If the IRS 2019 Form 1065-K-1 was not provided at the time of the loan application, it must be provided with the forgiveness application.
  • LLC Owners – As LLCs can choose how they are organized for tax purposes, LLC owners must follow the instructions that apply to how their business elected to be treated for tax year 2019.
  • Non Payroll Costs:
    • Mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs incurred prior to the Covered Period and paid during the CP are eligible for loan forgiveness.
    • Mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs incurred during the Covered Period but paid after the CP are eligible for loan forgiveness if they are paid on or before the next regular billing date.
    • The Alternative Payroll Covered Period does not apply to nonpayroll costs.
    • Interest on unsecured credit incurred before February 15, 2020, while a permissible use of PPP loan proceeds, is not eligible for forgiveness.
    • Lease renewals and mortgage loans that are refinanced after February 15, 2020 are eligible for forgiveness as long as the original lease or mortgage existed prior to February 15, 2020.

Loan Forgiveness Reductions:

• Full Time Equivalent (FTE) Employee Count – Employees making over $100,000 in 2019 should be included in the employer’s calculations of FTE.
• Wage Reduction
  • When determining if an employee’s salary or hourly wages have been reduced by more than 25%, only salary amounts or hourly wages need to be considered – not all forms of compensation.
  • If an employee’s salary or hourly rate of pay has not been reduced but the employee works less hours during the Covered Period, the employer does not need to count this decrease in total pay as a wage reduction for purposes of determining if wages have been decreased by no more than 25%. The reduction of hours will be taken into account when calculating FTE but will not also impact the wage reduction calculation.

  The actual Paycheck Protection Program FAQs on Loan Forgiveness goes into more detail including examples and other questions. We hope they will be updated to address even more questions that are being asked both by employers and lenders.

  Vantaggio will be actively monitoring this subject for updates.

  Call us and schedule an appointment now if you need help projecting your PPP forgiveness and its impact on your staffing decisions. We’re here to help!

  Call: 877-VHR-RELX

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