We are aware that many small businesses have applied for and received loans under the Paycheck Protection Program (PPP) with the intent that those loans will be forgiven. The guidelines are ever changing, but we want to provide clients with the most up to date information as you determine how funds need to be spent in order to be eligible for loan forgiveness. The below FAQ hits some of the most commonly asked questions and is effective as of June 5, 2020.
What is the Payroll Protection Program and is my business eligible?
The PPP loans were a provision of the CARES Act allowing businesses affected by the Coronavirus pandemic to obtain loans of up to 2.5 times their average monthly payroll. If the funds are used for allowed expenses (payroll, rent and utilities) in the 24 week period following loan funding the loan amount is eligible for forgiveness.
Businesses with fewer than 500 employees that were operational as of February 15, 2020 are eligible for the loans. Self-employed persons are also eligible to apply for the loans.
How long to do I have to apply?
The application period is open through June 30, 2020.
I have received the loan, now how do I qualify for forgiveness?
In order to qualify for loan forgiveness you must spend 60% of the funds on eligible payroll costs in the 24 week period (you can elect to use an 8 week period) following the funding of your loan. The other 40% of funds can be used to pay rent, utilities and mortgage interest. You must restore your workforce levels and wages to pre-pandemic level by the end of the 24 week period or December 31, 2020, whichever is sooner, to receive full forgiveness.
What are eligible payroll costs?
Eligible payroll costs include gross salary, gross wages, gross tips, gross commissions and paid leave not covered by the FFCRA, up to $100,000 of annualized cash compensation per employee. It also includes employee benefits consisting of group health care coverage, retirement benefits, state and local taxes assessed on compensation of employees (SUTA tax).
For self-employed persons eligible payroll is considered amounts paid to yourself capped at $15,385 or 8/52 of your net self-employment income in 2019. These amounts must actually be paid out to the owners (sole proprietor, general partners, etc.).
Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred, but not paid, during the last pay period during the Covered or Alternative Payroll Period are eligible for forgiveness if paid on or before the next regular payroll date.
What are eligible expenses other than payroll?
The following are eligible expenses for forgiveness (limited to 40% of fund received):
- Interest payments on a mortgage that was incurred before February 15, 2020.
- Rent paid under a leasing agreement that was in force before February 15, 2020.
- Business related utilities (electricity, gas, water, and telephone and internet access) for which service began before February 15, 2020.
What if I don’t restore my workforce to a pre-pandemic level?
There are two exceptions allowing full forgiveness even if your workforce is not fully restored. First, you can exclude from the reduction in workforce calculations employees who turned down good faith, written offers to be rehired at the same hours and wages as before the pandemic. Secondly, borrowers can adjust the reduction in workforce calculation if they could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.
Is the forgiveness of the loan considered taxable income?
The loan forgiveness is not considered taxable income. However, you cannot deduct expenses paid with the loan proceeds if they are forgiven.
What if I had my full workforce at the end of the 8 week period, but not the 24 week period?
You can elect to use the 8 week period instead of the 24 week period. If you spent all of your funds in accordance with the forgiveness rules by the end of the 8 week period and retained your full workforce, you can elect to use this period as your forgiveness period. This would allow you to receive full forgiveness even if you laid off employees after the 8 week period.
If the loan is not forgiven what are my payment terms?
The loan will be repaid over 5 years with an interest rate of 1%. Payments are deferred for 6 months, but interest is accrued during that period.
Can I delay payment of my payroll taxes if I receive PPP funds?
Yes, you can now delay payment of payroll taxes whether or not you received PPP funds.
We understand the complexity of these rules and are available for consultation and assistance with completion of the forgiveness application. Our standard hourly rates apply for these services.