In today’s podcast episode, we discussed the following topics related to financial relief for businesses impacted by COVID-19, based on the Small Business Administration’s (SBA) recently issued loan forgiveness application and Interim Final Rules released 5/22/20. Proposed legislation may change the Paycheck Protection Program (PPP) forgiveness rules on covered period, percentage that can be used as nonpayroll costs, Full-Time Equivalents (FTE) safe harbor dates, and extended loan repayment terms.
Paycheck Protection Program:
- How people applied for loans, what loan amount was based upon, etc.
- Safe harbor for loan repayment – May 18th!
- Document everything now. Document the reasons and rationale for obtaining the PPP loan, including workforce considerations, liquidity considerations, supply chain disruptions, etc.
- Reach out if uncertain. Contact your accountant if anything about the PPP is unclear or you are not sure how this program can benefit or impact you.
- Tax Implications
- Loan Forgiveness:
- Borrower will submit application for loan forgiveness.
- Must contain documentation to substantiate expenses
- Criteria for 100% forgiveness –
- 25% pay reduction calculation
- FTE reduction calculation
- A reduction in compensation that is attributable to a reduction in employee’s hours will not be counted as a reduction in compensation for the 75% or more test. So that borrowers are not double penalized for both a headcount and wage reduction.
- Varying timeframes involved
- Can use covered payroll period or alternative payroll covered period.
- Criteria for forgiveness
- nonpayroll cost is eligible for forgiveness if it was 1) paid during the covered period or 2) Incurred during the covered period and paid on or before the next regular billing date, even if billing date is after covered period.
- Bonuses and hazard pay as well as pay to furloughed employee are legitimate payroll costs.
- Not Discussed in the Episode, but other forgiveness considerations:
- Employee compensation is capped at $15,385. Compensation to employee owners cannot exceed the lesser of $15,385 or 8/52nds of their 2019 compensation, plus what is spent for health insurance and pension costs, capped by his/her 2019 amounts.
- No forgiveness provided for retirement or health insurance made for self-employed individuals, including Schedule C filers and general partners.
- There are exceptions provided for the FTE reduction calculation indicated on the loan forgiveness application.
- Economic Injury Disaster Loan
- Economic Impact Stimulus payment
- Employee Retention Credit
- Payroll Tax Deferral
Please do not hesitate to reach out to us or your CPA with questions. We are here to help!