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Paycheck Protection Program (PPP) Forgiveness Information

The Paycheck Protection Program (PPP) was created to help keep small businesses afloat and their employees paid while they weather the Covid-19 pandemic. The rules around PPP loan forgiveness are outlined below as they are updated by Congress, the U.S. Department of Treasury and the Small Business Administration. 
Importantly, qualified portions of PPP loans may be forgiven if borrowers use the loans for the following purposes over the 8 week period after the loan is made, or the "alternative covered period" beginning with the next payroll period as described below, and employee and compensation levels are maintained as they were prior to the coronavirus:
● Payroll costs for those whose primary residence is the United States● Most mortgage interest and rent● Utility costs
The details of PPP forgiveness are as follows:

PPP Forgiveness Information

What is FORGIVABLE?

Borrowers are eligible to have all of their loans forgiven if they qualify.

How much is qualified?A borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan (or during the "Alternative Covered Period" described below):• Payroll costs (generally using the same definition of payroll costs used to determine loan eligibility)• Interest on the mortgage obligation incurred in the ordinary course of business for property not owned by the business owner(s)• Rent on a leasing agreement signed as of February 15, 2020• Payments on utilities (electricity, gas, water, transportation, telephone, or internet)• For borrowers with tipped employees, additional wages paid to those employees
The loan forgiveness cannot exceed the principal.

How much can I GET FORGIVEN?

To estimate forgiveness you must analyze the types of expenses you have accrued OR paid during the loan period (or during the "Alternative Covered Period"). These expenses include the broad categories of Payroll, Mortgage Interest, Rent, and Utility Costs. We will discuss each of these types of expenses below so you understand them.

How do I calculate my average monthly PAYROLL COSTS for forgiveness?

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INCLUDED Payroll Costs for Forgiveness:1. For Employers: The sum of payments of any compensation with respect to employees that is a:• salary, wage, commission, tips, or similar compensation (capped at $100,000 on an annualized basis for each employee)• payment of cash tips and equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)• payment for vacation, parental, family, medical, or sick leave• payment required for the provisions of group health care benefits, including insurance premiums• payment of any retirement benefits, including employer SEP/SIMPLE/401k match/Profit sharing/pension contributions • payment of state or local tax assessed on the compensation of the employee
2. For Sole Proprietors, Independent Contractors, and Self-Employed Individuals: The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in one year, as pro-rated for the covered period. The maximum allowable amount is based on eight weeks of the 2019 net income as reflected on last year's 1040 Schedule C. 
Note on Bonuses: Please further note that owners may not pay themselves special bonuses, but you can pay bonuses to employees and have them considered in the forgivable amount.
3. Payroll Periods that are included: The included payrolls include either those paid OR accrued during the eight week period from the day the loan proceeds are dispersed (called the "Covered Period"). There is also allowed an "Alternative Covered Period," that will allow businesses to apply for forgiveness for payroll costs paid OR accrued starting with the first payroll period starting after the PPP funds are dispersed.
Note on Expense Timing: Importantly, loan forgiveness for both (i) expenses paid, but not incurred, during the covered period and (ii) expenses incurred, but not paid, during the covered period. In particular, payroll costs that were incurred before the covered period are eligible for loan forgiveness if they are paid during the eight-week covered period or alternative covered period, whichever is elected. Payroll costs that are incurred during the last pay period of the covered period are eligible for loan forgiveness if they are paid on or before the next regular payroll date following the end of the covered period.
EXCLUDED Payroll Costs not be considered for forgiveness:1. Any compensation of an employee whose principal place of residence is outside of the United States2. Compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the period February 15, to June 30, 20203. FICA payroll taxes, railroad retirement taxes, and income taxes required to be withheld from employees4. Qualified sick leave wages for which a credit is allowed under section 7001 of the Families First Coronavirus Response Act (Public Law 116–5 127); or qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act. 


How Could the Forgiveness BE REDUCED

The amount of loan forgiveness calculated above is reduced if 
● there is a reduction in the number of employees, ● a reduction of greater than 25% in wages paid to retained employees, or● less than 75% of the forgivable balance was spent on payroll expenses
Specifically:
Reduction based on number of Full Time Equivalent (FTEs) employees:

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1 FTE equals an employee working an average of 40 or more hours per week. You may also use a simpler FTE calculation where employees working 40 hours or more per week on average count as 1 FTE and employees working less than 40 hours per week on average count as 0.5 FTE.
FTE Safe Harbors: You will be deemed to be in a "safe harbor" in regards to FTEs if you restore your full-time employment and salary levels by June 30, 2020 for any changes made between February 15, 2020 and April 26, 2020.
Businesses applying for forgiveness for PPP loans will also be able to exclude those employees or hours from the FTE reduction if:
● made a good faith, bona fide offer of employment to an employee and that offer of employment was declined● an employee was terminated for cause● the employee voluntarily resigned● the employee voluntarily reduced his or her hours

Reduction based on Wages and Salaries:

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You will also owe money if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. This is three-step measurement calculated on a per-employee basis, and reduces forgiveness on a dollar by dollar basis. The same employee safe harbor for the FTE calculation will apply to the wage/salary reductions.
Salary/Hourly Wage Reduction Safe Harbors: You will be deemed to be in a "safe harbor" in regards to Salary / Hourly Wages if you restore your salary and hourly wage levels for all those who made less than $100,000 in CY 2019 by June 30, 2020 for any changes made between February 15, 2020 and April 26, 2020.

Businesses applying for forgiveness for PPP loans will also be able to exclude those employees or hours from the Salary / Hourly Wage reduction if:

● made a good faith, bona fide offer of employment to an employee and that offer of employment was declined
● an employee was terminated for cause
● the employee voluntarily resigned
● the employee voluntarily reduced his or her hours

What will make my loan NOT forgivable? You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. 

What DOCUMENTATION do I need to get my loan forgiven?

A borrower may apply for loan forgiveness only after the eight-week covered period expires and the borrower gathers the required loan documentation. Comprehensive documentation is required to substantiate all eligible expenses. 
For payroll expenses, the borrower must provide:
● bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees;● tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the covered period, such as payroll tax filings reported, or that will be reported, to the Internal Revenue Service; and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported or that will be reported to the State;● payment receipts, canceled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.
For non-payroll expenses, the borrower must provide:
● documentation verifying the existence of the obligations and/or services prior to Feb. 15, 2020, and eligible payments made or accrued during the eight weeks following loan disbursement.

How do I get my loan FORGIVEN?

The SBA forgiveness application is found here:


To apply for loan forgiveness, you must submit to your lender the application, which consists of:
● PPP Loan Forgiveness Calculation Form; ● PPP Schedule A; ● PPP Schedule A Worksheet; and ● Optional PPP Borrower Demographic Information Form.
You should apply for loan forgiveness only after the eight week covered period expires and the borrower gathers the required loan documentation. Please note that the 75%-25% allocation of expenses issue as well as the eight-week covered period may change if regulatory and legislative fixes occur, as there is a significant push to further improve the flexibility of the PPP program.
Following the lender’s receipt of the application, the lender has up to 60 days to issue a decision on loan forgiveness. You will want to work with your Fiducial advisor to ensure that the appropriate amount of loan forgiveness is secured and that the tax treatment and reporting on a Form 1099-C, Cancellation of Debt, attributable to the PPP loan is correct.
Finally, from a potential tax deduction standpoint, as of the date of this writing, the IRS has issued subsequent guidance taking the position that ordinary business expenses that are forgiven as part of a PPP loan are in fact not deductible even if the forgiven loan proceeds are not included in income. The IRS position appears contrary to Congressional intent in enacting the CARES Act and could be subject to court challenges down the road. Further, such IRS position may well change or be superseded going forward, especially in light of recent filed legislation that would ensure deductibility of certain PPP loan amounts received and paid for covered expenses.

What about any PPP loan balance NOT FORGIVEN?

Paycheck Protection Program Loan terms are:• 1% fixed interest rate• All payments are deferred for 6 months; however, interest will continue to accrue over this period• Loans are due in 2 years• You can only take out one loan under this program• There are no prepayment penalties or fees• No collateral is required to secure a loan• There is no personal guarantee requirement***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.***

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