On August 4, 2020 the Small Business Administration (SBA) and Treasury Department issued guidance in the form of a 10-page Paycheck Protection Program (PPP) Loan Forgiveness document answering 23 frequently asked questions (FAQs) regarding the forgiveness of PPP loans.
PPP Loan Forgiveness FAQs Highlights
General Loan Forgiveness: The FAQs clarify that sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to (and should) use the PPP Loan Forgiveness Application Form 3508EZ. Click here to view the EZ Forgiveness Application. Click here for the related instructions.
Loan Forgiveness Payroll Costs: Question No. 8 addresses how to determine the amount of owner compensation that is eligible for loan forgiveness. The answer provides examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners. It also defines an owner-employee as someone who is both an owner and an employee of a C or S corporation. The term was referred to in the PPP loan forgiveness application but not previously defined.
- Employer contributions for health insurance for owners of C corporations are eligible, but not for S corporation owners (unless less than 2% owners), self-employed persons, and general partners.
- Retirement contributions for owners of C and S corporations are eligible, but not for self-employed persons and general partners.
Also addressed are partial pay periods, group health care benefits, and two questions related to payroll costs that were incurred or paid outside of the eight-week or 24-week covered periods. Organizations cannot accelerate health insurance and retirement contributions from periods outside the Covered Period or Alternative Payroll Covered Period. It appears that retirement contributions paid during the (Alternate Payroll) Covered Period that accrued prior to the Covered Period may be counted, keeping in mind a new cap on retirement contributions for owner-employees.
Loan Forgiveness Nonpayroll Costs: Question No. 6 provides that payments of transportation utility fees assessed by state and local governments are eligible for loan forgiveness. Also addressed are two questions related to nonpayroll costs that were incurred or paid outside of the eight-week or 24-week covered periods and whether the Alternative Payroll Covered Period for payroll costs also applies to nonpayroll costs (it doesn’t). Lease payments are eligible if the lease existed prior to February 15, 2020.
Loan Forgiveness Reductions: Question No. 4 explains how borrowers should calculate the reduction in their loan forgiveness amount arising from reductions in employee salary or hourly wage. Three examples of the salary/hourly wage reduction are included. Seasonal Employers must use the same period in 2020 as 2019 for loan forgiveness reduction purposes. For wage reduction purposes, the only compensation taken into account is “salaries and wages”.
As we have been doing with all coronavirus legislation and SBA guidance during these past few months, we will be sure to update you with any additional insight as soon as possible. Continue to check back here for the most up to date tax information and changes in response to coronavirus. If you have questions about this or related topics contact an MCB Advisor at 703-218-3600 or click here.
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