We just got new guidance from the SBA that covers a bunch of the outstanding questions we’ve had about PPP Loan Forgiveness. Let’s go through a quick overview of the key points that seem most important to us. If you want to read the whole 10 pages yourself the link is here: https://home.treasury.gov/system/files/136/PPP–Loan-Forgiveness-FAQs.pdf
- No payments required on PPP loans until you get back your ruling on the PPP Forgiveness. This supports our general advice that waiting to submit your PPP Loan Forgiveness application is the best approach to be sure you have all the guidance and have planned how you want to submit the forgiveness application.
- For both payroll and nonpayroll costs, the costs that are incurred during and paid directly after the covered period will count. Same can be said for the costs incurred before and paid during the covered period. This flexibility is very helpful for taxpayers, makes it a lot easier to measure these expenses and not worry about making sure it’s all paid on the final day of your PPP covered period.
- Only the employer portion of the group health or the retirement plan benefits count towards the loan forgiveness. The guidance also clarifies that you cannot accelerate those group health contributions or retirement plan contributions into the covered period.
- The big mystery of transportation costs being included in utilities is finally answered. They are allowing transportation utility costs charged by cities or local authorities (like for roadways). This is uncommon in my experience. It’s now clear that fuel, car mileage, truck expenses, vehicle repairs and the like will not count.
- Our first real description of the wage reduction is included in the guidance. Step by step of how the calculations work in conjunction with the forgiveness applications. My biggest takeaway is that the wage reduction calculation would only look at the salaries and wages. For employees with significant commissions or tips those aren’t included, which is great news for employers who have employees making significant tips or commissions which are outside of the employer’s control. If the employer was paying an hourly wage or a base salary that cannot be reduced more than 25%, but any reductions due to less commissions or tips won’t result in a wage reduction limitation.
- Clarity to the owner compensation and how that’s calculated in relation to the cap of the lower of 2.5 months of 2019 compensation or $20,833 when using the 24-week period are best summarized like this:
Sch C or Sch F: no health insurance and no retirement contributions count towards forgiveness
General Partner: no health insurance and no retirement contributions count towards forgiveness
S Corp owner-employee: health insurance included towards cap and retirement contributions allowed on top of the cap
C Corp owner-employee: health insurance included on top of the cap and retirement contributions allowed on top of the cap
This has cleared up a few of the questions we’ve had for months on the PPP Loan Forgiveness and a few questions remain. Please reach out if you have questions about your PPP Loan Forgiveness. Please note that waiting to apply is a good route to go since more guidance is still to come.
For more guidance and information, please contact any our Leadership Team.