Friday, May 1, 2020, ADKF, CPAs hosted a Live Webinar over Paycheck Protection Program (PPP) Loan Forgiveness. You will find below, a list of the most frequently asked questions from our webinar. Click on the question you’re interested in to find the answer. To download the full list of questions and answers, click the link at the bottom of this page. Within the pdf, in an effort to consolidate related questions and answers, we grouped related questions into categories, listed the questions in the left column, and summarized the overall question on the right, with the answer below. Please note, the answers are as of May 1st, 2020. We are awaiting pending legislative guidance.
Disclaimer: ADKF is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information.
How does the 25% of qualified non-payroll costs need to be spent?
The 25% qualified non-payroll costs needs to be spent on rent, mortgage interest, and utilities. Rent includes any rents incurred and paid during the 8-week period, including any amount paid to a commonly owned entity. The lease agreement should be in place before February 15, 2020, regardless of whether or not the space was occupied at the time. At this point, mortgage interest means interest paid on the mortgage of property the business holds to conduct its business. Interest on vehicles, lines of credit, and equipment are not included as mortgage interest. However, we are awaiting further guidance on this definition. For utilities, include amounts incurred and paid for electricity, gas, water, telephone, internet, and transportation utility fees.
What is included for payroll costs and does it need to be 75% of the total loan taken out or of the eligible forgivable expenses?
Payroll costs includes gross salaries, wages, commissions, tips, vacation, parental, and leave pay. Also included in payroll costs are employer provided health care benefits (including insurance premiums), retirement benefits, and state or local payroll taxes. Self-employed health insurance premiums would also be included in payroll costs. EXCLUDED from payroll costs are payments to independent contractors, FICA, and federal taxes. A point of clarification is that FICA and federal taxes withheld should already be included in gross pay of the employee. Therefore, you cannot take FICA and federal taxes withheld in addition to gross pay of the employee. Payroll costs need to make up at least 75% of the eligible forgivable expenses paid. In other words, assuming all funds are used for qualified expenses, at least 75% need to be used towards payroll costs as defined above.
For an employee who makes more than $100,000 annually, how do they affect my forgiveness calculation?
For an employee who makes more than $100,000 annually, you are allowed to include in your forgivable expenses up to $15,385 for the covered 8-week period of GROSS WAGES. Any compensation beyond that will not be forgivable. You can contribute to healthcare and retirement benefits for this employee above the $15,385 and it will not be limited. An employee who makes more than $100K is excluded from the compensation reduction calculation but they are included in the FTE reduction calculation.
Should I set up a separate bank account for the PPP Loan Funds?
You are not required to hold the funds in a separate bank account. However, we would recommend doing so to better track the forgivable portion of the expenses that are being paid. An alternative to a separate bank account would be to set up sub accounts of expenses within your bookkeeping software. The main purpose would be to accurately track forgivable expenses for the 8-week covered period.
Am I allowed to pay bonuses during this 8-week covered period?
Based on current guidance, you can pay bonuses through payroll costs and may consider doing so, especially for employees who you will pay less than $15,385 during this 8-week period, as all their wages will be forgivable. Bonuses will be included in payroll costs.
Can we get a copy of the calculations on FTE and compensations and other calculations?
Please contact our office at 210-829-1300 to assist in computations.
Are qualified expenses within the 8-week period for expenses incurred and paid? How does this affect my payroll payments?
Please consult your tax advisor on this subject as it is awaiting further guidance. Current guidance tells us that expenses must be incurred and paid in the 8-week period.
How does an increase or decrease of individual compensation affect my loan forgiveness?
Employers are allowed to reduce gross pay to an individual up to 25% during the 8-week covered period. The covered period will be compared to the first quarter of 2020. Any reduction in excess of 25% will result in a reduction in forgiveness on an employee-by-employee basis. EXCLUDED from this reduction calculation are employees who received during any single pay period in 2019, wages or salary at an annualized rate of pay more than $100,000.
Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?
No. The SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
Can you pay FFCRA wages out of one account and PPP wages from another account and still qualify for PPP loan forgiveness?
Yes, the key is that the FFCRA payments cannot be included in the PPP forgiveness calculation. If you can meet the thresholds without including the FFCRA payments, you are still eligible for forgiveness.
How does an increase or decrease of Full-Time Equivalent (FTE) employees affect my loan forgiveness?
The FTE calculation is based on a numerator of the average FTE employees for the 8-week covered period and a denominator of (at the borrower’s choice) the average FTE employees for either the period 2/15/19 – 6/30/19 or 1/1/20 – 2/29/20. A percentage decrease will be multiplied by the forgivable portion. A percentage increase (more employees now than before) will have no effect on the forgivable portion.
What is the date that the 8-week period begins?
The 8-week period begins the date you receive the funding according to current guidance. There are currently no exceptions to this. Expenses must be incurred and paid during this 8-week period.
Do you have any official guidance from the SBA about loan forgiveness?
What happens to the funds that are not forgiven and is loan forgiveness taxable?
The remaining balance that is not forgiven turns into a 2-year note with a 1 % interest rate. There is no prepayment penalty in returning these funds. Any portion that is forgiven will reduce the tax deduction of the related expense.
What if you are a nonprofit and are exempt from paying most taxes? Are you closer to getting it 100% forgiven?
Non-profit entities are subject to the same guidelines as for-profit entities
Can I use funds to pay the owner’s compensation?
Yes, you can. If it is run through payroll properly. Owner’s distributions or draws do not qualify as compensation. Also, keep in mind that for the 8-week period, the forgivable portion for gross pay cannot exceed 15,385.