Well, the PPP Loan Forgiveness engine is heating up and we’re learning a bit more every day. Thanks to our rockstar team here at Stride, we have phones on both ears (yes, phones are still a thing…sort of) reaching out to sources that can give us the latest information. Below are some of the latest FAQ’s. Let us know how we can help by emailing us at email@example.com.
What is considered the “Covered Period” and what does that mean?
The CARES Act and original guidance had noted that to be forgiven, payroll costs and non-payroll costs had to be incurred and paid during the Covered Period. That has changed in the PPP Loan Forgiveness Application, which states that payroll costs may be incurred or paid during the Covered Period or the Alternative Payroll Covered Period (definitions provided below), and that non-payroll costs may be incurred or paid during the Covered Period. In either case, the payroll costs and non-payroll costs may be paid outside of their applicable periods as long as they are paid on or before the first applicable due date immediately following the end of the applicable period for such costs.
The eight week period test begins on the date that the lender makes the funds available to the borrower. The lender must make the disbursement of the loan no later than ten calendar days from the date of the loan approval.
What are the acceptable uses of the PPP funds for businesses other than self-employed individuals?
Payroll costs, health care benefits, mortgage interest payments, rent, utility, interest payments on debt incurred prior to February 15, 2020, and/or refinancing an SBA EIDL loan made between January 31, 2020, and April 3, 2020.
Are employee federal withholdings and employer payroll taxes on wages for the 8 week period included in payroll costs?
The employee federal withholding is included in allowable payroll costs for the purposes of determining the amount to be forgiven. The employer federal payroll taxes (i.e. FICA and Medicare taxes) imposed on the gross payroll are not eligible payroll costs for the loan forgiveness calculation.
What are the restrictions on determining the amount of loan forgiveness for businesses other than self-employed individuals?
At least 75% of the loan proceeds must be used for payroll costs. If salaries decrease by more than 25% for any employee who made less than $100,000 annualized in 2019 OR if the number of FTEs decreases, the forgiveness amount will be reduced. A loan calculator to assist in the determination of the forgiveness amount will be coming soon.
Do qualified sick and family leave wages which are eligible for a tax credit under the FFCRA (COVID Sick Pay) count toward payroll costs for the purpose of the forgiveness portion?
For businesses that take this credit, the wages will be excluded from the determination of payroll costs.
What if the business had employees who left for their own reasons? Or need to be fired due to performance issues? Is the loan forgiveness still reduced for those employees?
More guidance is needed on this issue. As the statute is written in the CARES Act, the forgiveness is tied to employee count comparisons and also specific employees and whether their pay was substantially reduced.
Can you increase pay for employees during the forgiveness period (bonuses or other salary increases)?
A decrease in wages of more than 25% will decrease forgiveness and wages are capped at an annualized rate of $100,000 per employee. The current guidance does not prevent an increase in pay in the form of a short term pay increase, hazard pay, or bonus.
Can I use PPP funds to pay payroll expenses to employees when they are not currently able to work (due to business being closed or for any other reason)?
Based on current guidance, the covered 8-week period starts when the loan is funded. If the borrower is not able to operate or is operating at a limited capacity when the PPP loan proceeds are received, the borrower may choose to pay employees who are not able to work. This choice may be made to help the borrower maximize loan forgiveness as current guidance states that not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.
Can a PPP loan be forgiven in whole or in part?
The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs and other eligible costs paid during the 8-week covered period. There are reductions in the amount of forgiveness based on the percentage of eligible costs attributable to non-payroll costs, any decrease in FTEs, and decreases in salaries/wages per employee. The SBA is expected to issue additional guidance related to loan forgiveness.
Are the expenses when determining forgiveness on a cash or an accrual basis?
More guidance is needed on this issue. The guidance provided discusses “payments”, but further clarification is needed.
Can rent or other obligations be prepaid?
To be forgiven, the CARES Act states costs must be incurred and paid during the covered period. Further guidance specifically addresses that prepayments of mortgage payments are not allowed.
What is included in utilities?
The CARES Act defines utilities as electricity, gas, water, transportation, telephone, or internet access for service which began prior to February 15, 2020. Further guidance released added gas used when driving a business vehicle. Other common utilities such as garbage collection or security monitoring may also be classified as a utility, confirm with the bank.
Are these expenses tax-deductible if the loan is ultimately forgiven?
Yes. Guidance was issued on April 30, 2020. The receipt and forgiveness of Coronavirus assistance through the PPP does not affect the deductibility of ordinary business expenses.
Is the forgiveness of the loan taxable income?
No, the forgiveness of the loan does not constitute federal taxable income. States are providing guidance on state taxability