06/04/20 – Paycheck Protection Program Flexibility Act Part 1

As many of you have probably seen by now, the Senate approved the Paycheck Protection Program Flexibility Act on Wednesday night (6/3), and we hope that the President will sign it into law shortly. This bill provides some much-needed relief to small businesses who have been struggling to meet the demands and nuances of the previous guidance. We’ve outlined some of the highlights below.

  1. The covered period has been extended to the earlier of 24 weeks from the date of loan origination or 12/31/2020 instead of the original 8 weeks.
    1. This means borrowers now have up to 24 weeks to spend 2.5 months worth of payroll.
    2. However, they can elect to keep the original 8 week period if they received their PPP funds prior to the date of this new Act.
  2. The deadline for hiring employees back (if they were let go between 2/15/2020 and 4/26/2020) was extended to December 31st (originally, they needed to be hired back by June 30th).
  3. The Act added a new FTE reduction exemption based on employee availability. This means that during the period beginning 2/15/2020 and ending 12/31/2020, loan forgiveness will be determined without regard to a reduction in the number of FTEs if—
    1. Employers were unable to rehire individuals who were employees on 2/15/2020,
    2. Employers were unable to hire similarly qualified employees for unfilled positions on or before 12/31/2020, or
    3. Employers were able to document an inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the CDC, or the OSHA during the period beginning 3/1/2020 and ending 12/31/2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.”
    4. These guidelines are very vague and unclear, but it seems like Congress’ intent is to greatly reduce the impact of the FTE reduction and, in some situations, almost remove it entirely. As always, the SBA may clarify some of these statements in later guidance, but we’re hopeful that these will be in the spirit of this new legislation.
  4. In order to obtain loan forgiveness, borrowers MUST use at least 60% of the PPP loan on payroll costs. Currently, this means that if a borrower receives a $100,000 PPP loan, $60,000 must be spent on eligible payroll costs. If the borrower only spends $50,000 on eligible payroll costs, then loan forgiveness will be $0 even if they only spent $10,000 on non-payroll costs which would have satisfied the previous rule that at least 75% of the amount SPENT had to be on payroll costs.
    1. Multiple members of Congress have stated that this was not their intention and have indicated that technical tweaks could be made to the bill to restore the more favorable sliding scale in the original guidance.
  5. Borrowers who are granted loan forgiveness can continue deferring payment of payroll taxes. Previously, borrowers were no longer eligible to defer payments once their PPP loans were forgiven.
  6. The maturity date was extended to a minimum of 5 years for any loan made after the date of this Act, which will be the date the President signs it into law.
    1. Any borrower who received a PPP loan prior to this date is eligible to renegotiate existing terms to match this 5-year period. The Act did not provide further details on whether the bank is required to match this 5-year period.
  7. Payments of principal, interest, and fees on all PPP loans are now deferred until the lender receives the forgiveness amount from the SBA. Originally, payments were only deferred for 6 months after the loan origination date.
    1. If a borrower chooses not to apply for forgiveness, the first payment will be due 10 months after the last day of the original 8-week covered period. For example, if your loan origination date is 5/1/2020, your 8-week period would end on 6/26/2020 (56 days later). If you did not apply for forgiveness, your first loan payment would be due April 26, 2021.

Items Awaiting Guidance

  1. Wage limitation—The Act did not address whether the employee wage limitation would be increased to $46,154 (24/52 weeks x $100,000).
    1. Currently, the wage limitation is $15,385 (8/52 weeks x $100,000).
    2. If this increase applies to employees, will it apply to owners?
  2. Self-employed taxpayers – Originally, their forgiveness was limited to 8/52 of Line 31 of the 2019 Schedule C. The Act did not address if this fraction is now 24/52.
  3. Due date – The Act did not address whether borrowers had to wait until the end of the 24-week covered period to obtain forgiveness.
  4. Tax impact – The Act did not correct any previously issued IRS statement regarding non-deductibility of the expenses paid by the PPP. Therefore, the amount forgiven is still taxable.

As you can see there were a lot of positive updates that came out of the legislation passed last night.  Overall, we believe these changes will increase the likelihood that more of your loans will be forgiven. Everyone now has more time to use the funds, calculate the amount forgiven, and submit the forgiveness application. This is helpful since we believe the forgiveness application is going to be much more arduous than the original application.

Please reach out with any questions regarding the new information and what strategies you could utilize to maximize forgiveness. Luckily, this bill has afforded us all some time to figure out the next steps. Banks will have to figure out their own processes, a new application will have to be drafted by the SBA, and we are once again waiting on the government to further clarify and provide specifics. In the meantime, we recommend reaching out to your lender to see how they will be able to assist you with the forgiveness application preparation. Once more complete guidance is issued, we plan on holding another live Q&A session. Stay tuned!

05/22/20 – PPP Live Q&A Recording

UPDATE AS OF 5/22/20

This is the recording of our live panel discussion on the PPP Loan. In it we give a quick update on the most recent guidance issued and spend the majority of the time taking questions from those who attended. We touched on what answers the SBA has provided and what questions are still left unanswered during this hour-long session. Make sure you’re on our email list to to learn when our next live Q&A session will be. If you aren’t sure if you’re on the list, enter your information in the latest post above.

05/19/20 – PPP Forgiveness Application and Instructions

Last Friday night, the SBA released the PPP Loan Forgiveness application and related instructions. It was our hope that the radio silence from the SBA and US Treasury on the forgiveness piece meant that we would be getting guidance that would provide more answers. Instead, after being 20 days past their deadline, they’ve provided an extremely complex calculation, application, and more questions. The SBA did provide clarity on a few issues which we’ve summarized below. However, they also complicated the process further by issuing unexpected guidance that contradicts the intent of Congress. The SBA has stated “that they will also soon issue regulations and guidance to further assist borrowers.” We hope this is the case as we know that many of you are funded and are between a rock and a hard place. As of May 19th, we are still waiting, and without this guidance, any of the information in the application is subject to change.

What’s in the application PDF?
The application has four sections and their related instructions:
1. PPP Loan Forgiveness Calculation Form
2. PPP Schedule A
3. PPP Schedule A Worksheet
4. PPP Borrower Demographic Information Form (optional)

How do you prepare the application?
Just an FYI, you actually complete the application backwards, starting with the Schedule A Worksheet and ending with the PPP Loan Forgiveness Calculation Form. While the actual application seems easy enough and is only a few pages long, the calculations required to complete every line are going to be extremely time consuming and require quite a bit of data manipulation. Each line will require a spreadsheet of information to come up with the amount requested.

What did they clarify regarding the forgiveness calculation?

  • Gross wages will be limited to $15,385 per non-owner employee ($100,000 x 8/52 weeks).
  • Owner compensation will be limited to the lesser of $15,385 or 8/52 of their 2019 wages.
    • “Owner” was a term the SBA had not used in previous guidance and was not defined in this application. Additional questions have already been raised regarding this issue so we are hoping the Treasury will be defining this term in its future guidance.
    • While inconsistent with prior interpretations, the application puts in question what exactly is forgivable for owners. Reading between the lines, some believe that amounts paid for owner’s health insurance and retirement benefits will not be forgiven. Hopefully more guidance will clarify this ambiguity.
  • One full-time equivalent (FTE) is someone who works 40 hours per week (not the 30 hours we had originally thought based on prior SBA guidance).
    • You are limited to 1.0 FTE per employee, rounded to the nearest tenth. If someone works over 40 hours, he/she only counts as 1.0 FTE.
    • You have the option of using a simplified method where anyone who works less than 40 hours is counted as 0.5 while those working 40+ hours are kept at 1.0 FTE.
  • The amount forgiven will be reduced if the average FTEs during the 8-week period was reduced compared to the average from 2/15/19 – 6/30/19 OR the average from 1/1/2020 – 2/29/2020 (the borrower chooses the time period).
    • The Borrower is exempt from this reduction if both of the following conditions are met: (1) the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; AND (2) the Borrower then restored its FTE employee levels by not later than June 30, 2020 to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.
    • The Borrower is also exempt from this reduction if they (1) made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and (2) any employees who during the Covered Period or the Alternative Payroll Covered Period (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours. Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness.
  • The application allows for borrowers with a biweekly (or more frequent) payroll schedule to elect an Alternative Payroll Covered Period. This period begins on the first day of their first pay period after receiving the PPP Funds instead of the date the funds were received.
    • Adding to the complexity, if the borrower elects this alternate period, there may be other sections of the application that refer to “the Covered Period” only, which is different from the alternative.
  • The application clarifies that costs incurred OR payments made qualify for forgiveness.
    • For payroll costs, that means if your pay date fell the day after you received your funds, that payroll is eligible for forgiveness. You also can include the wages earned through the end of your 8-week period. For example, if your pay period runs 6/1 – 6/8 with a pay date of 6/10 and your covered period ends on 6/5, you can include the gross wages from 6/1 to 6/5 assuming no other payroll restrictions apply.
    • For eligible non-payroll costs, if the payments are made in the covered period, they appear to qualify for forgiveness. The only exception is eligible mortgage interest which specifically excludes any prepayments.

What is still unknown at this point?

  • As stated above, the definition of “owner” was not provided. They don’t clarify if this is anyone who has ownership in an entity, or owns more than 2%, more than 20%, or if constructive ownership rules apply.
  • It is unclear what costs are included in the “owner’s” compensation line. Are health insurance and retirement benefits included in that amount? This would mean those benefits plus gross wages would be limited.
  • The new guidance that allows costs incurred OR paid seems too good to be true and some are questioning if the SBA will change this yet again.
  • It is unclear if they will later restrict payments made to retirement plans (i.e. employer profit-share contributions for 2019).

There are so many other nuanced and specific questions that we still need answers to. Because of this, we will be hosting a live Q&A session on the morning of Friday, May 22nd.  Stay tuned for more details coming out via email.

If you have not received our prior emails and want to make sure you get that information feel free to enter your email below and we’ll add you to our list. You can also follow us on Facebook.

We know the SBA has not made this process easy and the lack of guidance is extremely frustrating for everyone. Our goal is to give you timely information and advice even with limited guidance. We’re here to help and hope you and your families are healthy and safe.

05/13/20 – Interim Rule for Partnerships and Seasonal Employers

Today, May 13th, the Treasury issued its 10th Interim Rule for the Paycheck Protection Program and its 46th FAQ. The FAQ states that the SBA created a safe harbor whereby any PPP loan less than $2 million will not be subject to review or further scrutiny in regards to the good-faith certification requirement. This means that you won’t need to provide additional support that you needed the loan in order to keep your business up and running if your loan is under $2 million.

The latest Interim Rule only impacts partnerships and seasonal employers who applied for or received their PPP funds prior to April 14th. If you applied for or received funds before that date, you may not have calculated your maximum loan amount correctly because the guidance had not been issued. As such, you may be eligible for additional PPP funds. Here are the steps you need to follow in order to claim any additional funds:

  1. Contact your banker and ensure that they have NOT filed SBA Form 1502 yet. This form is required to be filed within 20 calendar days after a PPP loan is approved, and once it has been filed, the loan cannot be increased.
  2. Recalculate your loan.
    • For partnerships: The SBA issued guidance on how to calculate the loan amount. We’ve added a new Partnership PPP Loan Calculator to help you calculate the maximum loan amount.
    • For seasonal employers: The SBA offered three different time periods to calculate the maximum loan amount. We set up a spreadsheet to calculate the maximum loan amount using these time periods. Due to its complexity, please reach out to us if you need assistance.
      • Average total monthly payments for payroll from 2/15/19 – 6/30/19,
      • Average total monthly payments for payroll from 3/1/19 – 6/30/19, or
      • Average total monthly payments for payroll for any 12 week period between 5/1/19 – 9/15/19.

05/11/20 – IRS Disallows Tax Deduction for PPP-Related Expenses

The IRS issued a notice stating that no tax deduction will be allowed for any expenses later forgiven under the PPP loan, so, in essence, any amount forgiven will be taxable. This notice goes against the very intent of the CARES Act, which specifically stated that loan forgiveness would not be includible in gross income. The IRS found a way around this favorable treatment by then disallowing the related deductions. The AICPA is working diligently to challenge this IRS notice, and there is a bill currently in the Senate that would overturn it as well. Until this bill actually passes, though, we will need to operate under the new guidance and hope the bill makes its way through Congress.

In other PPP news: Now that SBA has been issuing more EIDL advances, we also wanted to make sure everyone was aware that any advance will reduce the amount of your PPP loan forgiveness. For example, if you received a $5,000 EIDL advance, your ultimate PPP loan forgiveness will be reduced by $5,000 because they are essentially treating the $5,000 as an advance on PPP funds, too.

Continue checking our page regularly or consider following us on Facebook as news is changing quickly. The IRS notice referenced above was only out for a few days before the Senate had a bill in place to overturn it. To keep you well informed on the ever-changing relief options, we will continue sharing news through our website and as always feel free to reach out to us with any questions you might have.

04/28/20 – Additional Funds Allocated to PPP

As most of you probably know by now, additional funds have been allocated to this program. Banks began processing applications again on Monday the 27th, so if you didn’t get in on the first round, you still have a chance. Everyone expects these funds to go even faster than before, so make sure to act quickly.

Unfortunately no practical guidance has been issued since our last post that would provide answers to how to spend these funds to maximize forgiveness. We know it’s frustrating to be making decisions without necessary information, but in the meantime, we highly recommend reading our post from 4/22/2020 below if you have not already done so. We still believe this will be extremely applicable and don’t want anyone to be in the position where you’ve spent loan proceeds thinking it will be forgiven and now must pay it back.

Please continue to review our tools and resources listed above. We’ve added another tool that outlines the steps to take for PPP Loan forgiveness with the information currently available.

We will continue monitoring the news multiples times a day for any updates as we have been. Apart from the additional funding, it has been very slow over the last week or two. We anticipate more guidance to follow and will be sure to keep everyone apprised of what we learn.

04/22/20 – PPP Tools

The Paycheck Protection Program has created a lot of uncertainty, frustration, and anticipation within the small business community. Despite the lack of guidance, many of our clients have been helped by the much-needed relief.

If you have already been approved, you are now dealing with the next round of confusion—how to spend the proceeds. We understand it is extremely frustrating that small businesses are forced to make decisions without any additional guidance since March. Unfortunately, one thing is becoming clearer—the amount forgiven may not be as much as originally thought. Due to the complex forgiveness calculation and multiple restrictions, 100 percent forgiveness may be unlikely, and you don’t want to put yourself in a position where you’ve spent all the money thinking it will be forgiven and now must pay it back. Until we receive clearer guidance, our updated recommendation is to spend the funds as you would have in the normal course of business while maintaining your workforce and keeping in mind the points listed below.

See our Loan Forgiveness Fact Sheet for an overview of what to do after funds are received. One item we would like to highlight is the FTE restriction. If businesses are not aware of it, this factor could reduce the amount forgiven. PPP loan forgiveness will be reduced if the average full-time equivalents (FTEs) decreases during the 8-week loan period compared to the lesser average FTEs during 2/15/19 – 6/30/19 or 1/1/20 – 2/29/20. See our PPP Impact of Employee Reduction calculator for a visual example and further explanations. You can also enter your own information to estimate the impact to your business.

If you haven’t applied yet, you may still have a chance since it looks like additional funds will be poured into this program. Late Tuesday afternoon (April 21st), the Senate passed legislation which provides an additional $310 billion for the PPP. The bill is expected to be signed into law later this week. Be sure to apply as soon as possible, as we anticipate this round will go even more quickly than the last as there are thousands of applications already in the queue.

We will continue monitoring the news multiples times a day for any updates as we have been. It has been very slow over the last week or two, but we anticipate more guidance to follow and will be sure to keep everyone apprised of what we learn.

Summary of Tools Linked Above:

Loan Forgiveness Fact Sheet
PPP Impact of Employee Reduction

04/11/20 – PPP Next Steps

It has officially been over a full week since the SBA’s Paycheck Protection Program opened, and small businesses across the country are continuing to work their way through the application process.  Although the roll-out of this program has been chaotic and frustrating, the opportunity to assist clients in receiving vital funds has been very rewarding.  If you have not looked into this program for your own business or do not know if you are eligible, please refer to our resources listed above and on our other Resources Page for more information. Also, feel free to reach out to us at info@skdocpa.com.

For those business owners that are finishing up the process of applying or have already received their PPP funds… what’s next?

The next steps are extremely important since what you do now will determine how much of your loan is ultimately forgiven. You need to know how you can spend the proceeds, how the loan gets forgiven, how you can maximize the loan forgiveness amount, and how to document the required forgiveness information.  Luckily we’ve got some guidance for you on our Forgiveness Fact Sheet. Once you’ve had a chance to read through everything, please reach out to us so together we can create a plan for the next 8 weeks.

04/06/20 – PPP Loan Terms

The Paycheck Protection Program officially opened Friday morning after the SBA provided lending institutions with preliminary guidance late Thursday night. Although banks were not ready to start submitting applications at that point, some were still accepting them into their queues. Others were waiting to accept applications until they had their portals up and running. Even while banks were formalizing their processes, the SBA published additional guidance alongside two additional versions of the application, causing banks to reach out to their customers and request updated submissions.

Here are some of the recent changes/clarifications you should be aware of:

  • The interest rate on any portion of the loan that is not forgiven increased from 0.5% to 1.0%.
  • The loan payments are deferred for 6 months instead of 1 year.
    • Interest continues to accrue during the 6-month deferral period.
  • Ownership status was clarified. Anyone owning at least 20% of a partnership, LLC, or corporation is considered an owner.
  • The payroll calculation should be based off of average 2019 monthly payroll for non-seasonal workers.
    • If you are a seasonal business, the time period is 2/15/19 – 6/30/19.
    • If you are a new business, the time period is 2/15/19 – 6/30/19 or 1/1/20 – 2/29/20 (you pick).
  • Amounts paid to 1099 contractors were removed from the payroll calculation.
  • On 4/4/2020, President Trump did tweet that he “will immediately ask Congress for more money to support small business under the #PPPloan if the allocated money runs out.” Apparently that’s how news is disseminated now…

We will continue to keep you apprised of any updated information as it is released. Please reach out if you have any questions at info@skdocpa.com.

04/03/20 – PPP Application Launch

As you may have seen in the news, the launch of the Paycheck Protection Program application process has been chaotic and full of uncertainty.  The Treasury published the two-page application form Tuesday night but failed to provide lenders with detailed guidance needed to actually administer the loans.  Thursday evening (4/2/20) after business hours, the SBA posted to their website an “Interim Final Rule” that outlines the key provisions of the PPP. Banks were made aware of these new rules earlier that day, less than 12 hours before the date the program was supposed to launch.  We’ve linked that document here.

The Interim Final Rule made several modifications to key provisions in the PPP that took many people by surprise but also failed to answer many open questions.  A couple items they changed include the interest rate, which went from 0.5% to 1% and the calculation for monthly payroll. We’ve had many discussions with local lenders who were also surprised by some other last-minute changes.  As a result, it is anticipated that we will see delays in this entire process.  Large banks like Chase have already communicated that they will most likely not be able to process these loans on Friday as they are still awaiting guidance from the SBA. Many banks may not be participating in this program at all, while others may restrict their funding opportunities to current customers only.

We know you’re anxious to get your application submitted and we are committed to working with you to navigate this constantly changing process. Because we have seen many different requirements from one lending institution to the next, you might want to reach out to your particular bank to see what they are going to want you to submit along with the application. Once you know what they need, we are here to help get it all together.