On May 22, 2020, the Treasury and Small Business Administration (SBA) released additional guidance on the PPP Loan Forgiveness requirements which helps answer questions that were left open on the Loan Forgiveness Application Instructions released on May 15,2020. The full document can be found here.
Some key points of the new guidance are:
- Reiteration that Borrowers may seek forgiveness for payroll costs for the 8 weeks beginning on either 1) the date they received their PPP Loan disbursement proceeds OR 2) the first day of the payroll cycle in the covered period (“alternative payroll covered period”).
- For example, a borrower with a bi-weekly payroll schedule and PPP loan 8-week covered period from June 1 to July 26 can elect an alternative payroll covered period that starts on June 7 and ends 55 days later (for a total of 56 days) on August 1. Payroll costs paid during this alternative covered period are eligible for forgiveness. And payroll costs incurred during this period are eligible for forgiveness as long as they are paid on or before the first regular payroll date occurring after August 1.
- There are caps on the amount of loan forgiveness available for owner-employees and self-employed individuals which can be no more than the lesser of: 1) 8/52 of 2019 compensation OR 2) $15,385 per individual across all businesses ($100,000 prorated for 8 weeks).
- Self-employed individuals are capped by their 2019 net profit. General partners are capped by net earnings from self-employment reduced by Sec 179 and unreimbursed expenses. No additional forgiveness is provided for retirement or health insurance contributions. The reasoning for this is that SBA maintains that such expenses are paid out of their net self-employment income.
- Clarification that compensation payments to furloughed employees, bonuses, and hazard payments made during the covered period are eligible for forgiveness (as long as they do not exceed an annual salary of $100,000 prorated over 8 weeks).
- Nonpayroll costs are eligible for loan forgiveness if: 1) paid during the covered period OR 2) incurred during the covered period and paid on or before the next regular billing date (even if after the covered period).
- Certain reductions to full-time equivalent employees or employee wages that would cause a reduction to the loan forgiveness amount are subject to the following exemptions:
- Loan forgiveness is not reduced if employer offers to rehire the same employee for the same salary and hours, or restore reduction in hours, if the offer is in writing and employer maintains written documentation of employee’s rejection and notifies the unemployment authority.
- Employee wages that were lowered during the covered period are not considered a reduction to the loan forgiveness calculation if the wages are reinstated by June 30, 2020 to wage levels as of February 15, 2020.
Our firm continues to monitor newly issued guidance and will provide updates as they become available. Please contact our team of professionals if you would like assistance calculating or documenting PPP loan costs for maximum forgiveness.
We hope you, your employees, and loved ones all remain well.
CoNexus CPA Group, LLC