CARES Act PPP Loan Forgiveness Help

Important Note !! (May 22, 2020)

Please keep in mind that guidelines on the loan forgiveness program are still fluid. It is likely Congress will pass legislation within the next few weeks that materially alters many aspects of the Paycheck Protection Program (including removal of the cap on non-payroll costs and extension of several deadlines). We will continue to monitor these events and will inform you as soon as new information is available.

I have my PPP Loan, now what?

AdvanStaff HR’s systems will track headcounts for loan reporting and forgiveness purposes as long as your company was a client (for the 2019 data) and at the time you end the 8 week period.  If we have partial data, then you will need to compile and track that data on your behalf.


Official PPP Loan Forgiveness Guidance Released:

Recent Paycheck Protection Program FAQs:

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Let us help you!


Please share some basic information with our reporting team and we will proactively send the payroll report data to you based on your specific loan.

Curious on the loan forgiveness guidelines the lenders must follow?
Click HERE to read SBA Loan Review Procedures
and Related Borrower and Lender Responsibilities.

What do I do first?

On May 15th, the SBA provided important clarification on when the 8-week period for the “covered period” begins. Borrowers have two choices:

Standard Covered Period:

Beginning on the date that the loan is funded, you have eight weeks to spend the money on qualifying purposes (payout period).

Alternative Payroll Covered Period:

For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).

For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20. Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference to “the Covered Period or the Alternative Payroll Covered Period.” However, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only.

There are “penalty” provisions which provide that the potential amount of forgiveness is reduced for borrowers who made workforce reductions after February 15 unless those workforce reductions are restored by June 30.

For instance, if before the pandemic you typically had 20 full time employees (or full time equivalents) but during the payout period you had 10, then only half of the loan qualifies for forgiveness unless you hire 10 more people back by June 30.

There is an additional “penalty” provision in the law which provides that if, during the payout period you have cut the pay of any individual employee by more than 25% of what they earned in the first quarter of this year, that cut in pay will result in some of the loan not qualifying for forgiveness unless the pay cut is restored by June 30.

It is important to note that this provision only applies to employees who, during 2019, did not earn more than $100,000 on an annualized basis.

For instance, if you have an applicable employee who you paid $12,500 for the first quarter of this year, during the payout period you have to pay them at least $5,770. If you pay them less than that, the difference does not qualify for forgiveness unless you make it up to them by June 30.

Preparing and Applying for Loan Forgiveness

On May 15th, the SBA provided important clarification on when the 8-week period for the “covered period” begins. See below for a technical clarification for semi-monthly payroll cycles.

Standard Covered Period:

Beginning on the date that the loan is funded, you have eight weeks to spend the money on qualifying purposes (payout period).

Alternative Payroll Covered Period:

For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).

For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20. Borrowers who elect to use the Alternative Payroll Covered Period must apply the Alternative Payroll Covered Period wherever there is a reference to “the Covered Period or the Alternative Payroll Covered Period.” However, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only.

** IMPORTANT **

The “Alternative Payroll Covered Period” option is available to weekly or bi-weekly pay cycles only. Any semi-monthly pay cycles may not use this method.

HOWEVER, because of the clarification provided on Friday May 15th, all payroll costs paid OR incurred during the “covered period” are eligible for payroll forgiveness. This means that any payroll paid during the eight weeks, or any hours worked during the eight weeks are eligible.

Example:
Loan funding date: April 10
Covered Period: April 10 – June 5 (8 weeks)
Pay Period: Semi-monthly, paid 1st and 15th of each month.

The entire payroll dated for a April 15 pay date is eligible for PPP Loan Forgiveness even though the hours worked mostly occur BEFORE the loan funding date.

The end of the eight weeks is June 5,

The employer has a semi-monthly pay date scheduled June 15th.

Hours worked through the June 5 are ALSO allowable for forgiveness even though they were paid on the June 15 because the hours worked were part of the eight week period. This is when the payroll liability was incurred.

This new clarification effectively widens the covered period and allows for a greater payroll liability than 8 weeks.

The calculation for this extended period is rather complicated and may not be systematic. Manual calculations may be required.

Eligible Payroll Costs for Forgiveness Summary

AdvanStaff HR will have a report for you that computes the eligible PAYROLL costs.

Borrowers are generally eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week (56-day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”).

Payroll cost timing:

  • Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction.
  • Payroll costs are considered incurred on the day that the employee’s pay is earned (I.e. when the hour or day is worked.)
    • NOTE: This would appear to allow a borrower to count payroll costs incurred BEFORE the start of the relevant covered period, but paid during the relevant covered period towards forgiveness.
  • Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.
    • NOTE: This appears to allow a pro-rated portion payroll to be included in loan forgiveness even though the pay date may occur past the 8-week deadline as long as the hours were worked during the 8-week period. This could be a systematically challenging report to produce and may require manual calculation.
  • Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).

Eligible Payroll costs include:

  • Salary, wage, commission, or similar compensation;
  • Payment of cash tip or equivalent;
  • Payment for vacation, parental, family, medical, or sick leave; or
  • payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement;
  • payment of state and local taxes assessed on compensation of employees
  • Allowance for dismissal or separation.

Compensation does not include:

  •  The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period. In no situation should you enter more than $15,384.
  • Any compensation of an employee whose principal place of residence is outside of the United States;
  • Qualified sick leave wages for which a credit is allowed under the Families First Coronavirus Response Act; or
  • Qualified family leave wages for which a credit is allowed of the Families First Coronavirus Response Act.

Count payroll costs that were both paid and incurred only once. For information on what qualifies as payroll costs, see Interim Final Rule on Paycheck Protection Program posted on April 2, 2020 (85 FR 20811).

NOTE: There appears to be an error in the “PPP Loan Forgiveness Calculation Form” where a borrower uses 100% of the loan amount for qualifying payroll costs, line 11 of the Form would appear to only allow 75% of the loan amount to be eligible for forgiveness even though it was entirely used for eligible payroll expenses. Using more than 75% of the loan for payroll costs is understood to be approved for loan forgiveness.

Eligible Non-Payroll Costs for Forgiveness Summary

Eligible Non-payroll costs consist of:

  • covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage
    interest payments”);
  • covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and
  • covered utility payments: business payments for a service for which service began before February 15, 2020 (“business utility payments”) for the distribution of:
    • electricity,
    • gas,
    • water,
    • transportation,
    • telephone, or
    • internet access

An eligible non-payroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.

  • NOTE: As with eligible payroll costs, the instructions would seem to allow borrowers to count towards forgiveness qualifying non-payroll costs that were incurred before the start of the covered period, but paid during the covered period. Additionally, can get credit for incurred amounts paid after the covered period.
  • NOTE: These non-payroll costs must be calculated using the DEFAULT eight-week covered period (not the alternate covered period.)

Eligible non-payroll costs cannot exceed 25% of the total forgiveness amount. Count non-payroll costs that were both paid and incurred only once.

The Loan Application materials include a series of formulas, calculations, definitions, etc., for implementing the two statutory reduction factors that apply in determining a borrower’s maximum forgivable amount.

  1. The first reduction factor is the “Salary/Hourly Wage Reduction” — which requires that the forgivable amount be reduced to the extent that the borrower reduced an employee’s compensation by more than 25% (excluding compensation in excess of $100,000).
  2. The second reduction factor the “FTE Reduction Quotient,” which is derived by dividing the number of full-time equivalent (“FTE”) employees during the relevant covered period by the number of FTE employees during a past reference period. Generally, it looks at whether there has been a reduction in the number of full-time equivalent employees during the relevant covered period when compared to a historical reference period.

The Loan Application materials also include a series of reduction exceptions and safe harbors that may be helpful to borrowers, if applicable. These are described below.

AdvanStaff HR will have a report to help compute the compensation level comparison report.

This calculation will be used to determine whether the Borrower’s loan forgiveness amount must be reduced due to a statutory requirement concerning reductions in employee salary and wages.

Borrowers are eligible for loan forgiveness for certain expenditures during the Covered Period or the Alternative Payroll Covered Period. However, the actual amount of loan forgiveness the Borrower will receive may be less, depending on whether the salary or hourly wages of certain employees during the Covered Period or the Alternative Payroll Covered Period was less than during the period from January 1, 2020 to March 31, 2020

  1. The forgivable amount is subject to reduction if during the Covered Period or the Alternative Payroll Covered Period, the salary or hourly wages of employees listed in Table 1 was reduced by more than 25% during the period from January 1, 2020 to March 31, 2020. Any such employees will reflect a “Salary/Hourly Wage Reduction” amount.
  2. However, if the borrower subsequently restored salary/hourly wage levels, the borrower may be eligible for elimination of the “Salary/Hourly Wage Reduction” amount.
  3. It appears from the Instructions that if an employee’s salary/wages were not reduced more than 25%, their “Salary/Hourly Wage Reduction” is zero.
    1. NOTE: The application of this rule is somewhat confusing because in one place, it says “Complete the Salary/Hour Wage Reduction column only for employees whose salaries or hourly wages were reduced by more than 25% during the Covered Period or the Alternative Payroll Covered Period as compared to the period of January 1, 2020 through March 31, 2020” but then in the next sentence it says “For each employee listed in Table 1, complete the [formula]” and then suggests that if no reduction in excess of 25%, the Salary/Hourly Wage Reduction is zero….
  4. For employees whose salary/wages were reduced more than 25%, the borrower will have to complete a formula set forth in the Instructions to the Worksheet to determine the amount of the reduction, but a safe harbor can apply if the salary/wages were subsequently increased (which would reset the “Salary/Hourly Wage Reduction” to zero).
  5. It appears that if a “Salary/Hourly Wage Reduction” applies for an employee, the total dollar amount of the reduction (i.e., the salary/wages the employee “lost” due to the reduction) over the eight-week period will be subtracted from the forgivable amount.

Step by step guide

For each employee listed in Table 1, complete the following (using salary for salaried employees and hourly wage for hourly employees):

  • Step 1: Determine the average annual salary or hourly wage for each employee during the covered period (or alternative payroll period, if elected).  
  • Step 2: Determine the average annual salary or hourly wage for each employee during the period from January 1, 2020, through March 31, 2020.
  • Step 3: Divide Step 1 by Step 2.
  • Step 4: If Step 3 is greater than 75%, no reduction is required.
  • Step 5: If Step 3 is LESS than 75%, a reduction is required, but as we’ll see shortly, the reduction may be reinstated. The reduction is tentatively determined by multiplying the amount determined in Step 2 by 75%, and then subtracting from that result the amount from Step 1. For a salaried employee, take this result and multiply it by 8. Then divide the amount by 52. This is the amount of the required reduction.

For an hourly worker, the amount of the reduction is determined by first multiplying the average number of hours worked per week from January 1, 2020, through March 31, 2020, by the amount determined by subtracting the amount determined in Step 1 from 75% of the amount determined in Step 2. The result is then multiplied by 8 to arrive at the total reduction in forgiveness.

Example

Employee A was paid an annual salary of less than $100,000 for 2019. A was paid $8,000 during the 8-week covered period. A was paid $20,000 for the period January 1, 2020, through March 31, 2020.

  • Step 1: A’s average annual salary was $52,000 for the 8-week covered period ($8,000/8*52).
  • Step 2: A’s average annual salary was $80,000 for the period January 1, 2020, through March 31, 2020 ($20,000 *4).
  • Step 3: $52,000/$80,000 = 65%.
  • Step 4: n/a
  • Step 5: Before application of the safe harbor, A’s employer would reduce forgiveness attributable to A by the following amount: $80,000 * 75% = $60,000. $60,000 – $52,000 = $8,000. $8,000/52*8 = $1,230.

Safe Harbor Provision

The reduction is not required, however, if a safe harbor is met. Whether the safe harbor is met is determined via the following steps:

  • Step 1: Determine the employee’s annual salary or hourly wage as of February 15, 2020.
  • Step 2: Determine the average annual salary or hourly wage for the period from February 15, 2020 through April 26, 2020.
  • Step 3: If Step 2 is greater than Step 1, the safe harbor does not apply. Compute the reduction in forgiveness as determined in Step 5, above. If Step 2 is less than Step 1, proceed to Step 4.
  • Step 4: Determine the average annual salary or hourly wage for the employee as of June 30, 2020. If that amount is equal to or greater than Step 1, the safe harbor has been met. In other words, the SBA will ignore a reduction in salary during the covered period relative to the 1st quarter of 2020, but ONLY IF that salary is restored to what it was on February 15, 2020, by June 30, 2020.

Safe Harbor Example

Continuing the previous example, assume that on February 15, 2020, A was being paid an annual salary of $75,000. After the arrival of COVID-19, however, A’s average salary for the period February 15, 2020 through April 26, 2020, was reduced to $55,000. It was further reduced for much of May, which is what resulted in A being paid only $8,000 for the covered period. By June 30, 2020, however, A’s annual salary was increased to $75,000. Even though A’s salary has returned only to the amount he was paid on February 15 ($75,000) and not the amount he was paid throughout the first quarter ($80,000), the safe harbor is met and no reduction is required.

If the safe harbor had NOT been met, A’s employer would reduce loan forgiveness by $1,230 in the “Salary/Hourly Wage Reduction” column.

  • A borrower’s maximum forgivable amount is multiplied by the borrower’s “FTEReduction Quotient.”
  • To the extent the FTE Reduction Quotient is less than 1.0, it will result in a reduction in the maximum amount that is eligible for forgiveness.

Choose a reference date range:

Compare average number Full Time Equivalent (FTEs) per month between

  • Option 1. February 15, 2019 to June 30, 2019; or
  • Option 2. January 1, 2020 to February 29, 2020;
  • Option 3. In the case of seasonal employers, either of the preceding periods or a consecutive twelve-week period between May 1, 2019 and September 15, 2019.

For each employee, follow the same method that was used to calculate Average FTE on the PPP Schedule A Worksheet. Sum across all employees during the reference period and enter that total on line #11.

NOTE: AdvanStaff HR will provide a report for you that computes at least Option 1 and Option 2 of the FTEs comparison report. Option 3 is more complicated and being figured out.

It is not 100% clear if the same method must be applied to ALL employees uniformly, or if some employees (i.e. regular staff ) may use option 1 or option 2 and other employees (i.e. seasonal) may use option 3 within the same employee population.

It is clear the method used must be consistent at the employee level for PPP schedule A for the pre-and post PPP loan period employee audit.

Determine average FTEs

To determine the average full-time equivalent employees (FTEs) for the 8-week covered period (or the alternative payroll covered period, if elected), the employer has two computation methods. For each qualifying employee:

  • Standard Method
    • determine the average number of hours worked per week and divide by 40, before rounding to the nearest tenth. The maximum amount for each employee is 1.0. Or,
  • Simplified Method
    • use 1.0 for every employee who worked 40 hours per week and 0.5 for every employee who didn’t meet that standard.

To determine the FTE Reduction Quotient, the borrower then divides its “Total Average FTE” by the “Average FTE during the Borrower’s chosen reference period.”

Example

X Co. borrowed a $100,000 PPP loan on April 10, 2020. X Co. incurred $100,000 of costs eligible for forgiveness over the next 8 weeks.

For the 8-week period beginning April 20, X Co. had the following employees:

  • A, who averaged 45 hours per week during the period,
  • B, who averaged 40 hours per week during the period,
  • C, who averaged 28 hours per week, and
  • D and E, who averaged 20 hours per week.

For the 8-week covered period, X Co. had 3.2 FTEs:

  • A: 45/40 capped at 1.0
  • B: 40/40 = 1.0
  • C: 28/40 = .7
  • D &E: 20/40 = .5 each

If X Co. chose instead to use the simplified method, it would have 3.5 FTEs:

  • A: 45/40 capped at 1.0
  • B: 40/40 = 1.0
  • C: 28/40 = .5
  • D &E: 20/40 = .5 each

The actual loan forgiveness amount may be reduced if the average weekly FTE employees during the Covered Period (or the Alternative Payroll Covered Period) was less than during the chosen reference period.

Headcount Reduction Exemptions

The Borrower is exempt from a reduction if the FTE Reduction Safe Harbor applies.

Safe Harbor FTE Reduction

A safe harbor exempts certain borrowers from the loan forgiveness reduction based on FTE employee levels. Specifically, the Borrower is exempt from the reduction in loan forgiveness based on FTE employees described above 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;
  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.

Other covered FTE reduction reasons

Reductions of FTEs may be excluded in the following cases:

  1. any positions for which the Borrower 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
    1. were fired for cause,
    2. voluntarily resigned, or
    3. voluntarily requested and received a reduction of their hours.

In all of these cases, include these FTEs only if the position was not filled by a new employee.

Any FTE reductions in these cases do not reduce the Borrower’s loan forgiveness.

PPP Loan Forgiveness Reports (Coming Soon!)

Now that additional PPP Loan forgiveness guidelines have been given by the treasury, our programmers are working on building reports to help with the loan forgiveness data package.

AdvanStaff HR has been developing reports to assist with loan forgiveness determinations, including: 

  • Full-Time Equivalent (FTE) Report with applicable look-back period data
  • Payroll Cost Report, inclusive of 8 weeks beginning on the loan start date

Following the 5/15 publication of the application and instructions, some modifications are required prior to release. We will provide more information later this week on the delivery date of these reports.

We are also exploring additional reports to assist employers in completing the application, including comprehensive data and analysis on Payroll Cost, Full-Time Equivalency, and Salary Reduction.

The new guidance creates some distinct challenges in terms of standard reporting. Many of the new provisions are very difficult to program into a report.

In addition, several items remain without clear guidance from the Treasury and SBA. In these cases, we will develop the best solutions we can with the information provided, and make modifications as updates emerge. Based on what we know today, the following items may create complexity for employers: 

  • Flexibility on coverage periods and FTE methodology will require multiple levels of analysis
  • Salary reduction guidance for determining average rates of pay and treatment of terminated or new employees
  • FTE logic and pay period discrepancies between the look-back period, covered period, and safe harbor periods
  • Reporting on payroll costs incurred before the end of the covered period but paid after the covered period expires.

Other Important Items

Complete documentation from the very beginning will help you considerably when it’s time to apply for loan forgiveness.

  • Document every dollar spent with the proceeds of the loan and provide documentation to the lender at the end of the eight weeks. It is considered fraudulent if loan proceeds are spent on anything other than approved expenses.
  • As part of the PPP, the CARES Act established a Special Inspector General for Pandemic Recovery (SIGPR), with broad powers to audit and investigate businesses taking loans under the program.
  • Monitor and categorize spending over the next eight weeks

Per the most recent US Treasury SBA Interim Final rules, 75% of the loan proceeds need to be on payroll with only 25% allowed on the specific operational expenses discussed below.

Documentation Expectations

Know what documentation your bank will require after eight weeks to substantiate the loan forgiveness. Ask your banker now so you can start on the correct path from the beginning.

Documents must be retained for at least six years.

Page 10 of the loan forgiveness application outlines “Documents that Each Borrower Must Submit with its PPP Loan Forgiveness Application”

Page-10-3245-0407-SBA-Form-3508-PPP-Forgiveness-Application

After the eight weeks, you will need to submit a request to the lender who is servicing the loan. The request will include all documents supporting the spending of the funds, number of full-time equivalent employees (FTEs), and compensation levels.

The lender will have 60 days to decide on forgiveness.

We highly recommend contacting the bank early on to determine the appropriate loan forgiveness documents. We expect the required documentation to be a bit of a moving target in the near-term, so encourage you to over-document and track everything.

With the Cares Act enhanced unemployment benefit provision, many employees are refusing to come back to work when offered. With the employee refusing to come back to work, many business are concerned that the PPP loan forgiveness may be limited.

Recent clarification was issued by the US Treasury (question #40) addressing this exact concern. Please read below:

Question #40:

Question:
Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer:
No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, 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 CARES Act’s 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.

Question #40 of the PPP FAQ issues by the US Treasury Issued May 6, 2020

What does this tell us?

We learn a few very helpful things from this clarification.

Employee Reinstatement Letter Template
  1. PPP Loan forgiveness amounts will not be reduced is an employee refuses to come back to work if the following steps are follows:
    1. The offer is extended in writing. Download the Editable Reinstatement Letter Template
    2. The offer is for the same salary/wages and hours as listed in the loan application
    3. The employer properly documents the employee’s rejection.
  2. Employees who reject the offer to return to work MAY also be forfeiting future eligibility to receive unemployment benefits. Thus, employees who refuse to come back to work may not further adversely affect employer SUI account rate once the re-employment offer is rejected and if the employees unemployment claim is denied by the SUI office.

It is important to note, the US Treasury does not oversee or set policy for state unemployment insurance (SUI) administration. SUI offices may operate differently from state to state. However, it is important for employers to properly document and provide information to the SUI offices to potentially protect their own company’s SUI rate from employees who claim and also REFUSE to return work.

The Treasury Department announced this week that PPP borrowers with less than $2 million in loans are automatically deemed to have made the financial-necessity certification on the loan application in good faith. Treasury also somewhat softened its rhetoric towards those businesses that have borrowed more than $2 million, noting that while they will not automatically be deemed to have made the certification like the under $2m loans, they can show an “adequate basis” for making the certification under prior SBA guidance based on their individual facts and circumstances.

The announcements were issued via FAQ No. 46

You may be required to pay back all or a portion of the loan, including interest. Interest will accrue on the PPL from day one, even though you will not have to make any payments for six months following the date of disbursement. The interest will only be forgiven on the amount related to the principal forgiven.

Disclaimer
AdvanStaff HR does not give professional tax advice. All situations are different,
please contact your CPA or Banker for questions regarding SBA loans or tax-related questions.

Clarification on this question was provided by the IRS (read Notice 2020-32) on Thursday on 4/30/2020.

According to the SBA: Loan Forgiveness amounts ARE NOT taxable as business income and do not have to be repaid. HOWEVER, the IRS has clarified that payroll costs, rent, and utilities covered by the PPP loan forgiveness which are normally tax deductible, will not be tax deductible either.

“The money coming in the PPP is not taxable. So if the money that’s coming is not taxable, you can’t double dip,” Mnuchin said. “You can’t say you’re going to get deductions for workers that you didn’t pay for.”

Treasury Secretary Steven Mnuchin 

The forgiveness amount is not taxable BUT the covered expenses are not deductible.

In short:

  • PPP Loan Forgiveness – not taxable as business income
    • The loan forgiveness amount covered expenses (i.e. payroll, rent, utilities) are are also not deductible
    • Loan forgiveness does not need to be repaid
  • PPP Loan – not taxable as business income
    • Interest rate is 1% annually
    • Must be repaid in two years

Popular articles:

If you received an EIDL loan and you used the proceeds for payroll costs, your PPP loan must be used to refinance your EIDL loan and proceeds from any cash grant received up to $10,000 on the EIDL loan will be deducted from the loan forgiveness portion amount on the PPL.

If you deferred your 6.2% Social Security Tax on wages before you applied for this loan, obtaining the PPL means you will not qualify for certain payroll credits and deferrals. You will need to pay back the deferred tax before the loan is forgiven.

AdvanStaff is here to help and we continue to be your champion and guide through these challenging times!

If, in the unfortunate event, your contract would end with AdvanStaff (for any reason), we reserve the right to assess a reasonable charge for any support provided beyond the last date of your contract with us.

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