BHBM Tax Law Alert | PPP FAQs Update
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U.S. Small Business Administration Answers Frequently Asked Questions Regarding Forgiveness of Paycheck Protection Program Loans
On August 4, 2020, the U.S. Small Business Administration (“SBA”) issued guidance in the form of answers to frequently asked questions (“FAQs”) regarding the forgiveness of Paycheck Protection Program (“PPP”) loans. The PPP was established as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which became law on March 27, 2020, and was intended to provide aid to U.S. businesses dealing with the COVID-19 pandemic.
The SBA divided the FAQs into four sections: 1. General Loan Forgiveness, 2. Loan Forgiveness Payroll Costs, 3. Loan Forgiveness Non-Payroll Costs, and 4. Loan Forgiveness Reductions. This alert highlights some of the critical details from those four sections.
General Loan Forgiveness
- Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent and should complete that application.
- All PPP lenders may accept scanned copies of signed loan forgiveness applications and documents containing the information and certifications required by SBA Form 3508, 3508EZ, or lender equivalent.
- As long as a borrower submits its loan forgiveness application within ten months of the completion of the covered period, the borrower is not required to make any payments until the forgiveness amount is remitted to the lender by SBA.
Loan Forgiveness Payroll Costs
- Payroll costs that were incurred during the covered period or the alternative payroll covered period and paid after the covered period or the alternative payroll covered period are eligible for loan forgiveness if the payroll costs are paid on or before the next regular payroll date after the covered period or alternative payroll covered period.
- Payroll costs that were incurred before the covered period and paid during the covered period are eligible for loan forgiveness.
- Payroll costs include all forms of cash compensation paid to employees, including tips, commissions, bonuses, and hazard pay.
- Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the covered period or the alternative payroll covered period are payroll costs that are eligible for loan forgiveness.
- Employer contributions for employee retirement benefits that are paid or incurred by the borrower during the covered period or alternative payroll covered period qualify as payroll costs that are eligible for loan forgiveness.
- Forgiveness for compensation of owners who work at their business depends on the business type and whether the borrower is using an eight-week or 24-week covered period. The FAQs provide examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners.
Loan Forgiveness Non-Payroll Costs
- Non-payroll costs incurred prior to the covered period and paid during the covered period are eligible for loan forgiveness.
- Non-payroll costs incurred during the covered period and paid after the covered period are eligible for loan forgiveness if they are paid on or before the next regular billing date, even if the billing date is after the covered period.
- The alternative payroll covered period applies only to payroll costs and does not apply to non-payroll costs.
Loan Forgiveness Reductions
- In calculating its loan forgiveness amount, a borrower may exclude any reduction in full-time equivalent employees if the borrower is able to document in good faith the following: (1) an inability to rehire individuals who were employees of the borrower on February 15, 2020, and (2) an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020.
- If the salary or hourly wage of a covered employee is reduced by more than 25% during the covered period or the alternative payroll covered period, the portion in excess of 25% reduces the eligible forgiveness amount unless the borrower satisfies the Salary/Hourly Wage Reduction Safe Harbor described in the Loan Forgiveness Application (SBA Form 3508 or lender equivalent).
Please contact us at 504.569.2900 with any questions regarding these FAQs or the PPP forgiveness application process in general.
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The information contained within this newsletter does not constitute legal advice and is not intended to create an attorney-client relationship. You should consult an attorney for individual advice regarding your own particular situation.