SBA PPP LOAN FORGIVENESS RULES
By Scott Zickefoose, CPA, CM&AA, Tax Senior Manager | Business Turnaround Services Team
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) is a $2.2 trillion stimulus package that provided relief to small businesses and individuals. The Paycheck Protection Program (PPP) allocated funding to small businesses through new and enhanced loan programs administered by the Small Business Administration (SBA).
The SBA, in consultation with the Department of the Treasury, has been issuing periodic updates and changes on Frequently Asked Questions (FAQs) and Interim Final Rules. The latest FAQ consists of 10 pages which addresses more borrower and lender questions concerning the PPP. Below is a summary of the key changes worth noting.
Summary of Key Changes in PPP Guidance as of August 2020
- Forgiveness is not provided for expenses for group health insurance benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period i.e., you can not prepay health insurance costs and include those costs in the borrower’s forgiveness application request.
- Forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered period…again, you can not prepay.
- If an owner-employee receives compensation from multiple companies, the owner-employee is limited to $15,385 or $20,833 across all companies (depending on the length of covered period chosen by the borrower(s)). However, the owner-employee/borrower may choose how their payroll is allocated i.e., if the owner compensation is not needed in one entity, but is in another, the borrower can allocate all of their compensation to the entity in need of more payroll costs.
- The FAQ confirmed that for C corporations, health and retirement benefits can be included in addition to cash compensation (only the cash compensation is limited to $15,385 or $20,833).
- For S corporation owner-employees, employer contributions for health insurance are not eligible for additional forgiveness for employees with at least 2 percent stake in the business.
- This includes family members of an at least 2 percent owner under the family attribution rules of 26 U.S.C 318.
- This clarifies that for shareholders that own <2 percent, borrowers may add their health benefits into payroll costs without worrying about the owner-employee limits.
- Retirement can be added on top of the cash compensation limits (subject to the comparison to prior year amounts contributed).
- General Partners in a partnership are limited to 2.5/12 of their 2019 net earnings from self-employment (Box 14a reduced by several items * 0.9235)
- Interest on unsecured credit is not eligible for loan forgiveness. The loan has to be secured by real or personal property. Interest paid on unsecured credit (incurred before February 15, 2020) is a permissible use, but not forgivable.
- Transportation utility has now been defined as ‘a service for the distribution of transportation refers to transportation utility fees assessed by state and local governments. Payment of these fees by the borrower is eligible for loan forgiveness’. Note that this does not include fuel costs like previously hypothesized.
- If the borrower utilized a seasonal 12 weeks to determine the maximum loan size, the borrower must use the same 12-week period in 2020 in determining your full-time employee/salary and wage reductions.
- Treasury confirmed that only salary/wages should be considered when evaluating wage reductions. Lost tips, commissions, bonuses, etc., are not considered when evaluating this test.
Our advisors are closely monitoring updates and changes to PPP guidance as well as the business impacts related to COVID-19. We are here to provide valuable resources as well as sound advice and strategies to move your business forward through this economic downturn.
Additional Resources for PPP Loan Recipients
- Paycheck Protection Program Clarifications for Borrowers
- Paycheck Protection Program: Enhanced Transparency vs Business Privacy
- Updated PPP Guidance: Certification of Need and Opportunities for Additional Loans
- Keiter Webinar: An Overview of the PPP Loan Forgiveness Application
About the Author
The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.