SBA Issues PPP Loan Forgiveness Guidelines
The much anticipated guidance on PPP Loan Forgiveness came over the weekend with The SBA making available the following
This Form 3508, along with its appropriate schedules, must be filled out in order to request loan forgiveness from your lender. This clarifies several items that have been under debate for this program. Some of the highlights include…
PPP Loans over $2 Million
The Form requires that borrowers with loans in excess of $2 Million check this box. The IRS has already warned us that they will be auditing these larger loans.
Forgivable Costs include
– Business Mortgage Interest Payments
– Business Rent or Lease Obligations
– Business Utility Payments
At least 75% of the forgivable amount must be payroll.
The Eight Week Forgiveness Period can be Cash or Accrual Basis
This period can begin on the date that you first received the loan. But payroll costs can be computed on a cash or an accrual basis. If your payroll costs are not paid inside the eight weeks, then in order for them to be considered for forgiveness, they must be paid by the next regularly scheduled payroll period.
Your non-payroll costs are treated in the same manner. They must be paid or incurred during the initial period. If they are not paid inside the eight weeks, then they must be paid on or before the next regular billing date of the expense.
Full Time Employee Reduction in Forgiveness Rules
The CARES Act requires the loan forgiveness is based upon the number of Full Time Employees (FTE) during the eight week period as compared to a past reference. There has been a lot of speculation as to how this number derived. These new rules provide a distinct break from the past.
1 – If one of you employees works more than 40 hours in a week, they cannot count as more than one person. This is common with salaried employees, or workers with overtime.
2 – With part time employees, you must add their hours together and divide through by 40 hours, rounding to the nearest tenth to come up with the number of FTE’s.
3 – An Alternative Method for computing part time employees is to elect to simply count each one as .5 FTE’s.
How this works with commissioned employees, people paid by the job, or by the piece, is anyone’s guess.
FTE Reduction Exceptions
Borrowers will not be penalized for any FTE Reductions if
1 – The borrower made a good faith effort in writing to rehire the employee during the period that was rejected in writing by the employee
2 – Employees were fired during the period for cause
3 – Employees who voluntarily resigned during the period
4 – Employees who voluntarily requested and received a reduction of their hours
FTE Reduction Safe Harbor
As with all things in taxation, there is a Safe Harbor Rule. Borrowers who meet the following criterion are exempt from The FTE Reduction in loan forgiveness if both of the following rules are met…
1 – The Borrower reduced its FTE’s in the period beginning 2/15/20 and ending 4/26/20, and
2 – The Borrower restored its FTE Levels no later than 6/30/20 to the level that existed prior to 2/15/20.
That’s right. According to the forms just released by The SBA, if you had 10 employees on Valentines Day, fired them all two days later, and rehired all of them on 6/29/20, they will supposedly let you off the hook. Welcome to taxation and have a nice day.
Reduction of Non-Payroll Costs
I need to print a retraction here. In prior communications, based upon information from the SBA Website, I mentioned that forgiveness of the non-payroll portion of the loan was not dependent upon the number of FTE’s. In other words, I stated that no matter your FTE Headcount, that as long as you spent the money properly on rent, utilities, or mortgage interest, that this portion would be forgiven.
According to the forms just released, this is no longer the case.
The same percentage used to forgive payroll is used for non-payroll items. Sorry about any confusion that this may have caused. This thing is changing faster than my teenage daughter’s mind ever morphed. They will probably change all of this by tomorrow, and I’ll need to write yet another retraction.
Loan Forgiveness based upon Salary or Hourly Wage Reductions
There isn’t much news here. If you reduced compensation by more than 25% during the covered period, they will reduce the amount of forgiveness by an applicable percentage. This only applies if the reduction was greater than 25%. If it was reduced by, let’s say only 20%, then there is no reduction in forgiveness.
Let me leave you with this one thought…
According to our Elected Officials, we aren’t even at the mid point of this thing yet. Maintain your sanity. Be patient with this process. The hardest thing about this for me is the complete and utter lack of control.
They also seem to want to change the rules every five minutes.
Stay calm. Maintain your composure. Keep your head. If you lose it, what do you actually have to gain?
And realize that no matter what happens, we are here to help.
Accounting Solutions Ltd. stands ready to complete its mission and purpose of protecting you, your family, and your business. If there is anything that you need, anything at all whether you are a client or not, we stand ready to help. I’m here and I remain,
Accounting Solutions Ltd.
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SBA Issues PPP Loan Forgiveness Guidelines