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SBA PPP Loan Forgiveness Frequently Asked Questions

While the SBA PPP Loan Forgiveness Guidance continues to be clarified as a result of the passing of the Flexibility Act, here’s what we’ve understood so far. If you have questions specific to your individual financial situation, please consult with your tax advisor, accountant and any other professional advisors. 

 

SBA PPP Loan Forgiveness FAQs

One provision of the Flexibility Act is an extension of the covered period from 8 to 24-weeks, how will that help me? 

A notable provision in the Flexibility Act is the extension of the covered period from eight (8) weeks to twenty-four (24) weeks or December 31, 2020 whichever comes first. The 24-week period also applies to the rules for rehiring employees and/or hiring new employees, giving borrowers more time to restore their pre-pandemic employment levels as much as possible, and minimize or eliminate the reduction in forgiveness amount.  (The hiring/rehiring deadline was originally June 30, 2020.)

Eligible borrowers that received their loans on or before Thursday, June 4 may elect to retain the 8-week covered period. Although the default 24-week period may increase the potential amount of the loan forgiveness, borrowers able to achieve full forgiveness during the original 8-week period may seek this option in order to apply for forgiveness sooner.

 

Covered period options are 8 or 24 weeks, can I choose something in between?

To our knowledge, there are two covered period options, 8 or 24 weeks, but a borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period (8 or 24 weeks)  - if the borrower has used all of the loan proceeds on incurred and eligible expenses for which the borrower is requesting forgiveness.

 

When do I notify Chelsea Groton what covered period I want to select when applying for PPP Loan Forgiveness?

We will contact you directly about next steps, there is nothing you need to do right now regarding selecting your covered period.


What percent of my loan do I need to use for payroll?

A minimum of 60%, spending less than 60% on payroll could diminish the amount of forgiveness you can receive.

 

What payroll costs are eligible for forgiveness?

Cash compensation up to $100,000 on an annualized basis to employees with a principal place of residence in the U.S. in the form of:

  • gross salary, gross wages, gross commissions;
  • gross cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips);
  • payment for vacation, parental, family, medical, or sick leave;
  • allowance for separation or dismissal;
  • 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;
  • for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation; and
  • for owner-employees, self-employed individuals and general partners, compensation replacement, which is capped at the lesser of 8/52 of 2019 net profit or $15,385. 24-week compensation is capped at the lower of $20,833 or the 2.5-month equivalent of their applicable compensation in 2019 for the 24-week period.

 

What payroll costs are ineligible for forgiveness?

  • Cash compensation of an individual employee in excess of an annual salary of $100,000 in one year, pro-rated during the covered period;
  • any compensation of any employee whose principal place of residence is outside of the United States;
  • qualified sick leave wages or family leave wages for which a credit is allowed under section 7001 or 7003 of the Families First Coronavirus Response Act; or amounts paid to independent contractors (because they were allowed to apply for a PPP loan directly).

 

What are examples of non-payroll expenses?

Non-payroll expenses, that were incurred or paid within your covered period include:

  • 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
  • Rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020
  • Utility payments: business payments for a service for the distribution of electricity, gas, water, telephone, internet, transportation (the SBA guidance lists “transportation” as a utility expense, however, this expense category is not very well defined. At this time, we believe this was meant to include expenses such as fuel for trucking companies)


How long do I have to replace full-time equivalent employees (FTEs) and restore salaries?

December 31, 2020 if you choose the 24-week covered period. Eight-weeks from loan disbursement if you choose the 8-week covered period (for loans made prior to June 5, 2020).

 

Does the $100,000 salary limit used in calculating the PPP loan amount also apply during the forgiveness calculation?

Yes, the forgiveness calculation cannot exceed an annualized salary of $100,000. So if you are paying an employee an annualized salary of more than $100k, you can only be forgiven for a pro-rated $100k. You will be able to include healthcare and retirement plan costs for employees on top of the $100,000 but no cash salary.


How do I calculate employee compensation when selecting the 8 or 24-week covered period?

The payroll costs including salary, wages and tips is still capped at $100,000 of annualized pay. Now, instead of $100,000/52 * 8 (a max of $15,385 per individual), you get up to $100,000/52 * 24, making the new maximum forgiveness cap $46,154 per individual for 24 weeks.

Note, payroll costs also include covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums).

 

How do I calculate owner-employees, self-employed individual, and general partner when selecting the 8 or 24-week period?

For owner-employees, self-employed individuals, and general partners 24-week compensation is capped at the lower of $20,833 or the 2.5-month equivalent of their applicable compensation in 2019 for the 24-week period. For the 8-week Covered Period, this amount is capped at 8/52 of compensation up to $15,385.

 

How do you calculate owner benefits?

  • Self-employed individuals, general partners, or owner-employees of an S-corporation health insurance contributions are excluded, since they are already included in their compensation (i.e. this item is subject to the cash compensation limit)
  • Self-employed individuals or general partners’ employer retirement contributions are excluded, since they are already included in their compensation (i.e. this item is subject to the cash compensation limit)

 

What happens if I try to bring employees back and they don’t want to return?

The Borrower may be exempt from the reduction in loan forgiveness based on a reduction in FTE employees if the Borrower, in good faith, is able to document based on these exceptions:

  • A good-faith, written offer to rehire an individual who was an employee on February 15, 2020 was rejected by the employee and the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020;
  • A good-faith, written offer to restore any reduction in hours, at the same salary or wages was rejected by the employee;
  • Any employees who (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours.

 

How do I know which PPP Loan Forgiveness application to use?

The SBA came out with a new 3-page ‘EZ’ application Form 3508 EZ, and instructions that applies to the following borrower: If all of these situations don’t apply, you must use SBA Form 3508.

  • A self-employed individual, independent contractor, or sole proprietor who had no employees and did not include employee salaries in the computation of average monthly payroll in the original application
  • A borrower that did not reduce annual salary or hourly wages by 25% and did not reduce number of employees or average paid hours
  • A borrower that did not reduce annual salary or hourly wages by 25% and was unable to operate at the same level of business activity due to compliance with requirements established by various federal agencies

 

What happens if only a portion of my PPP loan is forgiven, or if my forgiveness application is denied?

If a Borrower is denied forgiveness in whole or in part, the amount of the loan not forgiven must be repaid by the Borrower on or before the Borrower’s applicable maturity date (two years for those PPP loans “made” prior to June 5, 2020 and five years for those loans “made” on or after June 5, 2020).

 

Where can I find more information about the PPP Loan Forgiveness Guidelines?

For businesses that have been approved for the SBA PPP Loan and are interested in learning more about SBA PPP Loan Forgiveness, please visit the SBA PPP program guidance resource page often. If you have questions specific to your individual financial situation, please consult with your tax advisor, accountant and any other professional advisors. 

Here are some helpful resources:

 

 

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