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SBA Paycheck Protection Program - Loan Forgiveness

What guidance has been issued related to loan forgiveness?

August 8, 2020. was the deadline to apply for the PPP Loan. The SBA released a revised loan forgiveness application and instructions on June 17, 2020. In addition, a simplified loan application and instructions were released. This “EZ” application can be used by:

  • self-employed individuals, independent contractors or sole proprietors with no employees

  • borrowers who did not have a salary and hourly wage reduction AND an FTE reduction (including exceptions)

  • borrowers who did not have a salary and hourly wage reduction AND are unable to operate during the covered period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020

Can a PPP loan be forgiven in whole or in part?

The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs and other eligible costs paid during the covered period. There are reductions in the amount of forgiveness based on the percentage of eligible costs attributable to non-payroll costs, any decrease in FTEs and decreases in salaries/wages per employee.

What are the restrictions on determining the amount of loan forgiveness for businesses other than self-employed individuals?

Eligible nonpayroll costs cannot exceed 40% of the total forgiveness amount. If salaries decrease by more than 25% for any non-owner employee who made less than $100,000 annualized in 2019 AND/OR if the number of FTEs decreases, the forgiveness amount will be reduced unless safe harbors are met.

When does the covered period (24 weeks or 8 weeks) begin to determine the amount of the forgiveness for the PPP loan?

The covered period begins on the date the lender makes the first disbursement of the loan. The lender must make the first disbursement of the loan no later than 10 calendar days from the date of the loan approval. Borrowers who received loans prior to June 5, 2020 can elect an 8-week covered period or a 24-week covered period. Borrowers who received loans June 5, or later will have a 24-week covered period.

When can a borrower apply for loan forgiveness?

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 – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. Payments of principal and interest on the loan are not due until the lender determines the loan forgiveness amount. If a borrower does not submit the application for forgiveness within 10 months after the END of your covered period, payments on the loan will begin at that time.

What are the eligible expenses for forgiveness for businesses other than self-employed individuals?

Cash compensation costs determined using the gross amount before deductions (subject to caps for owners), retirement contributions (paid or incurred during the covered period or alternative payroll covered period for employees subject to limits for owner-employees – see FAQ), health care benefits (see owner-employee limitations in FAQ), mortgage interest payments, rent, utility, interest payments on secured debt incurred prior to February 15, 2020, and/or refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.

What are the eligible expenses for forgiveness for self-employed individuals?

The amount of the loan forgiveness will depend on the amount spent during the covered period on:

  • Payroll costs as defined by the interim rule (does not include benefits for owners)

  • Owner compensation replacement: limited to the lesser of:

    • 2.5 month equivalent of 2019 compensation for a maximum of $20,833 for the 24-week covered period (If electing 8-week covered period of 2019 net profit with a maximum of $15,385 for the covered period) and excluding any qualified sick or family leave equivalent amount for which a credit was claimed under FFCRA

    • 2020 compensation paid during the covered period

**Interest payments on mortgage obligations for real/personal property paid or incurred before February 15, 2020

  • Rent paid or incurred on lease agreements in force before February 15, 2020

  • Utility paid or incurred under service agreements dated before February 15, 2020

What are the caps on loan forgiveness for payroll costs available for owner-employees, self-employed individuals and general partners?

Owner-employees, self-employed individuals and general partner payroll costs for the 24-week covered period is capped at the lesser of 2.5 months of $100,000 annualized ($20,833) or 2.5 months of 2019 compensation across all businesses. For an 8-week covered period, this amount is capped at the lesser of 8/52 of 2019 compensation or $15,385.

Is the forgiveness of the loan taxable income?

No, the forgiveness of the loan does not constitute federal taxable income. States are providing guidance on state taxability that will be included in the AICPA state tax guidance chart.

What happens if a business applies for PPP and also receives the up to $10,000 grant from an EIDL?

The amount of grant received (up to $10,000) will reduce the forgiveness amount of the PPP. The deadline for EIDL is September 30, 2020. The SBA is no longer issuing out the grant portion for this loan program.

Information Source: Association of International Certified Professional Accountants

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