The CARES Act:  Paycheck Protection Program Loan Forgiveness

Congratulations!  You got your PPP Loan!  Now what?  

 

Here are some points, summarized from research courtesy of Brown Shultz Sheridan and Fritz – a respected local PA Firm.  Please note these points are as of April 29, 2020.  The Cares Act is being clarified and refined daily.  

 

  1. Forgivable Expenses fall in to two categories:  
    1. Payroll 
      1. gross wages (with limitations for annual income over $100,000 for any person)
      2. Self-employed (1040 Schedule C) 2019 net income  (with limitations for annual income over $100,000)
      3. Employer potion of healthcare and retirement benefits
      4. Employer portion of State Unemployment Insurance
    2. Other authorized costs:
      1. Rent on real property and equipment
      2. Utilities (electric, gas, water,  telephone, internet)
      3. Interest – debt must be on real or personal property, including mortgage and LOC secured by property – the official term is indebtedness where a UCC-1 is filed on the borrower’s personal property.
    3. Of the final amount forgiven, 75% must be payroll costs.
    4. These expenses must be spent in the “covered period” defined as the eight-week period beginning the day the loan proceeds are received.

 

  1. Documentation Needed for Forgiveness
    1. Payroll for each pay period to verify number of employees and gross wages
    2. Invoices and proof of payment
    3. SBA can request any documentation they deem necessary

 

  1. The mechanics of the calculation for the forgivable portion of the PPP Loan are complex.  In addition to the 75/25 ratio stated above and in previous blogs, there is both a Headcount Reduction Test Exception, and a Wage Reduction Test. To summarize, it is important for the PPP Loan recipients to have their workforce – headcount, wages and hours – return to pre-shutdown levels by June 30, 2020. If this is not possible, it is important to realize the forgivable portion of the loan will be reduced.  

 

  1. If your company also received and EIDL Grant, the amount of the grant received will be deducted from the forgiveness amount.

 

  1. The IRS has made a determination that the forgivable loan proceeds will not be taxed as income.  As of 04/30/2020, the IRS has determined the expenses paid by the forgiven amount will not be tax deductible.  

Courtesy of RKL, LLP 05/01/2020

 

Please contact the Kael Company, Inc. info@kaelcompany.com, or your preferred CPA, for further clarification of the points above.  We can help with the calculations needed for planning.  

 

A sincere Thank You to the exceptional learning opportunities provided by Brown Schultz Sheridan & Fritz and RKL, LLP. The Kael Company, Inc. values the opportunity to work with these firms and recommends them to our clients.