Title: FAQs: Understanding the New Paycheck Protection Program - Williams Benator & Libby, LLP
Headings: FAQs: Understanding the New Paycheck Protection Program
FAQs: Understanding the New Paycheck Protection Program
[UPDATED 5/26/2020]
PPP Overview
What is the Paycheck Protection Program (PPP)?
What loans are covered by the program?
What are loan terms?
Who is eligible to apply for COVID-19 Loans?
Is company revenue used to determine eligibility?
When does the eight-week covered period of the PPP Loan begin?
If a business has not been able to open yet, does the eight-week window move?
Are holding companies, parent entities, PE or VC owned firms eligible?
Is there a limit to the amount of time a business will have access to the loan funds?
Will business owners have to personally guaranty the loan or provide collateral to secure the loan?
Who are the lenders?
Can any FDIC lender be used for PPP loans?
New Guidance for Businesses with Adequate Resources
Must borrowers prove they have been negatively impacted by current economic conditions?
Are businesses with other adequate resources to support their ongoing operations eligible for a PPP loan?
If my company receives a PPP loan, will that information be shared with the public?
What can my company do if it applied for and received a PPP loan before the new SBA guidance made it clear that companies with access to liquidity were not intended loan recipients?
How will the SBA review borrowers’ required good-faith certification regarding the necessity of their loan request?
If I repaid my PPP loan by the safe harbor (May 18th) deadline, am I still eligible for the employee retention credit?
PPP Loan Amounts and Permitted Uses
What amount can be borrowed under the program?
Self-employed with no employees:
Self-employed with employees:
What are the permitted uses/authorized purposes of the COVID-19 Loan proceeds?
What are payroll costs?
How are annual salary, benefits, etc. calculated? Does “salary” include bonuses, commissions, insurance, or other benefits?
Can severance pay and bonuses be included with covered (forgivable) compensation?
Will the PPP cover overhead costs if there isn’t a typical lease arrangement?
About the Compensation Cap
Is it true that employees with salaries >$100,000 would not be included in the calculation for the loan forgiveness amount?
If an employee was earning more than $100,000 per year before the covered period, can you reduce their pay to the cap ($15,385) during the covered period and use forgivable PPP Loan funds for their compensation, or are employees earning more than $100,000 excluded from payroll calculations?
Can you pay all your employees $15,385 for the eight-week period even if their average earnings is less?
Since the compensation limit is $100K, do payroll taxes and other benefits that are incurred by the amount of pay have to be prorated downward accordingly?
What if your work force comprised of salespeople under commission arrangement and with the shelter in place mandates they cannot travel, and sales of the company are impacted? Can we use the funds to true-up what their commission would have been?
For Self-employed Individuals, Partners, Owners and Others
How will the PPP calculate “payroll” for contractors, partners, owners or those who aren’t paid wages, per se?
Are there special considerations for temporary agencies or companies that use temp workers for seasonal work?
Can salary paid to owners of a company be forgivable? For example, in a partnership where there are two partners who work the business, take weekly distributions and receive K-1s, how do you compute the loan forgiveness amount? Can you include their health insurance and SEP IRA contributions as well?
Can a business owner pay for home office utilities with PPP Loan funds and have those costs forgiven?
For self-employed people, the loan amount was $20,832 based on $8333 per month salary x 2.5. but if my allowable salary is $15,385, that is 73.9% of the loan, so I can’t meet the 75% rule. I can’t use the loan for other purposes since I don’t pay for health insurance. Any ideas on how to handle?
What Are Forgivable Uses of PPP Loan Funds?
Can any portion of the COVID-19 Loan be forgiven in the form of a government grant?
Are there additional limitations on loan forgiveness?
How do you compute full time equivalent (FTE) employees before the loan and after the eight-week period? What dates are used after the eight-week period? An average, at the beginning, at the end or on June 30th? Are part-time employees included in the FTE calculation?
What do we do if a laid-off worker doesn’t want to return? What if layoffs were planned before the COVID-19 outbreak? How long does a company need to retain a re-hired employee?
Can you use PPP loan funds to pay new hires?
If you layoff someone and then decide to hire another person to take the role, can that amount be included in the total amount considered for forgiveness?
If during the time covered by the PPP loan an employee voluntarily resigns, will this affect the FTE calculation?
What happens if a worker is only contracted to work a portion of the eight-week covered period (i.e. schools which end in May or June)? Is there any guidance on whether or not to include them in this calculation?
Is the amount of forgiveness included in taxable income to borrowers?
Does the interest on the loan qualify for forgiveness?
For PPP loan forgiveness, do payroll costs have to be incurred or paid?
Can PPP loans be used to cover medical, dental, vision or other health insurance premiums paid by the employer during the covered period? What about life insurance, short- or long-term disability insurance premiums or 401 (k) management fees?
Are employer-paid retirement benefits (i.e., 401 (k) matching contributions) considered in the forgiveness calculation?
Will 100% of the 401 (k) match be eligible for forgiveness even if it includes a match for employees making more than $100,000?
Can PPP Loan funds be used to pay employer’s state income or unemployment taxes?
Are mobile phones or software subscriptions/licenses included as utilities?
If payroll is incurred during the eight-week covered period but the actual pay date is a few days after the end of the covered period, can PPP Loan funds be used for that payroll and be forgiven?
If the loan is funded on 5/1, and we have a pay day on the 5th covering 4/16 to 4/30, is this payroll going to be included in the analysis for forgiveness?
Can you pay the fiscal year 2020 retirement benefit if you usually pay it after the FY ends?
Can PPP Loan funds be used to pay raises that had been planned but were not paid when salaries were frozen?
If the expenses covered by PPP are not deductible, will we have to reflect that on the P&L as misc. income?
Are payroll processing fees considered forgivable expenses?
Can funds be used to pay a 1099 as long as that person has not received his/her own PPP?
Can we use the entire loan on payroll/salary or is it capped?
What if during the covered period your payroll actually goes up due to more employees or higher wages. Does the amount forgiven go up as well?
If we are currently deferring the SS payroll tax, when do we have to stop once loan is received or when it is forgiven?
If the office is closed due to state mandates, can we pay people to sit at home and not work, AND they draw unemployment insurance (UI) as long as they report the PPP funds to UI?
Can I bring family members on the payroll to make up for the loss of staff?
Can you pre-pay likely profit-sharing plan contributions that ordinarily would not be made until sometime next year?
Can PPP funds be used for “hazard” pay? Can the funds be used for back pay for March and April when the business was closed?
Can PPP Loan funds be used to pay the interest on another non-mortgage loan?
International Companies
How will the PPP apply to companies that are partially or wholly owned by foreign interests?
If the company is a U.S. corporation that is owned by an international group with more than 500 employees worldwide, but only 100 employees are in USA and at least 90%+ are U.S. citizens or residents, are the foreign nationals working outside the U.S. included in the employee count for PPP Loan purposes? If so, do we need to repay back the loan because we should not qualify as an international company?
Managing PPP Loans
Does the SBA require borrowers to open a new account for the PPP Loan funds?
What happens if some or all of a PPP Loan is NOT forgiven?
If I can’t open my business. would I be better repaying the PPP loan and taking tax credits to use when we can reopen?
The PPP Loan application did not ask for FTE. It asked for number of employees. How will the FTE come into play?
If we return 100% of our PPP Loan now, will we have to pay interest?
Nonprofits
Will nonprofit organizations be audited if they receive a PPP loan?
The PPP and Other Relief Programs
Will use of a COVID-19 Loan impact the availability of other benefits under the CARES Act?
Are other emergency loans available?
Is one type of emergency relief for small businesses preferable to another e.g., an EIDL vs a COVID-19 Loan)? If a company pursues multiple sources of emergency relief, what timing considerations should be considered?
Can a business receive a COVID-19 Loan and still participate in other relief elements of the CARES Act?
How can we keep up with the changing guidance?
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Content: FAQs: Understanding the New Paycheck Protection Program - Williams Benator & Libby, LLP
FAQs: Understanding the New Paycheck Protection Program
Williams Benator & Libby | May 26, 2020 | Categories: Business Owner, Manufacturing, Nonprofit, Private Individuals, Professional Services, Software/Tech, Staffing, Tax, Blog
[UPDATED 5/26/2020]
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) became law on Friday, March 27, 2020. In addition to expanded unemployment benefits and tax changes, the CARES Act includes the Paycheck Protection Program (PPP), a significant opportunity for small businesses, nonprofit organizations and sole proprietors that have been negatively impacted by the coronavirus pandemic. Below is a summary of the PPP in the form of frequently asked questions, many of which were asked during WBL’s recent PPP webinars. Red text indicates new or updated answers. (NOTE: the following information is based on a careful review of sources we believe to be accurate. The CARES Act is new, and some details and rules are still being developed.