June 8, 2020 Update
This video was recorded on June 8th 2020 to address the changes made by Legislation signed on June 5th regarding the Paycheck Protection Program loan. The information presented may be superseded by changes made by legislation to the Paycheck Protection Program after June 8th, 2020.
Recorded on May 28, 2020
In this webinar we cover allowable uses of Paycheck Protection Program loan funds including some tips and advice to maximize the amount of your PPP loan that can be forgiven. Learn the important timing of how and when to spend your PPP money on specific expenses that qualify to be forgiven and the critical dates you need to know to calculate FTE and allowable expenses. We also touch on determining if you should keep this money and what records you need in order to request forgiveness from your bank. The information presented may be superseded by changes made by legislation to the Paycheck Protection Program after May 28th, 2020.
Presentation Slides from the May 28th Webinar
Kevin Gienger, CPA
A Certified Public Accountant and has been the managing partner of Boldt Carlisle & Smith since 2012. Kevin has over 20 years of experience in private and public accounting. He enjoys working with businesses and their owners to help them make informed and effective business decisions.
Joy Huffman, Advanced QuickBooks ProAdvisor
Joy Huffman has over 10 years of experience in bookkeeping & QuickBooks. Joy has been a QuickBooks ProAdvisor since 2012 and an Advanced ProAdvisor since 2014 and taught QB Fundamentals for three years for a local university. Joy has over a decade of expertise in QuickBooks including full charge bookkeeping, third party applications, and installation & set-up of new QB files, to higher level expertise such as financial controllership, and QuickBooks consultation
Ross Holliday, CPA, CVA, CGMA
A Certified Public Accountant, a Certified Valuation Analyst, and a Chartered Global Management Accountant. Ross has over 25 years of experience working in both private and public accounting and leads the business consulting team for Boldt Carlisle and Smith. Ross also serves on the Board of Directors for the Oregon Society of CPAs as well as the Society’s Professional Conduct Committee.
Jennifer Darst, CPA
A Certified Public Accountant that became a partner at BCS in 2017. Over her tenure at BCS, Jennifer has been active in our Municipal Audit practice and currently assists in directing our tax practice. Throughout the course of our time together, she will be answering questions posted in the Q&A section. We have asked her to speak up if she has anything to add by way of clarification.
Friday May 15th the SBA released their Loan Forgiveness Application. We wanted to share this with you while we work to understand this new information and how it applies to your PPP Loan. We will be updating the other website information as quickly as we can. This new guidance does clarify some open question and provides new options that were not contemplated by previously issued guidance.
Economic Injury Disaster Loan (EIDL) – Currently accepting applications on a limited basis to provide relief to U.S. agricultural businesses. Amounts have been reduced from initial funding limits.
Main Street Lending Program – for borrowers who don’t qualify for the PPP or have limited payroll costs compared to other operating expenses.
Work Share Oregon – Alternative program to layoffs, allowing you to retain employees while reducing their schedules and subsidize lost wages through unemployment insurance.
Employee Retention Credit – Refundable tax credit against certain employment taxes equal to 50% of qualified wages under certain conditions. Not eligible with PPP loans
Payroll tax deferrals – Allows deferral of employer social security tax on wages paid through December 31, 2020. 50% to be paid by December 31, 2021 and 50% to be paid by December 31, 2022. This deferral is not allowed once an employer receives loan forgiveness under the PPP.
FAQs on PPP
Questions regarding payroll related expenses
Wages are capped at $100,000 annualized – there has not been clarification if this amount has been extended to 24/52 or if it remains 8/52 of this amount.
At this time, there is nothing in the guidance that prevents an increase in pay to employees – We recommend that there is a business purpose or justification for paying the additional wages, bonuses, etc. and that you document that, keep in mind your bank will be signing off on the calculations for forgiveness. If you add additional employees, ensure they are actually performing services, have specific job duties and the wage paid is reasonable for the work performed. These are all recommendations that would be made under normal operating conditions and decisions should not simply be based on maximizing the forgiveness of the loan.
Consider other wage and compensation rules that may be specific to compensation such as Oregon’s Equal Pay Act when making decisions on additional compensation and how you determine who and how much to make additional payments to.
And consider that with an extended covered period, you are likely to maximize forgiveness dollars without paying additional wages over normal rate of pay.
- In an S-corp or C-corp, owner wages will be limited to the lower of annualized wages of $100,000 over the covered period or a pro-rated amount of actual wages paid in 2019 over the covered period.
- For self-employed schedule C or F filers, owner compensation replacement is limited to a pro-rated amount of the net profit on the 2019 schedule C or F, capped at net profit of $100,000. This was initially 8/52 of prior year net profit and it is unknown at this time if the 8 weeks will become 24/52 with the recent changes.
See above question, wages paid to owner-employees are limited to the lesser of $100,000 annualized or the 2019 wages paid prorated over the covered period.
The only taxes included in payroll costs are those state and local taxes imposed on payroll, federal payroll taxes are not included.
Loan amounts were based on 2.5 months of 2019 payroll costs, the forgiveness of the loan will be based on a minimum of 60% of proceeds being spent on payroll costs over the covered period.
The intent of this loan was to help businesses keep employees employed and paid. Under current guidance in order to be eligible for max, employers would have to spend at least 60% of the proceeds for payroll costs. The extension of the 8-week period to 24 weeks, will make it more likely that you can use the proceeds to pay people for working.
Yes, the 60% is the minimum that can be spent on payroll dollars to qualify for maximum forgiveness.
Expenses must be incurred or paid, so prepaying for insurance for months outside of the covered period would not be included, but insurance payments made for payments that are due for coverage or paid during the period should be allowed in payroll costs.
Questions regarding covered period
Under new guidance, allowable costs be incurred or paid during the covered period. If the first pay date in the covered period includes dates worked prior to the beginning of your covered period the allowable payroll expenses from that pay date will be eligible, the final payroll in your covered period will be prorated to included costs incurred during your covered period and paid on or before the next regularly scheduled payroll date.
The covered period to spend covered expenses begins on the date you receive the disbursement from the bank. It is not necessarily the beginning of a week or pay period. There has been guidance issued that allows employers with a bi-weekly or more frequent cycle to use an Alternate Covered Period for payroll costs that begins at the beginning of the pay period following the date of disbursement.
Under new guidance, expenses have to be incurred OR paid during the covered period. Prepaid rent paid before the covered period would not be eligible, but rent paid in the covered period for the upcoming month looks like it would be eligible (i.e. July rent paid June 25th before your covered period ends on June 26th).
Under new guidance rent paid during the covered period will be allowable, and if it is incurred during the covered period and paid on the next billing date it will also be allowed.
Yes, this would be acceptable, document the portion paid from PPP proceeds separately to provide that support to the bank when applying for forgiveness. The 25% limit is the amount of forgivable payroll costs, so you want to be sure that you if you are spending 25% of the proceeds on non-payroll costs that you also can spend the whole 75% of proceeds on forgivable payroll costs or the rent payments could be limited in forgiveness. These ratios recently changed from 75/25 to 60/40.
Until further guidance we believe you will have to break the salary down to weeks in the covered period – so you would take their annual salary and divide by 52 – then multiply by the number of weeks in the covered period (currently 8 is defined in the guidance) to get the allowable amount for the PPP. The covered period has been extended to 24 weeks, however it is not yet clear if the allowable payroll expense will increase to 24 weeks of the salary or if they have just extended the time to spend the funds – more guidance is expected on this.
The 8 week covered period has been extended to 24 weeks from the date of disbursement
Recent guidance changed the requirements that would require a special payroll, as costs can now incurred or paid in the covered period and are allowable for forgiveness.
Questions regarding tracking and documenting PPP costs
- You will have to provide payroll reports as well as documents verifying covered obligations, utilities etc. So lease agreements, utility statements, documentation supporting payments for other payroll related expenses such as health insurance and retirement contributions showing payments made. Check with your bank for specifics.
- You should track all covered expenses – both payroll and non-payroll. We anticipate most payroll service providers will have reports to assist with covered payroll amounts.
This is not a requirement but best practice suggestion. You can still manually track the PPP balance and the allowable expenses paid with these funds with a spreadsheet. You will want to be sure the balance in your business account always has at least the amount of unspent PPP dollars.
For a schedule C or F filer, the amount is already determined as 8/52 of the profit reported on your 2019 return. You can write a check for this amount to yourself from the business account as an owner draw of PPP covered expenses. Though recent changes to the PPP loan changed the covered period to 24 weeks, it is not yet known if owner compensation of 24 weeks will now be covered. More guidance is expected.
Questions regarding expenses
Under current guidance there is nothing that prevents rent payments made to a related party from being deducted, as long as the lease agreement was in place prior to February 15, 2020 and the amounts are still subject to the limitation of non-payroll expenses to payroll costs (non-payroll costs cannot exceed 40% under new guidance).
No – these services are not considered payroll and do not all into one of the other allowable categories.
Per the AICPA FAQs on the program – “The CARES Act defines utilities in Sec.1106(a)(5) as electricity, gas, water, transportation, telephone or internet access for service which began prior to February 15, 2020. Further guidance released added gas used when driving a business vehicle. Other common utilities such as garbage collection or security monitoring may also be classified as a utility, but a business should confirm with the lending institution.”
See above definition of utilities, the payment to the internet provider would be included, however a separate bill for the IT group would not be.
There is not clear guidance on this specifically excluding these expenses, other than rent must be under a “covered rent obligation”, meaning in force before February 15, 2020. The same non-payroll expense limits apply.
If the leased vehicles are business vehicles, then yes.
No, the only insurance under allowable expenses is group benefits for employees such as health, dental, etc.
Questions regarding forgiveness
You can choose to use the average FTE from February 15, 2019 – June 30, 2019 or the average FTE from January 1, 2020 – February 29, 2020 for non-seasonal employers. Recent guidance provides two methods, one counts a FTE as 40 hours a week, and the other simplified method counts 1 FTE as 40 or more hours per week and a .5 FTE for anyone working an average under 40 hours per week.
See treasury FAQ # 40 – if they decline to return and you document in writing the offer and their rejection, they will be excluded from the FTE calculations if you have reported the decline to the state unemployment office.
You now have until December 31st to replace that FTE to not have a reduction in forgiveness based on a reduce FTE count. Recent guidance also allows for exceptions to employees who left on their own and you were unable to replace, or were let go for performance related issues. Document the reasons for employees leaving for these exceptions.
See prior answer – there are several exceptions for FTE reductions and performance related terminations will be an exception.
Per the AICPA FAQ guidance on the PPP loans
- For a self-employed individual (schedule C or schedule F), you are able to take owner compensation replacement limited to a pro-rated amount of the 2019 net profit on our schedule C or F, excluding any qualified sick or leave time you took a credit for under FFCRA. This is limited to the $100,000 maximum.
- Other payroll costs as defined for employees in the interim rule, business mortgage interest payments, rent payments and utility payments under agreements in place before 2/15/2020. You should note that costs other than payroll must be deductible on the 2019 schedule C or F.
If you received an EIDL advance those advance payments will reduce the loan forgiveness under the PPP. The funds cannot be used for the same purpose and the EIDL allowed expenses are a little more broad in that those funds can cover other operating type expenses you may incur.
There is nothing that speaks to this directly in the PPP guidance that would disallow this, working with your insurance company would be recommended as you need to ensure you are following guidelines required for these types of benefits.
You should check with your bank, this is likely a misprint or misinterpreted, the bank has 60 days from the date you apply for forgiveness to make a determination. Recent guidance said deferral of repayments is extended to the date the SBA remits the loan forgiveness amount to the lender, or to 10 months from the end of the covered period if forgiveness is not applied for.