The U.S. Treasury and the Small Business Administration (SBA) released a new set of Paycheck Protection Program (PPP) FAQs. The 10-page guidance, a supplement to the PPP Interim Final Rules, is intended to address borrower and lender questions concerning the forgiveness of PPP loans.

Check out the highlights summarized by Doeren Mayhew’s CPAs and advisors.

Payroll Costs

Confirms the guidance provided in the sample forms, outlining that payroll costs incurred during the covered period (which for payroll costs includes the option of the alternative payroll covered period) but paid after the covered period on or before the next regular payroll date after the covered period are eligible for forgiveness. Payroll costs incurred before the covered period but paid during the covered period are also eligible for loan forgiveness. This is beneficial if you have the option and are considering applying for forgiveness based on the eight-week covered period..

All forms of cash compensation paid to employees, including tips, bonuses, commissions and hazard pay are eligible for forgiveness subject to the overall limits.

Forgiveness is not provided for health insurance payments or retirement benefits accelerated from periods outside of the covered period. Both of these cannot include costs deducted from employees’ pay or otherwise paid by employees.

Compensation Limitations for Owners

There is a maximum compensation amount that can be counted toward forgiveness for an individual with ownership interest in a S corporation, C corporation, partnership and sole proprietorship across all of their businesses in which they have an ownership stake. Owners can choose how to allocate the capped amount across different businesses. The amount cannot exceed the lesser of $20,833 or 20.833% of their 2019 compensation, cumulatively if they use a 24-week covered period. It is limited to $15,385 if they received their loan before June 5, 2020, and elect to use an eight-week covered period.

The cash compensation of C corporation owner-employees is eligible for forgiveness and will be limited to 20.833% of their 2019 cash compensation and 20.833% of their 2019 retirement contributions. They are eligible for loan forgiveness on all payments made for the employer’s state and local taxes and employer contributions to health insurance.

The cash compensation of S corporation owner-employees is eligible for forgiveness and will be limited to 20.833% of their 2019 cash compensation or retirement contributions. They are eligible for loan forgiveness on all payments made for the employer’s state and local taxes. Health insurance costs will not be added to compensation for S corporation employees owning at least 2% in the business, as well as health insurance costs paid for these employees’ family members, as those costs should be included in cash compensation.

Transportation Costs Are Finally Defined, but the News Isn’t Great

Payments of transportation utility fees assessed by state and local governments are eligible for loan forgiveness. Based on the language, that is the full definition.

Nonpayroll Costs

Nonpayroll costs must be paid or incurred during the covered period to be eligible for loan forgiveness, and you cannot use the alternative payroll covered periods. However, like payroll costs, nonpayroll costs can include costs paid during the covered period but incurred prior, and costs incurred during the covered period but paid afterward, on the next regular billing date.

Interest on loans secured by real or personal property are eligible for loan forgiveness as long as the loan was in place before Feb.15, 2020. If a loan or a lease is renewed after Feb. 15, 2020, but existed prior, those payments are also eligible.

Calculation of Salary/Wage Deductions

Benefits will not be considered when determining if there has been more than a 25% reduction in an employee’s hourly or salary wages.

Sole Proprietor Application Process

Our team is here to offer sound guidance and assistance with forgiveness calculations to help you achieve financial relief during this uncertain time. Contact us today.