A Guide to PPP Loan Forgiveness Application

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On Friday, May 22, 2020 Tony Montanaro hosted a webinar to walk viewers through the Paycheck Protection Program (PPP) Loan Forgiveness Application. We’ve included links below for you to watch the webinar along with the questions and answers from viewers.

To watch the recorded webinar, click here.
To review the webinar slide deck, click here.

PPP Owner Compensation Guide, as of May 22,2020.

Classification Cash Compensation Limits Benefits Eligible for Forgiveness?
(C-Corp or S-Corp)
Lesser of:
1) $15,385; or
2) 8/52 timex 2019 cash compensation
Yes (Employer-paid health insurance and retirement contributions)
General Partners 2019 Net Earnings from Self-Employment reduced by:
1) claimed section 179 expense deduction;
2) unreimbursed partnership expenses; and
3) depletion from oil and gas properties.
Schedule C Filers “Owner compensation replaced” calculated as 8/52 times 2019 Schedule C Net Profit No

Questions From Webinar Viewers

Q) Where do copier leases fall in the forgiveness paradigm?
A) Payments on copier and other equipment leases do qualify for forgiveness. Payments must be made during the 8-week covered period or, if incurred during the 8-week covered period, by the next regular billing date.

Q) What is “transportation” in the Utilities? 
A) As an alternative to taxes, some cities fund street and sidewalk maintenance by charging businesses fees based on the estimated traffic they generate.

Q) Are employer pension contributions attributable to 2019 but paid within the 56 days allowed?
A) Payroll costs incurred outside of the 8-week covered period (or alternative covered period) do not appear to qualify for forgiveness. Borrowers seeking to obtain forgiveness for employer contributions to a pension plan should calculate any matching or profit sharing earned by the employees during the 8-week period and deposit those funds in the plan by no later than the first pay date following the end of the covered period.

Q) Can you pre-pay your unfunded pension costs and include it in the payroll costs?
A) Prepayment of expenses are prohibited from qualifying for forgiveness.

Q) When we applied for loan was for 2.5 months wages. why is it only 8 weeks?
A) The additional funds provided by the calculation can be used for the “non-payroll” costs such as mortgage interest and utilities.

Q) Do you say state unemployment costs are included in payroll costs? 
A) Yes, the employer-portion of PA UC premiums are included in payroll costs.

Q) If I have 2 stores. Can I use employees for both stores? Will they count for both stores?
A) As long as both stores are part of the same corporation/LLC/partnership, you should be accounting for all employees together as part of the loan forgiveness process. If the stores are separate legal entities, you will not be permitted to use loan funds received by one store to pay employees of the other store.

Q) I received the PPP loan (let’s say $100,000), and then received the EIDL $10,000 grant about 2 weeks later.  Did PPP take this grant into consideration?  Will my PPP loan actually be $90,000?  How do I found out if they are aware of me receiving the $10,000 grant?
A) Receiving an EIDL advance payment will not reduce the principal amount of your loan, just your maximum potential forgiveness. Based on your example, the “forgiveable” portion of your PPP loan will be reduced to $90,000. Which means regardless of your spending at least $10,000 of the PPP funds will end up becoming a loan that needs to be repaid.

Q) What if an employee takes an unpaid day off? And, in that particular week only worked 40 hours.
A) 40 hours per week is considered “full time” for the FTE calculations. Had the employee voluntarily reduced hours to less than 40 hours, you would likely qualify to use the FTE reduction exception to avoid having your maximum loan forgiveness decreased.

Q) If we have full time employees who regularly work a shorter schedule, such as 38.75 hr/week, would we average their hours, or just count them as 1 employee?
A) The FTE calculation needs to be performed for each individual employee. So unfortunately, no averaging allowed.

Q) Will interest on line of credits be allowed?
A) Line of credit interest has not specifically been addressed by the SBA guidance, however if the line is secured by personal property or real estate, it would fall under the definition of “mortgage interest obligations” as outlined in the PPP loan forgiveness application.

Q) If you are a seasonal employer and many of your employees did not work in the 1st qtr. of 2020, how do you address this calculation?
A) The salary/wage reduction calculation does not currently provide any additional criteria for seasonal employers. Seasonal employees who received compensation during the covered period but were not employed during the period January 1, 2020 – March 31, 2020 will by definition not be capable of receiving a salary/wage reduction for purposes of reducing loan forgiveness. It is possible that the SBA will issue additional guidance on this in the future.

Q) For wage reduction calculation is company being penalized if employees had substantial over time during the Jan-March 1 period but only worked 40 hours in the PPP covered period which caps hours eligible at 40 hours?
A) Possibly. The SBA released additional guidance over this past weekend clarifying that compensation resulting from reduced hours should be included as part of the “FTE” calculation. You will need to calculate that employee’s “average hourly wage” during January 1, 2020 – March 31, 2020 and compare it to their average hourly wage during the covered period to determine if there has been more than a 25% decrease. There will be no reduction on the FTE calculation since 40 hrs. per week still counts as 1.0 FTE.

Q) Does the employee cash compensation include employee paid taxes?
A) No. Cash compensation is best thought of as “gross wages” without any increases/decreases for payroll or income taxes.

Q) The new “paid OR incurred rule” – we have a monthly payroll and our loan was received on April 17. Does that mean that we would count all of April + May (PAID) during the 8-week period + a portion of June (INCURRED)? Secondarily, if so, then some employees who earn less than $100,000 will also max out at $15,385.
A) You would start accounting for payroll costs as of April 17th, which would include the periods April 17th – April 30th, all of May, and a portion of June. Payroll costs incurred prior to the start of the period will not be included for forgiveness purposes even if they are paid during the covered period.
Q) If we pay six months of 401k match and six months of profit sharing to the employees during the 8-week period, can we count all of it as a retirement benefit because it was PAID during the 8-week period?
A) No, but you would be able to contribute a pro-rata amount covering the 8-week period. This would need to be paid no later than the first pay date following the end of your covered period.
Q) Do utilities and lease payments have the same rules of “paid OR incurred”? In that case, we would recognize our May and June payments + .3 of incurred expense in April. Is that correct?
A) No, you are permitted to pay non-payroll costs in arrears during the covered period. Any bills relating to prior periods that you pay during the covered period will qualify. You will be limited for June costs to only those expenses that were incurred during the dates included in the covered period.
Q) If an employee received a YE bonus which pushed their “annualized” rate beyond $100,000 for that month only, do we have to put that person in Table 2 of the Schedule A worksheet because “they received compensation from the Borrower at an annualized rate of more than $100,000 for any pay period in 2019”?
A) This is not clear from the instructions, however that does not appear to be the intention. We believe the goal of those instructions is to include employees who were (1) hired during 2019 with an annualized salary of $100k or (2) employees who received compensation increases during 2019 which pushed their annualized salary over $100k. The SBA should provide clarification on this.

Q) I am a C corp.  I pay a stockholder thru payroll, but he is effectively the owner.  How do we handle his pay?
A) His compensation would be included on Line 9 of Schedule A and is limited to the lesser of 8/52 of 2019 cash compensation or $15,385. Employer paid health care insurance premiums and retirement plan contributions also qualify for forgiveness.

Q) For calculating FTE, many of my employees work 36hrs/week (because my office is open 36 hrs/wk).  Will this negatively affect my loan forgiveness?  Should I calculate them as “hourly” since they are less than 40 hrs/wk?
A) As long as those employees have consistently worked 36 hrs per week, there will be no reduction in the calculated number of FTEs. There shouldn’t be any difference on whether you calculate them as salary or hourly, but the salary calculation is less complicated.

Q) What does 8-week equivalent of their applicable comp in 2019.  Which 8 weeks?  Average.
A) Average based on total 2019 compensation.

Q) Does the health insurance for a S Corporation owner also not count toward forgiveness?
A) Yes, based on additional guidance released by the SBA over the weekend both health insurance premiums and retirement plan contributions will qualify for forgiveness for S-Corp owner-employees.

Q) We do monthly payroll. How do we calculate the information for non-cash payroll costs line 6-8 when we have monthly payroll and our loan starts on April 17 (loan received) and ends June 11? Our ADP payroll gives monthly reports and April and June are not full months going into the loan forgiveness process.
A) Payroll providers such as ADP are expected to provide reports that will include only payroll costs incurred during the covered period. We are always available to assist with this as well.

Q) What about a company that started in 2020, how do you do comparisons to 2019?
A) The SBA has promised to provide additional guidance for businesses started during 2020.

Q) If I have an employee that works 30 to 35 hours per week. Is it better to pay them 40?
A) It depends. Doing so would increase your FTE count and help spend the funds. I am working with many business owners who are considering bonuses or hazard pay to increase payroll costs and help maximize loan forgiveness.

Q) If our loan funds were received on 4/14 and we had a pay date on 4/17 can we use that since it was paid within the eight weeks? Our eight weeks ends 06/09 can we included payroll incurred through 06/09?
A) Payroll costs are limited to those costs incurred during the 8-week covered period. For your 4/17 pay date, only the payroll costs relating to days starting on 4/14 are eligible for forgiveness (if any). Same for you last payroll. Only the days that fall within the 8-week period are eligible for forgiveness. Under no circumstance will you have more than 8-weeks of payroll (unless congress extends the number of weeks).

Q) Could you clarify where I would show an employee who has an actual salary of $115,000 pa?  In the actual loan calculation, he was restricted to $100,000. Also – in the loan calculation based on the 2019 payroll, one employee earned $85,000 but since January earns $105,000 – how is that treated?
A) The first employee would be included in Table 2 of the Schedule A Worksheet since they earned more than $100,000 during 2019. The second employee would be included in Table 1 of the Schedule A Worksheet since they earned less than $100,000 during 2019. Both would be limited to the $15,385 compensation cap.

Q) If we pay bi-monthly (15/30) -if 56 days runs out say on the 16th-if we pay employee compensation on the 3oth -would it be included as accrued for forgiveness purposes?
A) That is correct. You have until the next scheduled pay date to pay payroll costs incurred during the covered period.

Q) If Employee head count is restored to full by June 30th date; how long do you need to retain employees to qualify?
A) There is currently no requirement to retain employees later than the June 30th date.

Q) What about self-insured Health Care? Can we use the amount we expense as employer portion of the monthly?
A) Yes, employer contributions to a self-insured health plan are eligible costs.

Q) What if only payroll costs were submitted for the loan?  We did not include any benefits (medical… retirement…) in the calculation.
A) You will still be permitted to include payments for benefits for forgiveness purposes even if you didn’t include those costs in your loan calculation.

Q) Are bonuses to employees paid during the covered period allowed?
A) Yes! The SBA finally confirmed that bonuses and incentive pay are permitted in the new guidance issued over the weekend.

Q) If the regular payroll period ends after the covered period should you change that payroll date to fall within the covered period in order to qualify those wages?
A) No. You are permitted to pay payroll costs incurred during the covered period on your next regular pay date. No special pay dates are required.

Q) If you have employees NOT apart of a group health plan, but on a singular plan, can you include this into health insurance costs if they were not included within the original PPP application? Or would it be counted as cash compensation?
A) The SBA has not gone into detail regarding how to handle different health insurance plans. Payroll costs don’t need to have been included in the loan calculation to qualify for forgiveness. The contributions also likely wouldn’t count as cash compensation unless those payments are included in the employee’s taxable earnings.

Q) What is the maximum loan forgiveness if we spend 100% of our loan on payroll costs?
A) Depends. Even if you spend 100% of the funds on payroll your maximum forgiveness may be reduced as a result of salary/wage reductions or a reduction in the total number of FTEs. Any advance EIDL payments can also decrease your maximum loan forgiveness.

Q) Will the forgivable portion of the loan will that be taxable?
A) No, any loan forgiveness obtained will not be taxable for federal purposes (taxability at the state level is determined on a state-by-state basis). However, the IRS has ruled that borrowers may not take a deduction for expenses paid with loan proceeds that were forgiven. Congress has indicated that it was not their intention to create any tax implications as a result of the program, but they will need to pass legislation to correct this issue.

Q) What if I paid the health insurance in advance, can I still calculate for forgiveness?
A) There is not currently any available guidance addressing payroll costs paid in advance.

Q) How does SBA define affiliates?
A) It’s complicated. Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses. Control may arise through ownership, management, or other relationships or interactions between the parties. We recommend contacting us for additional consultation on this matter.

Q) How to handle a full-time employee who resign? 
A) If the employee resigned during the covered period, they would qualify for an FTE reduction exception and you would not be penalized. If they resigned during the “safe harbor” period of February 15th, 2020 to April 26th, 2020, you have the option to attempt to rehire them or replace them by the June 30th deadline.

Q) If we have payroll expenses covered by other government contracts, can those expenses be calculated into the PPP loan forgiveness formulas?
A) The SBA has promised to review a certain number of loan applications and forgiveness calculations. One of the main issues they will be looking at is whether the applicant had a sufficient basis to certify that the loan was “needed”. If the SBA determines during the course of its review that the loan funds weren’t needed, they will seek repayment of some or all of the loan proceeds.

Q) Are bonuses an eligible payroll cost? In 2019 paid in Dec.
A) Yes, bonuses paid during the covered period are eligible for forgiveness. The compensation cap of $15,385 still applies.

Q) We received our distribution on 4/14.  We pay twice a month.  4/30, 5/15, 5/31 and 6/15 would be our 4 payroll periods.  You indicated the cutoff is 56 days.  The 6/15 payroll would extend past 60 days.  Does that imply a portion of the 6/15 payroll would be excluded?
A) Yes, a portion of the 6/15 payroll will be excluded.

Q) Just to clarify: if a company has mostly part time employees, would they be listed as .5 FTE?
A) Yes, if you use the “simplified” method. We recommend calculating all employees using both methods to determine if one is more beneficial than the other.

Q) Do payments on essential technology to continue business as usual count to be forgiven?
A) No, unfortunately there is nothing in the guidance that would allow the inclusion of technology costs as a forgivable expense.

Q) Are employee bonuses included in the compensation for forgiveness?  The employer typically gives annual bonuses in June, which will be included in the 8-week period.
A) Yes, as previously mentioned bonuses are confirmed to be eligible for forgiveness. Keep in mind the compensation cap of $13,385 still applies.

Q) Can you pay bonuses and they count as payroll costs?
A) Yes! See above.

Q) We pay an annual bonus in January for the prior year.  It is accrued in our prior year.  Does it need to be included in the calculation?
A) No, only amounts included in the employee’s compensation for 2019 need to be included in the calculations.

Q) Can I claim more than 8 weeks of payroll by charging days incurred before the covered period that were paid during the covered period?
A) No, you are limited to 8 weeks only.

Q) I have a S Corporation, but I am paid as an employee with a W2.  Can I count my health insurance costs?
A) Yes, the SBA has confirmed that an S-Corp “owner-employee” can include employer-paid health insurance premiums and retirement plan contributions as payroll costs.

Q) How long after the 8-week period do we have to submit our loan forgiveness application?
A) There is currently no deadline.

Q) Will you send your forms for calculations that you just demonstrated today?
A) Please contact me directly.

Q) If the company has independent consultants in addition to employees on payroll can the independent consultants be included in payroll costs?
A) No, 1099 contractors are not permitted to be included in payroll costs.

Q) Can you include lease payments for coping Machines?
A) Yes, equipment lease payments qualify for forgiveness.

Q) What is the due date to submit the forgivable loan request? How many days after the 8-week period ends?
A) No current deadline but we will let you know if we hear differently.

Q) Could you talk a little bit about a payment of an expense that I paid for the full year in January.  And whether I can then use the eight weeks of PPP loan time to pay the company back for that portion of the pre-paid expense?
A) There is currently no guidance on this kind of prepayment of expenses.

Q) We got a loan on a Thursday and payroll hits on a Friday.  Can I use the PPP proceeds to pay for the entire week of payroll costs that week?
A) No, only the portion of that payroll for the days falling within the covered period.

Q) How do you enter data for FTE where there is turn over? Does every employee paid during the test and the forgiveness period need to be included in tables 1 and 2?
A) Only employees paid during the covered period are to be included in Tables 1 and 2. You will use a separate spreadsheet to calculate FTEs during the comparative periods.

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