On Wednesday May 19th, WendroffCPA Partnered with Atlantic Union Bank to host a webinar on how to get the Paycheck Protection Program Loan forgiven and to answer questions from business owners.
In the webinar, we discuss how the Paycheck Protection Program works and how to work with the PPP and Economic Injury Disaster Loans to get forgivable loans for your business.
– Maximizing PPP Loan Forgiveness
– How to track expenses for PPP program
– What to do if an employee doesn’t want to come back to work
– How does PPP Loan Forgiveness work for Self Employed People
– Q&A session and more.
Presenters: Rafael A. Martinez, CTP is Vice President of Commercial Banking at Atlantic National Bank and has been working in banking for more than 17 years. He is an SBA Loan expert and works with business owners, specializing in SBA Lending, Commercial Lending and Acquisition Financing.
Eric Wilder is the Senior Tax Manager at Wendroff & Associates, CPA. He is an Army Veteran and has more than 20 years accounting and business management experience, specializing in Small Business Accounting, Government Contracting and NonProfit Accounting.
The following is the webinar recap and resources.
Question: How can a self employed person track their salary payments out of the PPP funds for forgiveness?
You don’t have to track your payments, but you can make owner draws from your business bank account to be safe.
Question: What are the tax issues for an SCorp end of year tax planning if we choose to pay back the loan?
There are no specific tax issues, but the interest is an expense to the company and you will need to keep track of that on the balance sheet.
Question: I’ve heard there is news that portions of the PPP could be used for other business purposes, is that true?
We have not heard about that, but we would suggest confirming all news on the treasury website, as they are main source for info regarding the PPP. You can reach that site here: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses.
Question: What’s the best way to track PPP expenses? Should I be paying approved expenses through a special account to track the PPP payments?
Keep paying expenses through same bank account. If you have employees, we suggest working with a payroll provider such as Paychex, Gusto or ADP and tracking specific expense accounts such as payroll, health insurance, retirement, utilities, rent and mortgage. Expenses can be calculated on profit and loss report, general ledger and bank. Also, payroll reports, health, 401k, utilities, and other PPP bills can be used to back up ledger. Make sure to reach the 75% rule payroll rule.
Question: Can we provide mid-year bonuses that are paid through payroll to be applied to the PPP requirements?
Rules don’t say you cannot do this. It would be good also if you did this in the prior year to show a pattern. The rules do not say you cannot do this, but it may create an issue to prove that your business was hurting when you took the loan, which is what the loan is supposed to help with if you gave bonuses.
Question: What records to keep? (Should some expenses in QBO be classified differently in order to meet reporting requirements?)
Payroll info for records, the expenses can be revised to report payroll, benefits, etc. to be used for the reconciliation. You can spend the loan on very specific expenses. Ask your bank about what they need specifically. We know banks at least need payroll records, expense documents for benefits, the SBA application, etc.
Question: I work as a contractor for my spouse? How should I claim PPP loan forgiveness?
Apply through your bank like any 1099 contractor and follow the same rules for forgiveness.
Question: Can payroll and benefits be forgiven for 2% SCorp owners?
Yes, up to 100% of payroll for the covered period.
Question: Are payroll expenses calculated before taxes and deductions?
No, Payroll is gross meaning the employee deductions and taxes are part of the calculation.
Question: What documentation do I need to submit if I have been granted a PPP loan based on my 1099 income?
Your health insurance, utility expenses, mortgage, rent and retirement bills.
Question: What are forgivable expenses the loan can be used for?
Question: What non-payroll expenses are eligible for forgiveness?
Question: Are there timing requirements of non-payroll expenses?
Forgivable non-payroll costs such as mortgage interest, rent, and utilities must be paid during the eight-week forgivable period that starts on the day the borrower receives the PPP loan proceeds, but borrowers are entitled to count a payment made in the month after the eight-week period if it was incurred during the 8-week period. It appears the intention is to provide flexibility while limiting borrowers to forgiveness of two regular monthly payments (not three).
Question: I need help stretching my working capital. Am I able to defer payment on this loan?
You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment.
Question: How do I determine how much of my loan can be forgiven?
The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan.
Not more than 25 percent of the loan forgiveness amount may be attributable to non-payroll costs.
There is ongoing guidance from the SBA related to loan forgiveness.
Question: What if my pay period falls after the 8 week period?
Under the law as written, the eight-week forgiveness started on the day the PPP loan proceeds were disbursed. It also stated that costs were forgivable to the extent they were “incurred and paid” during the eight weeks.
The SBA and Treasury, in drafting the loan forgiveness application, listened to the suggestions of a number of commentators and recognized the difficulty this poses for millions of employers who pay workers a number of days after the close of a pay period.
Employers who pay biweekly or more frequently can elect to calculate forgivable “payroll costs” using “Alternative Payroll Covered Period” that runs eight weeks, starting on the first day of the next full pay period after the borrower receives the PPP loan proceeds. Additionally, the borrower can count pay for the work in the final pay period even if it is paid after the 8-week period.
Question: How do you determine what a Full Time Employee is?
The application’s instructions adopt a set full-time equivalency (“FTE”) employee calculation formula. “For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0.” There is an alternative, “simplified” method an employer can use, assigning a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours. These calculations are important because they will be used to determine whether the loan-forgiveness amount will be reduce pro rata for a reduction in workforce during the eight-week period compared with test periods defined in the law.
Question: What if an employee won’t come back to work?
Question: If an employee won’t return, how is that treated in terms of loan forgiveness?
There are no reductions in loan forgiveness, despite a reduction in FTE, for (1) any positions for which the Borrower made a good-faith, written offer to rehire an employee which was rejected by the employee; and (2) any employees who (a) were fired for cause, (b) voluntarily resigned, or (c) voluntarily requested and received a reduction of their hours. In addition, the application reiterates the law’s safe harbor for borrowers who restore FTE by June 30, 2020, to the same average FTE during the pay period that included February 15, 2020. Loan forgiveness for such an employer is not reduced, even if it was not able to restore FTE fully during the 8-week forgiveness period.
Question: How long should I keep documentation related to the PPP loan forgiveness?
The borrower must keep backup documentation for six years. A description of the required documentation is listed in the application’s instructions and includes banks statements, tax forms, canceled checks, and receipts.
Question: Are there issues with the PPP that still don’t have clear guidance?
Question: What documents do I need to provide to my lender to be considered for loan forgiveness?
Question: When will I know if my loan is forgiven?
Your lender will issue a decision on loan forgiveness within 60 days after receiving an application for loan forgiveness.
Question: Where can I get a copy of the loan application?
The SBA has issued an early copy of the loan forgiveness application here:
Question: Is the forgiven part of the loan taxable?
Any amount of loan forgiven as part of the PPP is excluded from gross income, and as such, is not taxable.
Question: If I would like to make a prepayment on this loan, is there a penalty? And what is the interest rate on the loan?
Notwithstanding any other provision of law, there is no prepayment penalty for any payment made on a covered loan.
The interest rate will be 100 basis points or one percent.
Question: Do Independent Contractors Count as Employees?
No. Independent contractors can apply for a PPP loan on their own so they do not qualify for purposes of a borrower’s PPP loan forgiveness. Your independent contractors can apply for their own loan.
Question: Can I Get More Than One PPP Loan?
No. If you are an owner in multiple businesses, please read: Can I Apply for EIDL or PPP for Multiple Businesses?
Question: What Happens if PPP Loan Funds are Misused?
If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
Keep good records of how you use these funds.
Question: What If I Have Already Laid Off Employees or Cut Pay?
If you have already laid off workers, you have until June 30, 2020 to restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. This part of the law is confusing and additional guidance from the SBA and Treasury is needed, so be sure to get professional advice if you are hoping to obtain full loan forgiveness.
Wendroff & Associates has a special program to help business owners calculate their loan amount, apply for the PPP loan and discuss the parameters to make sure you get the loan forgiven. This is a 3 hour consult, and the fee is $500. If you would like to set up a consult, please click on the button below.
Question: How do I keep track of future changes to the PPP program?
Members of Congress and administration officials have continued to discuss other possible changes to the PPP, including the possibility of expanding the forgiveness period.
For the most reliable information, please refer to the Treasury CARES Act resource site: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses.