David Fontes | August 5, 2020
On August 4, 2020, the U.S. Small Business Administration (SBA) issued the long-awaited FAQ on PPP loan forgiveness. The complete Frequently Asked Questions on Loan Forgiveness is available on the US Treasury website.
The key takeaways are:
Loan Forgiveness Payroll Costs FAQs
1. Forgiveness is not provided for employer contributions for retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period (Question #7).
2. C-corporation owner-employee(s) (Question #8):
-
- Payments for employer state and local taxes paid by the borrowers are not subject to the cash compensation cap.
- Employer contributions for their employee health insurance is not subject to the cash compensation cap.
- Employer retirement contributions to their employee retirement plans are capped at the amount of 2.5/12 months of the 2019 employer retirement contribution.
- Payments other than for cash compensation do not count toward the cash compensation cap.
3. S-corporation owner-employee(s) (Question #8):
-
- Payments for employer state and local taxes paid by the borrowers are not subject to the cash compensation cap.
- Employer retirement contributions to their employee retirement plans are capped at the amount of 2.5/12 of the 2019 employer retirement contribution.
- Payments other than for cash compensation do not count toward the cash compensation cap.
- Employer contributions for health insurance are not eligible for additional forgiveness for S-corporation employees with at least a 2% stake in the business, including for employees who are family members of an at least 2% owner under the family attribution rules of 26 U.S.C. 318, because those contributions are included in cash compensation.
For the first time, the 2% threshold and family attribution rules have appeared in the issued guidance. Currently, it appears that the 2% threshold and family attribution rules only applies to health insurance for S-corporation owner-employee(s). So far, there is no mention of family members being subject to the cash compensation cap for S-corporation owner employee(s).
FAQ #8 has established a separate cap for employer retirement contributions for C-corporation and S-corporation owner-employees, which appears to be separate from the cash compensation limit.
4. Self-employed Schedule C (or Schedule F) filers (Question #8):
-
- Loan forgiveness is limited to 2.5/12 of 2019 net profit as reported on IRS Form 1040 Schedule C line 31.
- Separate payments for health insurance, retirement, or state or local taxes are not eligible for additional loan forgiveness.
5. General Partners (Question #8):
-
- The compensation of general partners that is eligible for loan forgiveness is limited to 2.5/12 of their 2019 net earnings from self-employment that is subject to self-employment tax, which is computed from 2019 IRS Form 1065 Schedule K-1 box 14a (reduced by box 12 section 179 expense deduction, unreimbursed partnership expenses deducted on their IRS Form 1040 Schedule SE, and depletion claimed on oil and gas properties) multiplied by 0.9235.
- Separate payments for health insurance, retirement, or state or local taxes are not eligible for additional loan forgiveness.
Loan Forgiveness Nonpayroll Costs FAQs
6. Interest on unsecured credit is not eligible for loan forgiveness because the loan is not secured by real or personal property (Question #4). Unfortunately, there was no further clarification on whether interest on a line of credit secured by real or personal property would qualify as a nonpayroll cost.
7. Interest on unsecured credit incurred before February 15, 2020 is a permissible use of PPP loan proceeds, this expense is not eligible for forgiveness (Question #4).
8. Payments made on recently renewed leases or interest payments on refinanced mortgage loans are eligible for loan forgiveness if the original lease or mortgage existed prior to February 15, 2020 (Question #5).
9. Under utilities, transportation refers to transportation utility fees assessed by state and local governments. Payment of these fees by the borrower is eligible for loan forgiveness.
Loan Forgiveness Reductions FAQs
10. More than 25% reduction in cash compensation is calculated as follows (Question #4):
-
- Salaried Loan Forgiveness Reduction Amount = Salary Reduction in excess of 25% x covered period (8 or 24) ÷ 52
- Hourly Loan Forgiveness Reduction Amount = Hourly Reduction in excess of 25% x per week hours worked between January 1, 2020 to March 31, 2020 x covered period (8 or 24)
11. Salary/hourly wage reductions in excess of 25% only applies to cash compensation (Question #5)
Calculating Loan Forgiveness
We have developed the blumshapiro PPP Loan Forgiveness Toolkit & Calculator. We will continue to update the Toolkit as additional guidance becomes available. As long as the blumshapiro PPP Loan Forgiveness Toolkit & Calculator is downloaded via blumshapiro.com, all downloaders will get notified of any changes to the PPP Loan Forgiveness Toolkit & Calculator.
PPP Loan Forgiveness Assistance
blum has been on the forefront of interpreting PPP guidance and providing trusted resources for clients to keep them apprised of constant changes and providing the most up-to-date information to assist in calculating loan forgiveness. Our team is working with clients to assist them with navigating through compliance requirements of the loan forgiveness program, to ensure forgiveness is received, help expedite the loan forgiveness process and provide a reliable and trusted source of information. Learn more about our loan forgiveness services >>
For more information on our loan forgiveness services, please contact us here:
Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.
Disclaimer: The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.
