Questions continue to roll in around the Paycheck Protection Program (PPP). Our tax experts have been busy researching issues to provide answers. Please note that, given the ever-changing guidance and fluidity of the program, the responses to the following frequently asked questions are based on how that information has been interpreted as of the afternoon of April 23, 2020:
Q: Do I have to rehire the same employees that were on the payroll list I submitted?
A: Probably not. We’re fairly confident in saying these can be used for different individuals, but this is one of those fluid areas where more guidance is anticipated.
Q: Do I have to show the same employee headcount that I submitted for the PPP? All of our employees are part-time, so the full-time equivalent equals 9, yet the headcount equals 18. Is the loan forgiveness calculation based on headcount or full-time equivalent hours?
A: Forgiveness is not contingent on headcount, but full-time equivalent, as presumed to be calculated using a 30 hour per week average. Note that there are several different comparison periods for which you will want to calculate FTEs in order to maximize forgiveness.
Q: Do I have to spend the same dollar amount on payroll that I submitted for the PPP?
A: Payroll costs must make up 75% of the total loan in order to be eligible for complete forgiveness. We don’t believe the make-up of those costs (between wages, insurance, retirement) need to align exactly with the calculation used for the original loan amount in order to be eligible forgiveness.
Q: It appears that federal payroll taxes cannot be paid using the PPP loan. Is that correct?
A: The employer portion of federal taxes is explicitly excluded from use of the loan funds. There is still a theory that federal taxes withheld on the employee’s wages would be excluded from the forgiveness component (effectively making the forgiveness based on net payroll rather than gross), but we think that theory has essentially been debunked based on the additional guidance provided by the SBA regarding eligible payroll costs for purposes of calculating the loan.
Q: Can family members be counted as employees and receive wages using the PPP loan?
A: As of now, there is no exclusion for payments to family members (or owners) other than that they cannot exceed the $15,385 total wage compensation (each) during the coverage period.
Q: I am working in my business. Can I use the PPP to pay myself a wage? We are set up as an S-Corp, yet only started business Jan 1, 2020, so I hadn’t yet claimed a paycheck.
A: Yes, and that’s fine – see previous point.
Q: My understanding is that loan forgiveness depends on using 75% of the loan for payroll within eight weeks, beginning on the date of the origination of the loan. However, our store is under forced closure until the governor decides to open non-essential businesses and therefore there is no work for employees to do at the moment. Is there any way to delay loan origination for a week or two, which gives us a greater chance of the eight weeks falling during a period of time when our store is actually open? Am I at risk of losing the money if I delay signing the application, even though the SBA has already approved the loan?
A: No way to delay – once you get the money, the clock starts (although we’ve heard rumblings about certain industries lobbying to get this extended for forced closures). Really, the solution is to pay your employees a wage in lieu of having them collect unemployment. There is a special provision for forced closures whereby companies have until a later date to fully restore the full-time equivalents, but that doesn’t help with making sure you spend the money in the allotted time…you should work with someone to pencil everything out to make sure that you can use the funds within the eight week window.
Q: There is a June 30 deadline to reverse the reduction in employees. Yet I only have eight weeks to use the loan money on payroll. If I slowly ramp up the number of employees on the payroll each week until by June 30, I am back to the original number, would I qualify for loan forgiveness or not? The dollar amount spent on payroll during that time period would not be back up to the full amount as listed on the application.
A: See previous comment.
Q: What kind of documentation are they looking for to prove how the money was used, in order to qualify for loan forgiveness?
A: The actual forgiveness calculation and documentation requirement is still in the works and to be confirmed by the SBA, but we suggest maintaining a file with the following for the eight-week covered period:
- Copies of all payroll reports
- Cancelled payroll checks and/or bank statements reflecting direct deposit disbursements
- Invoices and/or statements reflecting funding of employee benefits (both insurance and retirement). Also include cancelled checks/electronic payment confirmations.
- Invoices for all utility payments – water, gas, electric, internet, landline telephone, waste, cell phone, and vehicle fuel receipts (note that vehicle fuel is really tentative at this point but go ahead and keep it in your files).
- Copy of any existing lease agreements for both real and personal property – need to have been in effect as of 2/15 to qualify
- Cancelled checks for any lease payments made
- Mortgage documents for anything in effect 2/15. This is another tentative understanding, but the included debt may also encompass things like car loans.
- Cancelled checks for any mortgage payments.
The Small Business Administration, in consultation with the Department of Treasury has occasionally updated their Frequently Asked Questions concerning the Paycheck Protection Program (PPP). You can find it on the the CARES Act Provides Assistance to Small Businesses website, under Tools>Program Rules> Frequently Asked Questions. Here are two of the recent questions on that site:
Q: Do businesses owned by large companies with adequate sources of liquidity to support the business’s ongoing operations qualify for a PPP loan?
Our teams at BerganKDV are rallying together and working around the clock to ensure we’re up and running so you can be up and running. Whatever situation you’re faced with, at any time, you can call our task force and we’ll get you the answers, the listening ear and/or the quick support you need: 888-356-2295 or firstname.lastname@example.org.