Introducing the Paycheck Protection Program (PPP) Loan Forgiveness Application Ken Bagner Mark Weber
The First Official Guidance Issued From the SBA and Treasury Details for computing Clarification of many the debt forgiveness critical issues
These Questions are Clarified “Incurred” and “paid” as referenced in the CARES Act is further defined to allow (with certain limitations) expenses both paid and incurred in the eight week period The calculation of both full-time equivalent (FTE) and wage/salary reduction provisions will be done in a way that helps mitigate reduction of amount of debt forgiven There will be an indirect bar on using bonuses to owner employees when used to inflate eligible expenses The definition of rent obligations will include leases on both real and personal property Borrowers will be able to align the 56 day period with their own payroll period through the introduction of the new Alternative Payroll Covered Period
Key Discussion Points • FTE Calculation based on 40 hours • Still not deductible expenses per IRS (expenses forgiven) but partner comp allocated and SE Income not a deductible amount • Loan limited to forgiveness on application, not interest • All or nothing method for restoration of employees • EIDL 10K needs to be subtracted • Unclear if you can use more than 56 days of payroll if using non-alternative payroll method – Discussion • Non-payroll expenses must be either paid during 8 week period or incurred and paid by next regular due date – i.e. prior periods • Independent contracts/partners pay not subject to reduction calculations on pay • Business mortgage can’t be prepaid • Rent includes tangible property and real property as well as interest
Review the Application The application consists of four main areas: The PPP Loan Forgiveness Application The PPP Schedule A The PPP Schedule A Worksheet The PPP Borrower Demographic Information Form (optional)
Computing Eligible Payroll Costs and Other Expenses (non-payroll) for Forgiveness Explain the eight week covered period Explain the Alternative Payroll Covered Period
The Core Parameters of the PPP Loan are as Follows: • Loan amount equal to 2.5 times the employer’s average monthly payroll • Loan amounts up to $10,000,000 • Loan forgiveness amount equal to eight weeks salaries, plus several other costs incurred during that period.
Eligible Payroll Costs Include: • Payment for vacation, parental, family, medical, or sick leave. Allowance for dismissal or separation. • Payment required for the provisions of group health care benefits, including insurance premiums. • Payment of any retirement benefit. • Payment of state or local tax assessed on the compensation of employees.
What costs are not eligible for calculating payroll? • Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent) • Employee/owner compensation in excess of $100,000. • Taxes imposed or withheld under chapters 21 (FICA), 22(Railroad Retirement Tax), and 24(Income Tax Withholding) of the IRS code. • Compensation of employees whose principal place of residence is outside of the U.S. • Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
Understanding Eligible Costs (Payroll and Other) El Eligible Payroll Ex Expenses : • 56 day alternative schedule can apply • Information related to employees other than owner-employees, self-employed individuals or partners who had annualized compensation of less than $100,000 for every pay period in 2019 or were not employed in 2019. (This information will come from PPP Schedule A Worksheet Table 1.) • Information from PPP Schedule A Worksheet Table 2 related to employees who are not owner- employees, self-employed or partners, and who received annualized compensation from the borrower during 2019 of over $100,000 for any pay period in 2019. These employees, while part of the FTE calculation, are not included in the calculation of any forgiveness reduction based on a reduction in pay. • Noncash compensation – Medical, retirement plan, SDI/SUI
Understanding Eligible Costs (Payroll and Other) Other El Eligible Ex Expenses ( (Non-payroll) ll) • Covered mortgage obligations such as payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 • Covered rent obligations such as business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 • Covered utility payments such as business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020
PPP Loan Forgiveness Application
Understanding Eligible Costs (Payroll and Other) Fill i ll in t the B Bla lanks • Line One – Enter total eligible payroll costs incurred or paid during the Covered Period or the Alternative Payroll Covered Period. • Line Two – Enter the amount of business mortgage interest payments during the Covered Period for any business mortgage obligation on real or personal property incurred before February 15, 2020. Do not include prepayments. • Line Three – Enter the amount of business rent or lease payments for real or personal property during the Covered Period, pursuant to lease agreements in force before February 15, 2020.
Understanding Eligible Costs (Payroll and Other) Fill i ll in t the B Bla lanks • Line Four - Enter the amount of business utility payments during the Covered Period, for business utilities for which service began before February 15, 2020. • Note: you are not required to report payments that you do not want to include in the forgiveness amount. • Lines Five thru Seven include the details on how to compute any reduction in the loan due to a reduction in full-time equivalents (FTEs) or salary/wage reductions, with supporting calculations on PPP “Schedule A.”
Understanding Eligible Costs (Payroll and Other) Fill ll in t the B Bla lanks • Lines Eight thru Ten compute the potential forgiveness amounts with the actual forgiveness amount being the smallest of lines 8-10, which is entered on line 11. • Line 9 includes information on amounts paid to owners. The instructions provide: • Enter any amounts paid to owners (owner-employees, a self-employed individual, or general partners) • This amount is capped at $15,385 (the eight-week equivalent of $100,000 per year) for each individual or the eight-week equivalent of their applicable compensation in 2019, whichever is lower (See Interim Final Rule on Additional Eligibility Criteria and Requirements for Certain Pledges of Loans posted on April 14, 2020 for more information) • Line 10 - Total - Note that partner comp/owner is separate as it is not part of reductions. • Line 11 thru 13 – Includes calculations for employee reductions
Authorizations Used for purposes, doesn’t exceed 100K cap or $15,385, 25% or less non-payroll, reductions all included Other reps of accuracy
PPP Schedule A Worksheet, Table 1 Totals
PPP Schedule A Worksheet, Table 2 Totals
PPP Schedule A Worksheet, Compensation
PPP Schedule A Worksheet, Full-Time Equivalency
PPP Schedule A Worksheet
PPP Schedule A Worksheet
Let’s Hear From You!
Contact Information Ken Bagner, CPA, CGMA, MST Member of the Firm, SobelCo Kenneth.Bagner@SobelCoLLC.com Mark Weber, CPA, PFS, CFS, CGMA Member of the Firm, SobelCo Mark.Weber@SobelCoLLC.com Visit our website for additional information: SobelCoLLC.com
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