PPP Loan Forgiveness Walkthrough May 22, 2020 Agenda Loan - - PowerPoint PPT Presentation

PPP Loan Forgiveness Walkthrough

May 22, 2020

Agenda

 Loan Forgiveness Basics  Key Concepts and Calculations For Completing SBA Form 3508  Documentation Requirements  Q & A

Loan Forgiveness Basics

8-Week Covered Period



Qualifying costs must be “incurred

• r paid” during this period



Starts on the date of disbursement and ends 56 days later

 Example: If loan proceeds were

received on Monday, April 20th, the final day of the covered period is Sunday, June 14th.



Pre-payment of expenses not permitted



“Alternative” covered period provided for payroll costs only

Alternative Payroll Covered Period



Available for borrowers with biweekly (or more frequent) payroll only



Begins on the first day of the first pay period following the loan disbursement date



Example: if the loan proceeds were received on Monday, April 20th and the first day of the following pay period is Sunday, April 26th, the first day of the “Alternative Payroll Covered Period” is April 26th and the last day is Saturday, June 20th.



If elected, the “Alternative Payroll Covered Period” must be used consistently through the application

Payroll Costs Eligible for Forgiveness

• Salary, wages, commissions, or similar

compensation

• Cash tips or the equivalent
• Payments for vacation, parental, family, medical,
• r sick leave
• Allowance for separation or dismissal
• Payments for employee benefits including group

health coverage, including insurance premiums and retirement

• Payments of state and local taxes assessed on

compensation of employees

• For independent contractors or sole proprietors:

wages, commissions, income, or net earnings from self-employment (Schedule C taxpayers) Eligible Payroll Costs

Payroll Costs Not Eligible for Forgiveness

• Compensation for employees whose

principal place of residence is outside of the United States

• Compensation of an individual employee

in excess of an annual salary of $100,000

• Prorated over the 8-week covered

period

• Capped at $15,385 for each individual
• Employer portion of payroll taxes
• Sick leave or family medical leave paid

under the Families First Act Non-Eligible Payroll Costs

Non-Payroll Costs Eligible for Forgiveness

• Includes both real and personal property
• Interest only
• No prepayment allowed
• Agreements in effect prior to February 15,

2020 Covered Mortgage Obligations

• Includes both real and personal property
• Full lease payment
• No prepayment allowed
• Agreements in effect prior to February 15,

2020 Covered Rent Obligations

Non-Payroll Costs Eligible for Forgiveness (continued)

• Includes electricity, gas,

water, transportation, telephone, or internet access

• No prepayments
• Service must have started

before February 15, 2020 Covered Utility Payments

Clarification on “Paid or Incurred”



“Paid” = bills paid during the 8 week covered period



“Incurred” = costs incurred but not yet paid



“Incurred” costs (both payroll and non- payroll) are eligible for forgiveness if they are paid on

• r before the next regular payroll/billing

date The application does not make it clear if the payment of costs relating to periods prior to the 8-week covered period will be eligible for forgiveness.

“75%” Rule

 At least 75% of the potential

forgiveness amount must be used for payroll

 Using less than 75% of the loan

proceeds for payroll results in a reduction of the total potential forgiveness available to a borrower

Example Total loan amount $ 100,000 Payroll costs (70%) $ 70,000 Divide by 0.75 Maximum forgiveness 93,333.33

Reduction Ratios for Reduced Workforce and Wages

Reductions in the average number of full-time equivalent employees (“FTE”)

• r

Reductions in salary or hourly wages greater than 25% for non-highly compensated employees

Will reduce total loan forgiveness!

Workforce Reduction Safe Harbor

Full restoration of any workforce or pay reductions that

(1) occurred between February 15, 2020

and April 26, 2020

(2) by or before June 30, 2020

FTE Reduction Exceptions

1.

Good faith, written offer to rehire employee during the covered period which was rejected

2.

Any employees who during the covered period:

a)

Were fired for cause;

b)

Voluntarily resigned;

c)

Voluntarily requested and received a reduction in hours FTE reductions in these circumstances will not reduce loan forgiveness

EIDL Advance Payments

 Total PPP loan forgiveness is

reduced by any advance payments received for an Economic Injury Disaster Loan (“EIDL).

 EIDL advance payments are not

required to be repaid

 Maximum EIDL advance payment

= $10,000

Loan Forgiveness Process

Maximize spending during the 8-week covered period Accumulate supporting documentation for payroll and non-payroll costs Complete SBA Form 3508 Submit completed SBA Form 3508 and supporting documentation to lender Lender must make a determination on forgiveness within 60 days

Key Concepts and Calculations for Completing SBA Form 3508

SBA Form 3508

Includes three main documents:

1.

PPP Loan Application

2.

PPP Schedule A

3.

PPP Schedule A Worksheet

PPP Loan Application - Basic Information

PPP Loan Application - Payroll Elections and Additional Info

The $2 Million Question

 Borrowers who received

loans in excess of $2 million must “check the box” (including affiliates)

 Checking this box will

result in a review of your loan by the SBA!

PPP Loan Application - Forgiveness Amount Calculations

Step 1 – go to PPP Schedule A to calculate payroll costs

PPP Schedule A

PPP Schedule A Worksheet

Schedule A Worksheet – Table 1

 Employee Name – separately list the names of each employee. Do not include

independent contractors, owner-employees, self-employed individuals, or partners.

 Employee Identifier – last four digits of employee’s social security number  Cash Compensation

 Include gross wages, salary, tips, commissions, paid leave, severance pay, and similar

compensation paid or incurred during the covered period or alternative covered period

 Total can’t exceed $15,385 for any individual employee

 Average FTE

 Calculate average “full-time equivalency” for each employee  Used to determine if loan forgiveness will be reduced due to reductions in the number of

FTEs during the covered period or alternative covered period

 Two methods available: standard and simplified

Calculating Average FTE – Standard Method

1.

For each employee, calculate average of hours paid per week

• ver the covered period or

alternative covered period

2.

Divide by 40 and round to the nearest tenth

3.

The maximum for each employee is capped at 1.0

Example Average weekly hours worked 35.00 Divide by 40.00 Average full-time equivalency 0.88 Rounded 0.90 FTE

Calculating Average FTE – Simplified Method

1.

For each employee, calculate average of hours paid per week over the covered period

• r alternative covered period

a)

Employees who worked an average of 40 hours or more = 1.0 FTE

b)

Employees who worked an average of less than 40 hours = 0.5 FTE

Calculating Average FTEs

Other dates that average FTEs may need to be calculated:



January 1, 2020 through the end of the covered period or alternative covered period Safe Harbor Calculation



February 15, 2020 to April 26, 2020



February 15, 2020; and



June 30, 2020 Optional Reference Periods (Select One):



February 15, 2019 – June 30, 2019



January 1, 2020 – February 29, 2020



A consecutive 12-week period between May 1, 2019 and September 15, 2019 (season employers only)

Schedule A Worksheet – Table 1 (Continued)

 Salary/Hourly Wage Reduction

 Used to determine if loan forgiveness amount must be reduced for reductions in employee

salary or hourly wages during the covered period or alternative covered period as compared to the period January 1, 2020 to March 31, 2020

 This column is only completed for employees whose salaries or hourly wages were reduced

by more than 25%

 Potential reductions in loan forgiveness can be eliminated if safe harbor requirements are met  Three step calculation is to be completed for each employee included in Table 1

Salary / Hourly Rate Reduction Flowchart

Compare compensation during the covered period with January 1, 2020 – March 31, 2020

Decrease

• f 25% or

more?

Yes No Enter $0 on Table 1 Determine if Safe Harbor is met Enter $0 on Table 1 Calculate dollar amount reduction of compensation, enter total on Table 1 No Yes

Completed Table 1 - Example

Completed Table 1 - Example

Schedule A Worksheet – Table 2

Schedule A Worksheet – Table 2

 Employee Name – Same instructions as Table 1  Employee Identifier – Same instructions as Table 1  Cash Compensation – Same instructions as Table 1  Average FTE – Same instructions as Table 1

The purpose of this schedule is to separately list employees who do not qualify for the 25% salary/hourly wage reduction penalty (i.e. employees with earnings greater than $100,000). All employees who earned more than $100,000 (or would have earned more than $100,000 based on an annualization) during 2019 should be included on this table. Independent contractors,

• wner-employees, self-employed individuals, or partners should not be listed on this table.

Completed Table 2 - Example

PPP Schedule A – Noncash & Owner Payroll Costs

Line 9 – Compensation to Owners

• Owner-employees (?);
• Self-employed individual; or
• General partners

Include amounts paid to the following:

• $15,385; or
• The eight-week equivalent of their

applicable compensation in 2019 Compensation is capped at the lesser of:

Line 9 – Compensation

• f Owners

 Impacts of owner compensation cap:

 Will not be able to increase

compensation from amount paid or net earning received in 2019 (per Schedule C / K-1 / W-2)

 Partner amounts presumably includes

guaranteed payments

 Does not appear to include “non-cash

payroll items (e.g. health insurance or retirement contributions)

 Change from previous guidance (except

for self-employed individuals)

 Additional clarification will be needed

Lines 6 to 8 – Non-Cash Payroll Costs

 Employer contributions for employee health insurance (Line 6) – include amounts paid for

employer contributions for employee health insurance, including employer contributions to self-insured, employer-sponsored group health plan

 Excludes any pre-tax or after tax contributions by employees

 Employer contributions to employee retirement plans (Line 7) – include employer contributions

to employer retirement plans

 Excludes any pre-tax or after tax contributions by employees

 State and local taxes assessed on employee compensation (Line 8) – include employer

payments for taxes assessed on employee compensation (e.g. state unemployment insurance tax) Note: Payroll costs MUST be paid either during the 8 week covered period (or alternative covered period) OR on or before the next “regular payroll date”. Does not follow “next billing date” rule for non-payroll items like utilities.

Lines 6 to 8 – Non-Cash Payroll Costs

Example: Partnership Alpha paid qualifying non-cash payroll costs for healthcare premiums ($5,000), retirement contributions ($1,000), and state unemployment insurance ($250) during the covered period. However, $2,000 of the healthcare premiums and $500 of the retirement contribution costs were for benefits paid to the general partners.

Health Insurance Retirement State Premiums Contributions UCI Partnership Alpha totals $ 5,000 $ 1,000 $ 250 Less: amounts paid for general partners $ (2,000) $ (500) $ - Totals to Schedule A $ 3,000 $ 500 $ 250 Line 6 Line 7 Line 8

PPP Schedule A – Total Payroll Costs

PPP Loan Forgiveness Calculation Form

PPP Loan Forgiveness Calculation Form

PPP Schedule A – FTE Reduction Calculation

PPP Schedule A – FTE Reduction Calculation

Purpose: to calculate the reduction in loan forgiveness as a result of a reduction in the number of employees or average paid hours during the covered period or alternative covered period. Shortcuts!

1.

If the borrower had no reductions in the number of employees or average paid hours for the period January 1, 2020 through the end of the covered period or alternative covered period, simply “check the box”, and enter 1.0 on Line 13.

2.

If the borrower has reduced the number of employees or average paid hours, first complete the “safe harbor” calculation included in the Schedule A Worksheet. If you qualify, simply enter 1.0 on Line 13.

Schedule A Worksheet – FTE Reduction Safe Harbor

Step 5

If the total for Step 4 is greater than the total for Step 2, the safe harbor applies. Enter 1.0 on Line 13 of PPP Schedule A. If not, use PPP Schedule A to calculate the FTE forgiveness reduction

Step 4

Calculate the total FTEs as of June 30, 2020

Step 3

If the total for Step 2 is greater than Step 1, proceed to Step 4. If not, the safe harbor does not apply. The borrower will need to complete Line 13 of PPP Schedule A to calculate the FTE forgiveness reduction

Step 2

Calculate the total number of FTEs for the pay period inclusive of February 15, 2020. Methodology must be consistent with previous steps

Step 1

Calculate average FTEs for the period February 15, 2020 to April 26,

• 2020. The methodology must be consistent with the methodology

used in the worksheet tables (i.e. standard or simplified methods)

FTE Reduction Safe Harbor Example

Step 5

If the total for Step 4 is greater than or equal to the total for Step 2 (Yes!), the safe harbor applies. Enter 1.0 on Line 13 of PPP Schedule

• A. If not, use PPP Schedule A to calculate the FTE forgiveness

reduction

Step 4

Total FTEs as of June 30, 2020 = 2.5

Step 3

If the total for Step 2 is greater than Step 1, proceed to Step 4. If not, the safe harbor does not apply. The borrower will need to complete Line 13 of PPP Schedule A to calculate the FTE forgiveness reduction

Step 2

Total number of FTEs for the pay period inclusive of February 15, 2020 = 2.5

Step 1

Average FTEs for the period February 15, 2020 to April 26, 2020 = 2.0

PPP Schedule A – FTE Reduction Calculation

If neither of the shortcuts apply, the applicant will need to calculate the FTE Reduction Quotient Step 1 – Calculate weekly average FTEs during the chosen reference period. Optional reference periods include:



February 15, 2019 – June 30, 2019



January 1, 2020 – February 29, 2020



A consecutive 12-week period between May 1, 2019 and September 15, 2019 (season employers only) Step 2 – Enter total weekly average FTEs during the selected reference period on Schedule A, Line 11. Note: must use the same methodology used to calculate FTEs on Schedule A Worksheet Tables 1 and 2

PPP Schedule A – FTE Reduction Calculation

PPP Loan Forgiveness Calculation Form

Complete the Calculation!

Documentation Requirements

Documents Required to be Submitted with Application

 Payroll

 Bank account statements or third-party payroll service provider reports documenting the

amount of cash compensation paid to employees

 Tax forms for the periods that include the covered period or alternative covered period

 Payroll tax filings reported, or that will be reported, to the IRS (Form 941); and  State quarterly business and individual employee wage reporting and unemployment insurance tax filings

 Payment receipts, cancelled checks, or account statements documenting the health insurance

payments or retirement plan contributions

 FTE

 Payroll tax filings reported to the IRS (Form 941) and state quarterly business and individual

employee wage reporting and unemployment insurance tax filings.

 Must include all time period used for purposes of completing PPP Schedule A, Line 11

Documents Required to be Submitted with Application

 Nonpayroll

 Business mortgage interest payments

 Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments; or  Lender account statements from February 2020 through the month after the covered period verifying

interest amounts and eligible payments

 Business rent or lease payments

 Copy of current lease agreement and receipts or cancelled checks verifying eligible payments; or  Lessor account statements from February 2020 through the month after the covered period verifying

eligible payments

 Business utility payments

 Copy of invoices from February 2020 and those paid during the covered period; and  Receipts, cancelled checks, or account statements verifying those eligible payments

Documents Required to be Maintained But Not Submitted

 Schedule A Worksheet or its equivalent, and the following:

 Documentation supporting the listing of each individual employee in PPP Schedule A

Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation

 Documentation supporting the listing of each individual employee in PPP Schedule A

Worksheet Table 2, specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000

 Documentation regarding any employee job offers and refusals, firings for cause, voluntary

resignations, and written requests by any employee for reductions in work schedule

 Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor”

Tony Montanaro, CPA/ABV, CFE Senior Manager

tony.montanaro@louisplung.com 412.281.8771 ext. 244