PPP Loan Update for the Nonprofit Community Bridget Hartnett, CPA, PSA Michael LaForge, CPA, PSA, CGMA
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 The definition of rent obligations will include leases on both real and personal property The Organizations will be able to align the 56 day period with their own payroll period through the introduction of the new 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.
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)
PPP Loan Forgiveness Application Step 1 Step 2 Step 3 Step 4
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 in excess of $100,000. • Compensation covered by other funding sources (Federal or State). • 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.
Computing Eligible Payroll Costs and Other Expenses for Forgiveness Covered Period - 8 Week Period – 56 days – Beginning on the PPP Loan Disbursement Date Alternate Payroll Covered Period – The Organizations may elect to calculate eligible payroll costs using the 8 weeks - 56 days - Beginning from the first day of the first pay period following their PPP Distribution
Understanding Eligible Costs (Non-Payroll) • Covered mortgage obligations such as payments of interest (not including any prepayment or payment of principal) on any mortgage obligation on real or personal property incurred before February 15, 2020. • Covered rent obligations such as rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020. • Covered utility payments such as payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
Application - Step 1 Fill ll in the 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 mortgage interest payments during the Covered Period for any mortgage obligation on real or personal property incurred before February 15, 2020. Do not include prepayments. • Line Three – Enter the amount of rent or lease payments for real or personal property during the Covered Period, pursuant to lease agreements in force before February 15, 2020.
Application - Step 1 Fill i ll in t the B Bla lanks: • Line Four - Enter the amount of 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. This would include both compensation and other costs reimbursed by other sources.
Application - Step 2 Fill i ll in t the B Bla lanks: • 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.” Salary and Wage Reduction: • Must be done by employee by salary or hourly wage. • Compare 1 st Quarter 2020 (1/1/20-3/31/20) vs. Covered Period or Alternative Payroll Covered Period.
Application - Step 2 2020 Quarter 1 $ 20,000 $80,000 Covered (8 weeks at reduced pay) $ 6,153 $ 40,000 75% (8 weeks at $60K) $ 9,231 $ 60,000 Reduction $ 3,078
Application - Step 2 Do I Need To Calculate a Reduction? Did I reduce salaries or wages for any employee who was working during the covered period? No Yes NO Was the average salary reduced by more than 25%? REDUCTION No Yes NECESSARY! Did I restore reduced salaries before June 30th? Yes No Go to Schedule A Worksheet to Determine Reduction
Application - Step 3 Fill ll in t the B Bla lanks: • 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.” Full Time Equivalent (FTE): • For each employee, enter the average number of hours paid per week, divide by 40, and round to the nearest tenth. The maximum of each employee regardless of hours is 1.0. • Alternative method assigns 1.0 for any employees who work 40 hours or more per week and .5 for employees who work fewer hours. * The Organization can choose which method to use*
Application - Step 3 Average FTE Example Alternative 1 2 Moses Average 45 Hours During Period 1 1 Larry 40 1 1 Jerome 28 .7 .5 Samuel 20 .5 .5 Joe 20 .5 .5 3.7 3.5
Application - Step 3 Fill ll in the Bla lanks: Full Time Equivalent – Period Elected by The Organization: • The average number of full-time equivalent employees per month employed during the period February 15, 2019 – June 30, 2019; OR • The average number of full-time equivalent employees per month employed during the period January 1, 2020 – February 29, 2020. FTE Reduction Average FTE’s During Covered Period FTE’S Per Period Elected by The Organization
Application - Step 3 Fill ll in the Bla lanks: Full Time Equivalent – Safe Harbor: The Organization is exempt from the reduction in loan forgiveness based on a reduction in FTE’s if the following is met: • The Organization restored its FTE levels by JUNE 30, 2020 when compared to the levels in the Organization’s February 15, 2020 payroll.
Application - Step 4 Fill ll in the 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 8 – Modified Total – Multiply the total payroll after salary/wage reduction by FTE reduction quotient • Line 9 – PPP Loan Amount • Line 10 – Payroll cost 75% (divide line 1 by .75) The Smallest Will Be The Forgiveness Amount.
Certifications Used for eligible purposes, doesn’t exceed 100K cap or $15,385, 25% or less non-payroll, reductions all included Other representations of accuracy and acknowledgement that additional information may be required
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Contact Information Bridget Hartnett, CPA, PSA Member of the Firm, SobelCo Bridget.Hartnett@SobelCoLLC.com Michael LaForge, CPA, PSA, CGMA Member of the Firm, SobelCo Michael.LaForge@SobelCoLLC.com Visit our website for additional information: SobelCoLLC.com
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