The tax and financial impacts of COVID-19 continue to unfold rapidly. To help keep you up to date on these rapidly evolving changes, we have put together the most important things you should know from last week.
1. FINALLY! PPP Loan Forgiveness Guidance….
On Friday May 15, 2020, the Small Business Administration (SBA) issued the Paycheck Protection Program Loan Forgiveness Application.
In true bureaucratic style, in lieu of an explanation of the law, guidance came in the form of a fill in the box form along with schedules, worksheets, and instructions. We are certain that these forms, schedules, and instructions will be updated many times in the weeks ahead.
The form structure consists of the following:
- Loan Forgiveness Calculation Form
- This is a two-page form. The first page is a simple summary of the loan forgiveness components and calculation of the forgiveness amount. The second page is representations you must make about the loan and documentation provided.
- PPP Schedule A
- This schedule supplies the calculation of the items on the application.
- The instructions have the details of how the PPP calculations and exceptions will work. This is where most of the “guidance” is held. We expect these instructions to be debated and updated over the coming weeks.
- Schedule A Worksheet
- These worksheets provide detailed information about employees
- Optional Demographic Information Form
The notable items contained in these forms, worksheets and instructions are:
- Creation of an “Alternative Payroll Covered Period” for biweekly or more frequent payroll.
- EIDL Advance Amounts will be reduced from the forgiveness by the SBA.
- Payroll incurred but not paid until the next regular payroll date count.
- Non-payroll costs paid or incurred and paid by the next regular billing date count.
- FTE Reduction and Safe Harbor calculation
- Salary/Hourly Wage Reduction calculation
- Documentation requirements
Strategy and Advise
Take the time to read the form and instructions. This will provide you with a better understanding of how these rules specifically apply to your situation.
Continue to use the planning tool to help manage forgiveness. We will distribute an updated planning tool once available. Banks will provide electronic systems or processes for how documents will be submitted to them, so there is no need to fill out these forms now unless you want to walk through the process.
We will hold an online seminar Tuesday afternoon to go over the mechanics of these forms and address any questions. Keep your eye out for a separate invitation. We will distribute a copy of the online seminar if you are unable to attend.
2. Is your PPP Loan Necessary? Just kidding
We spent the last couple of weeks focusing on the vague language of the eligibility requirements for Paycheck Protection Program (PPP) loans.
On May 13, 2020, Treasury updated its Frequently Asked Questions (FAQs) to include a safe harbor exception to these rules. The new rule states that any business (including its affiliated) which received a PPP loan less than $2 million is deemed to have applied in “good faith”. This means that if your loan was less than $2 million then it was necessary to support current operations and you will not be subject to penalties, fines, or criminal actions for getting the loan.
The vague language and complicated analysis to determine if your loan was “necessary to maintain current operations” still applies to any business (including affiliates) which received a loan more than $2 million. However, the date for returning the funds with no questions ask or repercussions has been extended until May 18, 2020.
3. Partnerships & Seasonal Employers Get Second Chance at PPP Loan
On May 13, 2020, the SBA issued a new interim final rule which allows partnerships and seasonal employers to increase their PPP loan.
In April there was significant confusion about how to recognize partners compensation and the allowable period a business with seasonal employees could use for calculating the maximum loan. In late April, the SBA clarified and changed the rules. However, some business had already received their loan and were precluded from obtaining any underfunded amounts.
The new rule allows these businesses to go back and increase the amount of the loan.
Strategy and Advise
If you are a partnership or have seasonal employees, you may be eligible for a loan increase under these rules. Please contact your lender as soon as possible to determine if the original application was properly calculated. Please do not hesitate to contact us if you need assistance in making this determination or calculating the proper loan amount under these rules.
In addition to the items above, it is important to note that on Friday, May 15, 2020 the House of Representatives passed a $3 trillion Stimulus 4 package (“CARES 2”). The legislation is dead on arrival at the Senate but sets the stage for further negotiations over the next few weeks. We anticipate another round of stimulus legislation. However, we do not expect this legislation until June or July.
In these uncertain times, we are continually evolving to ensure that we do what is in the best interest of our clients, team, and community.
We will continue to closely monitor the economic and tax changes and communicate important information to you timely and accurately. We are always available by phone or email to address your questions and concerns.
We strongly encourage you to leverage our expertise during these trying times. We have a deep understanding and broad view of the economic climate, which can add significant value during times of uncertainty. We are committed to assisting you in successfully managing through the rapidly changing economic environment.
Thank you for your continued support and stay safe!