H2R CPA Blog

PPP Loan Forgiveness Update

by Jeff Wolstoncroft, CPA

The following is a summary of the Paycheck Protection Program (PPP) Interim Final Rule on Loan Forgiveness (5/22/2020):

  1. Payroll costs are on a cash basis on the front end of the 8 weeks and accrual basis for the final pay of the 8 weeks, for forgiveness.  Meaning the payrolls paid during the 8 weeks is included. In addition, the payroll paid immediately following the 8 weeks can be accrued for the cost incurred up to the last day of the 8 weeks.  This is applicable for both the covered period or the alternative method.
    • We received a direct response from SBA on retirement and health care costs as they pertain to forgiveness below.
      • In general, payroll costs paid or incurred during the eight-consecutive week (56 days) covered period are eligible for forgiveness. Payroll costs incurred during the borrower’s last pay period of the covered period are eligible for forgiveness if paid on or before the next regular payroll date; otherwise, payroll costs must be paid during the covered period to be eligible for forgiveness
  2. The definition of what is included in payroll costs has not changed. Except for bonus are allowed as part of forgiveness if total comp is less than $15,385 for the covered period.
  3. The guidance added some clarification to owner’s comp. Owner’s comp is capped at a max of $15,385, or the lesser of 8/52 the following by entity
    • Corporate owner-employees include 8/52 of 2019 cash wages and may also include health insurance and retirement contributions to arrive at this cap.
    • Partnerships 2019 income is calculated as follows:
      • “General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.”
    • Schedule C filers net income is based on the 2019 Schedule C.
    • Partnerships and schedule C’s are not allowed to add owners health insurance or retirement contributions in addition to net income to arrive at the cap.
  4. Rehire exemption needs to be documented and show rejection.  (We are unsure of what documentation will be required.)
  5. Employers must notify the state unemployment office within 30 days of the rejection.
  6. Clarifies reductions in forgiveness are only for wage reduction over the 25%.
    • Our first calculator calculated the reduction to forgiveness based on the total reduction not just the amount greater than 25%.
  7. The guidance has continued to state that any employee who received at least one payment at an annualized rate greater than $100,000 in 2019 they are exempt from the salary reduction calculation.
  8. Clarifies the wage reduction is only on the reduction in salary or hourly wage and is not on gross wages in the 8 weeks.
    • “To ensure that borrowers are not doubly penalized, the salary/wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction.”
  9. We are still unsure on exactly when wages/salary and FTE need to be restored for safe harbor to be met.  They continually use the phrase “eliminate reduction by June 30, 2020.”
  10. Clarified that you will not be penalized in the FTE reduction for the following: fired for cause, voluntary resigns, or request for reductions.

Note: As of May 28, 2020, there is a bill in Congress that might extend the time to use the funds and also change the amount that is required to be spent on payroll, but the details are not finalized yet.

Clients of H2R CPA are encouraged to reach out to their liaison to obtain an updated PPP calculator and further instructions.

If you are not a client of H2R CPA, please reach out to discover if we might be a good fit for serving your business, by sending an email to: marketing@h2rcpa.com.