On August 4th, the SBA launched additional steering on PPP program questions after session with the Department of Treasury. The steering was offered to complement the PPP Interim Final Rules that had been reviewed by my article posted right here.
These FAQs present additional disappointment for small enterprise homeowners who would in any other case be capable to obtain forgiveness for what they pay themselves for companies rendered, however don’t stop compensation paid to associated events, resembling a partner, to be counted.
Compensation Limitation For Owners Applies Cumulatively Across All Businesses
These guidelines present that the utmost quantity of compensation that may be counted in the direction of forgiveness for a person with any possession curiosity in an S company, C company, partnership or sole proprietorship (Schedule C enterprise) can not exceed the lesser of $20,833 or 20.833% of their 2019 compensation, and this cover applies cumulatively to all corporations that the proprietor/worker is paid by. The allocation of this shall be as chosen by the borrower corporations.
This places vital strain on small companies to have a minimum of 60% of mortgage quantities spent on mixed payroll of each homeowners and non-owner workers, and is a major limitation that was not contemplated within the authentic CARES Act.
The $20,833 / 20.833% presumes a “Covered Period” of 10.6 weeks or extra. A borrower that elects to make use of an eight week Covered Period shall be restricted to the lesser of $15,385 or 15.385%.
Health Insurance and Retirement Plan Expenses Are Not Included within the Compensation Cap for Owner-Employees, But Are Subject to Additional Limitations
These new guidelines make clear that medical health insurance prices is not going to be added to compensation for S company workers that personal a minimum of 2% within the enterprise, and that medical health insurance prices paid for members of the family of such 2% or extra proprietor/workers may also not be counted. It seems that medical health insurance prices for owner-employees of S companies who personal lower than 2% may be counted along with the compensation. S companies are additionally eligible for mortgage forgiveness for unemployment and state earnings taxes (“employer state and local taxes…assessed on their compensation”), “and for employer retirement contributions…capped at the amount of 20.833% of their 2019 employer retirement contributions.”
C companies can obtain forgiveness on the worker shareholder’s compensation primarily based upon the identical 20.833% rule, and also can embody state unemployment and earnings taxes (all state and native taxes assessed on compensation), and all company contributions for his or her worker medical health insurance.
C company forgiveness for employer retirement contributions may also be restricted to 20.833% of 2019 employer retirement contribution.
In a separate part the FAQs point out that “forgiveness is not provided for employer contributions for retirement benefits [and group health benefits] accelerated from periods outside the Covered Period or Alternative Covered Period.”
It will not be clear what is supposed by “accelerated from” and this may increasingly imply that retirement plan contributions made in the course of the Covered Period which might be attributable to retirement plan obligations accrued between January 1, 2019 and the final day of the Covered Period may be forgiven if paid throughout that point interval, however that prepayments of retirement plan contributions outdoors of the Covered Period is not going to rely.
Transportation Costs Gets a Definition
The FAQs handle the definition of “Covered Utility Payments” and what’s meant by the language “Payment for a service of the distribution of …transportation” by indicating that “transportation” refers to “transportation utility fees assessed by state and local governments.” This apparently implies that transportation of something apart from utilities is not going to rely as a forgivable expense, though “gas” is included as a utility and former pronouncements have indicated that bills for “gas you use driving your business vehicle” may very well be forgiven.
Guidance on Calculation for Reduction of Loan Forgiveness if Wages/Salary of an Employee is Reduced by More than 25%
The FAQs additionally handle what shall be counted in figuring out whether or not there was greater than a 25% discount in an worker’s hourly or wage wages, which is essential as a result of a discount exceeding the 25% threshold causes full lack of forgiveness for such extra quantity.
Benefits is not going to be thought of for this goal, as a result of the borrower “could only take into account decreases in salary or wages.” It is unclear if suggestions paid to restaurant workers shall be thought of within the calculation for discount of worker wages, so restaurant proprietor might should make up for misplaced suggestions with the intention to keep away from a greater than 25% discount in whole wages.
Interest Accrues But Not Owed on Portion of Loan that’s Forgiven
The FAQs clarify that whereas curiosity accrues from the date that the mortgage is obtained, the borrower will solely be liable for paying the accrued curiosity on mortgage quantities that aren’t finally forgiven. The FAQs particularly present that “if the loan is fully forgiven then the borrower is not responsible for any payments,” and that “the borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven.”
We shall be additional dissecting and analyzing these pronouncements, and can schedule and current a 30-minute webinar on this within the close to future. You can electronic mail firstname.lastname@example.org to be registered for the webinar or a free replay by merely placing “FAQ Webinar” within the RE: line.
Special because of Brandon Ketron, CPA, J.D., LL.M. (and Ph.D. in PPP) for explaining a lot of this to me on brief discover right now.
Also, because of our readers who ship us questions and strategies for enchancment of our work on this space.
Our legislation clerks ready the next chart, which we are going to refine as we additional examine and interpret these guidelines.