Category Archives: Tips

Education, Tips

Last Chance (This Time) For PPP Funds: APPLY NOW

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The popular and problematic Paycheck Protection Program is up and running again starting 10:30 am tomorrow, Monday, April 26th.

But given the number of client emails and texts I’ve received today on the topic, I realized that there is still a lot of confusion about what a small business’s next steps should be. So here are a few urgent reminders:

Apply Today — Do Not Wait Until Tomorrow

The SBA is opening their e-Tran system Monday, April 26th at 10:30 am — that’s when banks and other lenders are able to begin submitting their completed application packages from customers. In other words, don’t wait until tomorrow to apply. Make sure your bank has your information ready-to-submit the moment e-Tran goes live. If you haven’t already applied (or cannot find out the status of your existing application), get your completed information to your (possibly new) chosen lender today. This means pull together all your documentation now and submit it in one package. Do your banker and yourself a favor and avoid delays that will require them to follow up with you for missing information.

Confirm Status of Existing Applications

Because the PPP has gone through so much flux and so many iterations and guidance/ FAQ releases, a lot of early applications seem to have gotten “stuck” — the banks were not prepared for how to communicate with so many customers at-once, so in cases where there was missing documentation, some applications were held up in limbo. Most banks have been working through those piles frantically since the program ran out of money, in order to be ready for the second tranche — but if you have not yet heard from your lender about the status of your application, it’s time to check in with them now. Many banks, including Chase, have (finally) included a link to application status information on the customer landing page (you must sign in first).

If you have access to a real human being, such as a branch manager or loan officer, try reaching out to them if the usual channels aren’t working. I had one client show up in-person one morning when the bank opened — they initially told him they couldn’t assist with PPP issues; then he explained his unique situation, and it turned out they were able to fix the problem. But please remember — I beg you — that these are real people. They are overworked, are sometimes given poor training, do not have enough hours in the day to analyze the constantly-changing guidance thrown at them, and are often being forced to come into an office without sufficient PPE or social-distancing opportunities. They are exhausted, anxious, and yelling at them will not help. It’s not their fault that Congress wrote a sloppy law that allowed multi-million-dollar companies to access money that was theoretically meant for you. Be nice.

Apply With Multiple Lenders If Your Application Has Stalled

There has been a lot of confusion here — the rules still aren’t quite clear. According to many unofficial sources (most of them lenders), you may apply with multiple companies. What the law indicates is that you may not accept more than one loan.

So there’s a lot of complexity here. Obviously, applying with multiple lenders clogs up the system for other applicants. And while multiple applications aren’t against the rules, some banks are claiming that they could result in applications being voided or delayed.

But if not all lenders — and not all staff processing these loans — are created equal, then why should you be penalized because your bank (or more likely, your small business department within your bank) doesn’t have its act together? My advice (unofficial “don’t sue me” advice), at least to my own clients, is that if your bank isn’t communicating with you — if you don’t know the status of your existing application and have no idea if it’s even being moved forward — then by all means reach out to one or more other lenders.

From Brit Morse in a recent article in Inc.:
But that doesn’t mean you should only apply at a single lender. The chaos of the program’s roll out along with the fact that different banks have deployed different resources and processes to address the influx of these loans, might necessitate applying at multiple lenders.

If you have the opportunity, you may wish to request a guarantee that they’ll reach out to you before submitting your file to SBA, to make sure that a fraud alert isn’t triggered, holding up all your applications.

List of Lenders and Partners Still Accepting Applications

I will not be able to keep this list updated, but as of now, here are some recommendations I’ve compiled from various sources.

FinTech companies with access to multiple lenders seem to be doing the best job getting these things turned around fast. Here’s an article from Inc. on the topic, with a good list.

Forbes is also maintaining an updated list of banks and FinTech offering access to the loans (scroll to the bottom for the list and links to FinTech).

Also, for clients using the Gusto payroll platform, they have been offering since almost the beginning to connect its customers with lenders. Go here and then sign in — you’ll be given the option to submit your info.

And here’s Gusto‘s public list of lenders that are certified for PPP loans. I went through the list and pulled out the ones indicating they are still accepting applications from non-customers:

Cross River Bank – I have had folks reporting good success with them.
Divvy – Fintech company that has access to multiple lenders.
First Bank
Fulton Bank
Fundera – I have had folks reporting good success with them. Fintech company that has access to multiple lenders.
Funding Circle –  Fintech company that has access to multiple lenders.
Kabbage – Fintech company that has access to multiple lenders.
Solera National Bank
Womply – Fintech company that has access to multiple lenders.
Zions Bank

If You Need The Money, Apply — Even If You’re Late To The Game

This second round is expected to go quickly, but don’t let that discourage you from applying. Rob Scott, a regional administrator for the SBA, told CNBC that “If someone didn’t qualify or didn’t apply, they should absolutely apply for the second round.” (Of course, this is insensitive blockhead who also said, “Overwhelmingly, the funds have been used for what it has been intended to do,” Scott said. “There are outliers. There are outliers in every program.”)

The SBA did not maintain a queue after money for the first tranche ran out — any application that was in-process was dumped. So when lenders go to the e-Tran system on Monday, they’ll be evenly-matched.

We have no way of knowing how long this disaster will last, and whether there will be a third wave of funding at some point. From Business Journal Daily:
“Whether there is a third round of funding – Bank of America has suggested it would take $900 billion in relief to get all small businesses the money they need – will likely be determined closer toward the end of the second round.”

This will give you an opportunity to build a relationship with a lender that may prove helpful in the future in ways you can’t predict.

Forgiveness? Not So Fast.

I keep working on a spreadsheet to help my clients determine how best to spend their PPP funds for maximum forgiveness — and it keeps changing with each morsel of guidance we receive from the Treasury and SBA. For now, just know that for businesses that already received their funds, the SBA is working on developing the guidance for how business owners will prove they retained staff to have their loan forgiven. I’m sure I’ll be posting plenty on that here on my blog in the upcoming weeks.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Illinois, Tips

Illinois Unemployment Claimants Concerned With Change In IDES Policy

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I received a call and email today from a concerned Illinois citizen, trying to bring awareness to what seems like a serious error on the part of the Illinois Department of Employment Security (IDES). I have contacted our State Representative’s office and they are looking into it. I will post an update here when I have one; in the meantime, here is the information I received — just in case you are struggling with the same issue, you can know you’re not alone, and folks are indeed trying to get it addressed.
Note: I have not yet vetted this information… it was provided to me via an individual who is not a client.

Summary: The state of Illinois shut down on March 20th, and the CARES Act, including the Federal Pandemic Employment Compensation (FPUC) passed on March 27th. Even before it passed, the official message from the State of Illinois was that there was no different way to apply for the federal aid aside from applying normally for state unemployment. IDES posted on their FPUC FAQ that individuals otherwise eligible for unemployment during the weeks of the program would be eligible for and receive the increased assistance. They also wrote that the additional $600 per week would be active in benefit payments for unemployment certifications (not applications or claims) completed starting April 6th. Then, on April 15th, they retroactively decreed through a PDF that anyone who had any claim for benefits pending or active before March 29th would be denied the FPUC.
—

The IDES is not applying the $600 FPUC increase for mandatory COVID-19 economic shutdown to people receiving regular unemployment benefits (in violation of the federal implementation guidelines and the CARES Act).

IDES put out this fact sheet where they claim, “Pursuant to the federal legislation, this $600 will not be retroactively applied to unemployment claims that arose prior to March 29, 2020“
https://www2.illinois.gov/ides/News%20%20Announcements%20Doc%20Library/Federal-Stimulus-FAQ-April2020.pdf

While the $600 payments cannot be retroactively applied to before the CARES act took effect, it is incorrect to not apply the $600 to later weeks for those with existing claims started prior to March 29th. There is no requirement in CARES FPUC that individuals may not already receive unemployment benefits or forfeit eligibility. In fact, the opposite is true, and the $600 is an increase to existing benefits.

The IDES COVID FAQ also states the correct interpretation in their FPUC FAQ:
“Who is eligible to receive FPUC?
FPUC is payable to individuals who are otherwise eligible for unemployment benefitsfor weeks of unemployment beginning March 29, 2020 and ending July 31, 2020“
https://www2.illinois.gov/ides/Pages/COVID-FPUC-FAQ.aspx#h2

IDES provides no alternative method to apply for or receive federal assistance beyond applying for normal state unemployment benefits. After certifying for benefits through 4/18, [this claimant] still has not received additional payments from FPUC/CARES, even though the IDES website had indicated that FPUC would be included for eligible recipients with their normal benefits starting April 6th:

“The $600 federal increase is now available! Those claimants certifying beginning April 6 will see the additional supplemental income applied to their weekly benefit amount. This increase is available through the week ending July 25, 2020.”
https://www2.illinois.gov/ides/Pages/default.aspx

Due to the fact that [this claimant] has seen no additional $600 materialize, and the IDES changed the wording in their April 15th PDF, it seems they may have mistakenly adjusted the policy to not grant the $600 to recipients in this situation. IDES had not previously stated that claimants had to wait until after March 29 to apply to get FPUC — in fact, they indicated the opposite: that people should apply normally, and once it was enacted and implemented they would start seeing the additional funds.

Those who apply before March 29 are still eligible for benefits for weeks after March 29th, and thus still eligible for FPUC.  The date of March 29th is to start $600 payments, not to cut off eligibility. This seems to be a serious error.

(Federal guidelines for the law are copied below for reference.)

CARES FPUC Guidelines:
C. Operating Instructions.
1. Eligibility for FPUC.
For an individual to receive FPUC, the applicable state must have a signed agreement with the Department. FPUC is payable to individuals who are otherwise entitled under state or federal law to receive regular UC for weeks of unemployment (including Unemployment Compensation for Federal Employees (UCFE)and Unemployment Compensation for Ex-Servicemembers (UCX)). FPUC is also payable to individuals receiving the following unemployment compensation programs: PEUC, PUA, EB, Short-Time Compensation (STC), Trade Readjustment Allowances (TRA), Disaster Unemployment Assistance (DUA), and payments under the Self-Employment Assistance (SEA) program. A number of state laws include provisions extending the potential duration of benefits during periods of high unemployment for individuals in approved training who exhaust benefits, or for a variety of other reasons. Although some state laws call these programs “extended benefits,” the Department uses the term “additional benefits” (AB) to avoid confusion with the Federal-State EB program. FPUC is not payable to individuals receiving AB payments.
2. FPUC Eligibility and Relation to Other Types of Benefit Payments.
Individuals receive FPUC payments concurrently with payments under those programs identified above. Refer to UIPL 14-20, Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 –Summary of Key Unemployment Insurance (UI) Provisions and Guidance Regarding Temporary Emergency State Staffing Flexibility, issued April 2, 2020, for additional information on how FPUC interacts with other programs authorized under the CARES Act.States that are unable to immediately pay benefits the week following the execution of the agreement with the Department to operate the program must provide retroactive payments to individuals eligible for FPUC for the weeks they would have been entitled.

https://wdr.doleta.gov/directives/attach/UIPL/UIPL_15-20_Attachment_1.pdf

Here is the full UIPL 14-20 —
https://wdr.doleta.gov/directives/attach/UIPL/UIPL_14-20.pdf

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Tips

SBA Issues New Guidance on Calculating Max PPP Loan Size

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From the American Bankers Association at 8:52 am on April 25th:

With the Small Business Administration reopening its E-Tran system for Paycheck Protection Program applications on Monday morning, SBA last night issued guidance to help borrowers and lenders calculate and document the maximum PPP loan amount a business may be eligible for. The guidance covers several situations about which lenders have sought clarity.

The guidance addresses calculations and documentation requirements for applicants that are:

  • Self-employed with no employees.
  • Self-employed with employees.
  • Self-employed farmers who report income on Schedule F.
  • Partnerships.
  • Subchapter S and C corporations.
  • Nonprofit organizations.
  • Eligible nonprofit religious organizations, veterans’ organizations and tribal businesses.
  • Limited liability company owners.

“Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules,” SBA added in the guidance. “The U.S. government will not challenge lender PPP actions that conform to this guidance and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the time.”

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Illinois, Tips

Self-Employed To Begin Receiving Unemployment Benefits May 11

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UPDATE MAY 11 — see new post here:
http://www.thedancingaccountant.com/?p=1611

Many of my clients are self-employed (they file Schedule SE to pay payroll taxes on their income tax returns, rather than receiving a W-2 as an employee), and therefore are not required to pay into the state’s unemployment fund at the Illinois Department of Employment Security. This also means that they are not allowed to draw on the unemployment system.

However, with the current pandemic raging, the government recognized that these folks need the same safety net the rest of society can count on, and states were instructed to make benefits available to them.

There were a few problems with that. Although the federal government instructed states to cover self-employed people — this includes sole proprietors who have employees, as well as folks who don’t think of themselves as running a business: gig workers, independent contractors, and those performing odd jobs for a living — it unfortunately did not give states any guidance, budget or other resources for how to make that happen.

First-off, keep in mind that unemployment claims have skyrocketed. In one month, IDES has received more claims than in all of 2019. Staff are overworked, and being asked to come into an office instead of working from home, because data security issues have always required it. Many folks have become sick and had to take time off, or are struggling with childcare issues due to schools being canceled.

Then take into account the fact that most state unemployment computer systems are ancient in terms of technology. Many are actually written in COBOL, a language in wide use in the 1960s. So when these programs break, there aren’t a lot of software developers around who can fix them — to the extent that IBM is actually offering free COBOL classes to computer programmers (even beginners) in hopes they can help out some of these agencies. It’s already hard enough to work with these legacy systems… but reprogramming them to accept an entirely different application, documentation and workflow (self-employed people don’t have paystubs or W-2s to prove income) is a huge overhaul project in itself. (Which they don’t have time to do because claims have skyrocketed, they are overwhelmed, and understaffed.)

Furthermore, the staff working at state unemployment agencies aren’t trained to review this new documentation, or to make calculations as to the amount of benefits to which they’re entitled. Reviewing tax returns is simply not the same as reviewing paystubs and W-2s, and this will take some time — new rules will have to be devised, new procedures created, and then employee training will have to occur… all while a pandemic rages and folks are (see above) overwhelmed and understaffed.

So when I read comments like that of Morgan Ione Yeager from Highland Park, who is “appalled and disgusted” by the delays and claims, “there’s no reason why it needs to be this difficult,” I can’t help but wonder what she knows, about software programming and benefit calculation training while being overwhelmed with an unprecedented number of current claims and working onsite with insufficient protections… that I don’t.

Which is to say — this situation is indeed horrible, and difficult, and sad. But please remember these are human beings trying to make this happen.

Enter some good news. An entirely new system specific to self-employed workers is being written in a period of weeks in order to have things up-and-running as soon as possible, with benefits rolling out around May 11th, reports the Chicago Sun-Times.

In addition to the new system, other “upgrades include: recruiting retired IDES employees to come back to work; boosting IDES’ phone system capacity by 40% plus extending daily call center hours; opening another call center with 200 employees’ and hiring consultants to overhaul and build new IDES platforms.”

In the meantime, I recommend you continue to watch the news and the IDES site — please check it no more than once-a-day, to reduce the load and make it easier for others applying for benefits — and be ready with whatever you have that can support your calculation of your annual income, such as a tax return, 1099-MISC forms you have received for work performed, or a statement print-out of earnings from the company for whom you are a contractor. You may wish, as a former administrative law judge for IDES has recommended, to write a letter with the initial date you stopped receiving income and attempted the unemployment application submission, just to make sure you have backup illustrating you began the process (to me, this seems like it would clog the system up further, but if there’s any concern about your claim not being honored, it seems like a reasonable approach).

For more information on how unemployment benefits vary so widely from state-to-state, check out this great article. The number of complicating factors involved makes apples-to-apples comparisons almost impossible.

And… if you’ve got some free time on your hands and are interested in a career change, don’t forget about those free COBOL classes.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

IRS, Tips

IRS Stimulus Check Tools & Resources

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UPDATE 4/24: Reported by a client — and tested independently: YOU MUST ENTER YOUR EXACT ADDRESS AS IT IS LISTED ON YOUR TAX RETURN TO GET ANY OF THE TOOLS TO WORK.
E.g., if your return abbreviates “Drive” as “DR” or “Dr.” or “Drv”… this will make a difference. Be sure to type the address into the tools exactly as it is represented on your most recent tax return.

UPDATE 4/27: The IRS made significant improvements to the “Get My Payment” system this past weekend and asks those who had issues with it before to please try again.

UPDATE 4/27: When the system asks you to enter your refund from a prior year (to confirm identity), they mean the actual amount disbursed to you — not the amount rolled forward to your quarterly taxes.

UPDATE 4/29: On an NATP webinar today, I learned that there’s no auto-formatting in any of the IRS tools — you must enter dashes in your SSN and slashes when entering dates.

The stimulus checks are on their way, and have already found themselves popping up in bank accounts across the country. Here are a few tools you can use to calculate how much you should expect to receive, and to inform the IRS of your bank account information for direct deposit.

How Much Is My Stimulus Check Going to Be?

Forbes has put together a nice little calculator for you. They also do a good job of answering some common questions and explaining the source of info the IRS will use for its calculations:

For those who have filed their 2019 taxes, they will be used to determine eligibility. For those who have not filed 2019 returns, their 2018 tax returns will be used. Those who receive Social Security (either retirement or disability) but didn’t file a return in 2018 or 2019 (because they earn too little to be required to file), will also receive stimulus checks, based on the information sent to the IRS on 2019 forms SSA-1099 and RRB-1099.

Do not just presume that you aren’t entitled to a payment because you think you made too much money. For one, the stimulus check amount gets phased out over a wide range of income — it’s not like it just cuts off if you made over a certain dollar amount. Secondly, some folks think they made too much because of W-2 or investment income, but various deductible losses actually brought the adjusted gross income (AGI) below the required limit. So go check on it, and update your bank information (below) with the IRS just to be safe.

When Will My Stimulus Check Arrive?

Hopefully it will arrive via direct deposit in the next couple of weeks. But you don’t have to guess — you can look up the status on “Get My Payment“, a new IRS tool which will also allow you to enter direct deposit information if you have not already been getting refunds in that manner. Again, Forbes is doing a great job reporting on this — they actually walk you through the process on the website step-by-step with screenshots.
Note: Be sure to type all information, including the address abbreviations, exactly as it is represented on your most recent tax return. Use dashes in your SSN and slashes in your dates.

How Do I Update My Direct Deposit Information with the IRS?

If you’re a regular filer and you simply have been receiving paper checks or rolling your refund forward — and therefore do not have direct deposit information on-file with the IRS — simply use the “Get My Payment” tool I just mentioned above. Here are instructions on how to update your bank information using that tool.
Note: Be sure to type all information, including the address abbreviations, exactly as it is represented on your most recent tax return. Use dashes in your SSN and slashes in your dates.

If you haven’t filed a return because you’re below the income limits or you receive veterans benefits, then use the tool the IRS designed specifically so you can get your stimulus check. More info on that tool here, including situations when you should or should not use it.
Note: Be sure to type all information, including the address abbreviations, exactly as it is represented on your most recent tax return.

Social Security and Railroad Retirement Benefits recipients will receive their stimulus check automatically — no need to use either of the above resources.

What If I Got My Refund Via A Loan Or Advance?

The IRS will either direct deposit your money or send you a check, depending on whether or not your underlying bank information was transmitted to them with your tax return. More info on that here.

What if I Am A Dependent? What If My Kid Lives With Me But Is Not A Dependent?

The first question is easy: dependents aren’t eligible for these payments. Parents get an additional $500 per child instead. Unless (second question)… they’re over 16. Another Forbes article here commiserates with those in this situation.

The IRS is updating its FAQ regularly, so check back if you don’t initially find the answer to your question.

And you know what they say: don’t spend it all in one place.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Illinois, Tips

Student Loan Relief for Illinoisans

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New financial relief for student loan borrowers who were not covered under the federal CARES Act was announced by Governor JB Pritzker:

“Under this new initiative, Illinoisans with commercially-owned Federal Family Education Program Loans or privately held student loans who are struggling to make their payments due to the COVID-19 pandemic will be eligible for expanded relief. Borrowers in need of assistance must immediately contact their student loan servicer to identify the options that are appropriate to their circumstances. Relief options include:

– Providing a minimum of 90 days of forbearance
– Waiving late payment fees
– Ensuring that no borrower is subject to negative credit reporting
– Ceasing debt collection lawsuits for 90 days
– Working with borrower to enroll them in other borrower assistance programs, such as income-based repayment.”

To find out if you qualify for this relief, please contact the U.S. Department of Education’s Nation Student Loan Data System at NSLDS.ed.gov or 1-800-433-3243 for questions about federal loans. For private loans, please contact your lending company directly.

You can find more information on this program at https://coronavirus.illinois.gov/s/student-loans.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, Illinois, Site News, Tips

Small Business PPP Frustrations – Interview with Block Club Chicago

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I was honored to be interviewed for and quoted by Block Club Chicago in their article entitled, Chicago Small Businesses Shut Out Of Federal Government’s Loan Program. (It was especially interesting to be surrounded unexpectedly by some beloved clients and former clients in the same article.)

Of course, no article can publish more than a few words here or there by any one person, so I’m sharing the entire email interview Q&A here on my blog. Feel free to quote me.

What’s it been like to be a small business accountant this last month? Are you inundated with calls and emails? 

Absolutely. The questions started right after the Families First Act came out on March 18th, with confusion about the requirement to offer paid sick and family leave, and how to get reimbursed by the government for it. Then the CARES Act came out on March 27th – and it’s been a more-than full-time job since then. Just the research and analysis portion is many hours per day… and responding to clients, writing blog posts and email blasts, and helping people with calculations has made it even busier than tax season usually is (which of course I’ve fallen behind on due to all of this).

It’s been impossible to get back in touch with everyone – there just aren’t enough hours in the day – so I decided on April 3rd to start offering a free daily Zoom Q&A for any client who’s interested, since so many people are asking the same questions, and we can all learn from each other’s experiences. That’s been a huge help, and has led to my doing similar sessions for other groups, like the Logan Square Chamber of Commerce, various professional accounting organizations, and hopefully soon, a Town Hall with our State Rep, Will Guzzardi.

There’s just so much misinformation out there caused by poor guidance, regulations that make no sense, and some terribly-written legislation that is so vague, it creates more questions than it answers. Add to that the panic everyone is feeling, and you get a lot of rumors. Dispelling those and clarifying what’s what has felt like the best way to contribute to the small business cause. I’ve decided not to charge any of my clients for work on COVID-19 relief resources, with the idea that keeping these businesses alive should be my main goal, or the fabric of the Logan Square community I’ve called home for over 20 years will be ripped apart. I don’t want the chains – those with capital to survive this period – to swoop in after all the small businesses disappear. We’ve got to do everything we can to keep them going.

What percentage (roughly) of small business owners who you work with are getting grants — city or federal — right now?

Among my clients, these are the stats:

EIDL – 5% of applicants
PPP – 6% of applicants
Chicago Resiliency Fund – 0% of applicants; in fact I don’t know anyone who has received anything from this fund, which was supposed to be a bridge loan until you could get other relief.
IL Hospitality Grant – 0% of my clients who applied; though I know in actuality the number is closer to 5% overall.

To clarify, there are other sources for relief that do not require an application and approval, such as the Employee Retention Tax Credit, or the Payroll Tax Deferral Program – both of which an employer claims on their payroll tax return; but this requires that they are still paying their employees and does not account for those who do not have sufficient revenues or savings to make that happen.

Have any of the small business owners you work with gotten the PPP loan?

Yes, one was already funded, and two more have signed with confirmations from their bankers that the money is on the way. A couple were in the 72-hr waiting period and lost it. This is out of nearly 70 applications, that we spent the past three weeks preparing. I’m seeing similar low percentages among colleagues’ clients.

UPDATE: as of April 19, a total of five of my clients received funding.

Has the PPP loan been a source of frustration among small business owners you work with?

I don’t mean to be rude, but this is an almost laughable question. At least, it would be if everything hadn’t ground to a halt yesterday, leaving hundreds of thousands of applications stranded, and along with that, many businesses that may have to declare bankruptcy. I haven’t slept for two nights because of it. A dear friend is a Senior VP at a major bank and she shared the news of the funding running out the second it came to her. She said that is was among the worst days of her career – so much anguish and angst for their customers, so many people waiting for fund replenishment, irate and desperate clients full of ire and threats, and her own emotional exhaustion and anxiety through the roof. She said – and this rings so true for me as well – “It’s not my fault, but it is my problem, and I can’t fix it”.

But even before the funding ran out, there were so many sources of frustration:

  • There were no templates or calculations released by the SBA, and the regs and guidance were so vague that multiple rounds of guidance were released. The most recent was named the “Second PPP Interim Final Rule”, if that gives you any sense.
  • Bankers were so busy at their jobs that they couldn’t take three hours a day to do continuing education from the daily guidance their companies and the SBA/Treasury were releasing; this caused them to give inaccurate guidance to their customers, who would go to their accountants for help, and find that not even their accountants necessarily knew all the rules. And when they did, they’d have to go back-and-forth and accountants would effectively train their clients’ bankers on the regs.
  • Banks are required by the federal government to follow “Know Your Customer” and “Anti-Money-Laundering” rules, which made it almost impossible to take care of anyone who wasn’t a current customer. This had small business owners freaking out, if their bank was slow to respond and they tried looking elsewhere. Congress tried to tell banks not to do this, but the courts allowed it, since it was precisely because banks were trying to follow the previously-existing federal regulations set upon them.
  • Banks said they were processing applications in order, but that turned out to be a bald-faced lie for some. I know of folks who applied with Chase for example, on the same day, and one had their money in-hand by the 15th, whereas others were still waiting to hear back from anyone, their applications presumably sucked into a black hole.
  • There was a big exception that I see as a loophole in the law: allowing anyone in the hospitality industry to consider EACH LOCATION as separate – meaning a restaurant group or chain could apply for the $20M maximum for each of their locations, effectively giving big companies a major opportunity to grab funding meant for small-to-medium businesses.
  • I think perhaps most frustrating, though, was that it’s clear that companies with capital and resources hired attorneys and accountants to jump on this the second it came available. These bigger companies have bigger payrolls and therefore were more likely to request the full $10M per location (as opposed to about $20-50K per each of my clients). They also tend to have existing relationships with banks, such as a business Line of Credit, so they had a real person they could call and get in line immediately. They used up the funding, leaving little left for those without the resources to apply immediately.

Check out these stats on PPP funding compiled by a couple of my colleagues, and you’ll see how the average loan went down over time, supporting the theory that those with resources applied first, were approved first, and were granted more money.

UPDATE: Further analysis shows how differently each state was treated with regard to PPP funding as a percentage of the eligible payroll population, and how small businesses received 74% of the loans, but only 17% of the funds. 70% of the loans were made in amounts greater than $350,000, and the average loan was over $200,000. In fact, the biggest 14 lenders, according to the SBA, had average loan amounts well over $200,000, with the biggest lender of all reporting average loans of $515,000.

Do you have any advice for small business owners right now?

Yes, quite a few suggestions:

  1. If you still have staff you’re paying, I recommend taking advantage of the Employee Retention Tax Credit that you get by reducing your required regular payroll deposits, and applying for the balance on Form 7200. I know that Gusto (my favorite payroll company) is helping many of its clients through this process, which provides immediate cash in the form of payroll tax payments that don’t have to be made (in essence an advance on the credit). Treasury was initially telling us that you could not do this and PPP at the same time, but it turns out they are working on a way for folks to take advantage of ERTC and simply have it deducted from the PPP forgiveness should the business end up with PPP funding.
  2. Payroll Tax Deferral – similar to the above, in the sense that you only benefit from this if you have staff still on payroll (or yourself if you are a shareholder-employee), but this one is just a delayed payment of the employer portion of Social Security taxes. Again, I know Gusto is doing this for their clients on request. And again, guidance initially indicated that you couldn’t do this and PPP, but has since indicated that you can defer these payroll taxes until the end of the PPP forgiveness period, and the original due dates for the deferment will stick. More info here:
    https://www.akerman.com/en/perspectives/interplay-between-paycheck-protection-program-loans-and-payroll-tax-provisions-under-ffcra-and-the-cares-act.html
  3. EIDL – the Economic Injury Disaster Loans are still an option. Only the advance is forgiven, and there’s no way to know how much of an advance you’ll get (though in general it seems to line up with $1K per employee), but if you need cash, you should apply. If you request $25K or less, there’s no personal guarantee or collateral required.
    (Note: since the writing of this, EIDL funding has also been exhausted, but is likely to be replenished with the upcoming relief bill expected to be signed April 23rd.)
  4. Regarding the PPP:
     – Get your PPP application in order if you do not already, and ask around to other small businesses who did get funded to identify a bank that has more of a success rate than others. Have everything ready-to-go the second that the PPP receives more funding. Keep in mind that the SBA has said that they are not maintaining a queue of applications that were submitted to them by banks. There is no saying whether your banker will keep your place in-line internally, either. So be ready just in case you have to resubmit your application. I have quite a few resources and a checklist on my blog at http://www.thedancingaccountant.com
     – Similarly, work with your accountant to establish a plan for tracking the loan for forgiveness, so you have everything set up properly from the moment the funds are received. Make a plan to structure your forgiveness-period payroll to ensure the maximum amount of the loan will be forgiven.
     – And make sure you have a business checking account! Some folks are using personal checking accounts for their business – these rules about this changed four years ago, but some were apparently grandfathered in, and these small business owners are finding that the banks will not even consider their applications as a result – even though they’ve been banking there for ages. The banks are prohibited from depositing PPP funds into a personal account.
  5. If you haven’t already, start redefining your business model now. Even once the stay-at-home order is lifted, it might be quite some time before people are comfortable shopping or dining or drinking out. Research alternative models; ask around as to what other businesses are doing; investigate new revenue streams.
    Some examples: online sales, pairing with other businesses to deliver/ship care packages, going to a 100% take-out model with a contactless pick-up window, having staff take care of customer ordering and deliveries instead of GrubHub or Caviar, increasing your marketing and social media presence and improving the website, offering in-demand products along with your usual offerings, such as groceries or alcohol, teaming up with your local Chamber of Commerce to establish a virtual neighborhood store, etc.
  6. Go on unemployment. If you’re no longer able to pay yourself, or you’re paying yourself a substantially reduced salary, you may be eligible. Shareholder-employees are already eligible (they receive W-2s from their own companies and have been paying into the system all along), and hopefully in a few weeks we’ll see sole proprietors and partners in partnerships able to apply. (IDES is simply not set up to receive their applications yet, as they need totally different information than W-2 employees. Neither their systems nor their staff have the ability to accept this info yet.)
  7. Remember that there is currently no 10% penalty for withdrawing retirement funds – if you feel confident that you can survive this period but need cash now to do it, consider accessing those accounts now.
  8. Cash flow forecasting is something I wish all small businesses did, but they don’t. Consider working with your accountant to build a cash-flow projection system to figure out how to get through this. CashFlowTool.com is a great resource, and they offer free webinars on how to forecast, if you don’t have a professional you can go to.
  9. And I know this sounds insane… but try to take moments, tiny little vacations, away from your anxiety. I have to tell myself this every day. There is so much that is out of our hands; we have to work on the things over which we have control, and try to let go of what we don’t. The world isn’t working the way we want it to, or maybe even thought it did. For a lot of us, that’s a shock, and the emotional weight of that can pull us down. To survive this, we’ll need to shake off the anxiety and plan for a brighter future.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, IRS, Tips

How To Calculate Sole Proprietor “Payroll” For PPP Loans

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IMPORTANT UPDATE: SINCE THE ORIGINAL PUBLISHED DATE OF THIS BLOG POST, FURTHER GUIDANCE FROM TREASURY HAS BEEN RELEASED. DO NOT FOLLOW THE INSTRUCTIONS BELOW — THIS POST IS OUTDATED. I HAVE FOUND THIS COLLEAGUE’S WRITE-UP WORTH READING INSTEAD — AND I RECENTLY RECORDED A FREE WEBINAR ON HOW TO APPLY.

Note: this post is about sole proprietors — those filing Schedule C on their personal tax returns, whether or not they have employees. For information on partners in partnerships (who are also considered self-employed for the purposes of the PPP), please see this post instead.

There has been so much back-and-forth and conjecture and guidance on how to calculate W-2 payroll for purposes of the PPP loan, but very little on the subject on how to include self-employment income in these calculations. The reason is that sole proprietors (single-member LLCs, independent contractors, gig workers, and anyone else who files Schedule C) are by law prohibited from paying themselves as an employee, through a payroll system. They therefore do not receive W-2 forms and are not included in quarterly “941” payroll reports.

The key here is that this is a “Paycheck Protection Program” — the goal is to keep people working instead of going onto the unemployment rolls. Why? Because it’s better for 1) business owners, 2) workers, and 3) the economy. Business owners are able to keep their companies afloat in a challenging environment (to put it mildly), continuing to produce products or services and maintain revenues at some level; workers generally earn more in their jobs than on unemployment (and if not, this means they are low-paid workers and probably deserve a raise for hazard pay); and the economy of course benefits because companies spend money on their vendors and landlords, and individuals spend their money on other products and services, and all of this helps to keep other businesses going, too.

So what constitutes a “paycheck” if you aren’t allowed to be on payroll?

The key here is “payroll taxes” — which are the portion of taxes that go to Social Security and Medicare programs, often known as FICA. Employees have 7.65% of each paycheck withheld for these purposes (and their employers match this amount for a total of 15.3%). Sole proprietors, on the other hand, pay estimates quarterly toward this and other taxes, and reconcile them on their annual personal tax return, using Schedule SE (Self-Employment) to calculate “self-employment tax”. This tax is the same as “payroll tax” for employees — with the painful added cost of having to pay both sides of the tax… the employee 7.65% and the matching 7.65% as they are their own “employer”. (Yes, ouch. Being self-employed is expensive.)

All net income earned by a sole proprietor is taxed for self-employment/payroll tax purposes, regardless of whether that income was pulled out of the company in the form of a draw. This amount flows through from Line 31 of Schedule C onto the Schedule SE.

So, based on the above perspective, I have been suggesting that sole proprietors should take the amount on Line 4 from Schedule SE on their personal tax returns to substantiate the amount of income from their business on which they paid “payroll taxes”. And to clarify: this is still the easiest approach for most people!

But here are the potential problems with that approach for some. If you fall into one of these groups, then keep reading for an alternative method:

  • Tax deadlines have been moved to July 15th — for many small businesses, preparing their books for taxes is the last thing on their minds, and CPAs such as myself are scrambling to help their clients apply for relief, so we’re behind on the returns from folks who have found time to submit their info. As such, many sole proprietors simply don’t have their personal returns yet.
  • Some sole proprietors have self-employment income from other businesses as well, such as a partnership or another Schedule C sole proprietorship business activity. Well, Schedule SE adds all businesses together. Guidance has not been forthcoming here, but it is likely that those in this situation will need to apply for PPP separately for each business — or at least the businesses that also have employees.

If you are in the first of those situations — no tax return yet — Treasury regulations allow you to use a reconciled Profit & Loss from your bookkeeping software to calculate these totals. (Make sure your banker knows this, as I have had some requiring 1099-MISC forms as substantiation, which is nothing short of ludicrous for many reasons — I won’t go into that here, as this post is plenty long already.) You would in this case simply take the final row, Net Income, and multiply by 92.35% to back out the employer portion of self-employment tax, as Treasury regulations for the PPP do not allow the employer portion of payroll taxes to be included in the calculation.

For sole proprietors in the latter of these situations (multiple businesses), here’s what you can do instead:

  1. Pull up each Schedule C for which you have employees and multiply Line 31 by 92.35% to back out the deductible portion — which is the Employer part of self-employment tax. (Treasury regulations for the PPP do not allow the employer portion of payroll taxes to be included in the calculation.) You can apply for a PPP loan for each one of these businesses separately. The reason you’ll have to do each one separately is that you also need to include the payroll for your staff in the calculation.
  2. Do the same for each of the other Schedule C businesses for which you do NOT have employees. Add all these together and apply for one PPP loan. There is no need to apply for each one separately.
  3. If you have self-employment income from a partnership, apply for a PPP for each partnership separately. If you have employees, add it to that partnership’s application. If you do not, apply for each one separately in your capacity as a self-employed partner. See this post for more guidance on partnership “payroll”.

If you already submitted an application and did not use the correct period or amounts, it’s by no means too late. Based on recent clarifications by the SBA and Treasury, you will be given an opportunity to revise your application — just explain the situation to your banker. It’s only “too late” once your application has already been approved — and in that case, Treasury says anything submitted based on older guidance is still considered accurate as long as it was consistent with the rules in place at the time of the application.

Keep in mind that this is only my personal interpretation of the Treasury regulations concerning what constitutes “payroll” for the purposes of the PPP, and ultimately your banker or lender will be the person with final authority on the matter. However, the Treasury is clear that they will allow lenders to rely on borrowers’ representations. Furthermore, the American Bankers Association is still in the process of seeking SBA and Treasury clarification for many issues, and as they receive it, they have to communicate it to member institutions, who then have to pass it along to the bankers themselves — who are overworked and have scarce little time for daily continuing education. You can do a favor for your banker by organizing your calculations and documents in such a way as to make their job easier, especially if you include a brief note explaining why you used the data you did, and as in middle-school math class: always show your work.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.

Education, IRS, Tips

How To Calculate Partner “Payroll” For PPP Loans

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IMPORTANT UPDATE: SINCE THE ORIGINAL PUBLISHED DATE OF THIS BLOG POST, FURTHER GUIDANCE FROM TREASURY HAS BEEN RELEASED. DO NOT FOLLOW THE INSTRUCTIONS BELOW — THIS POST IS OUTDATED. I HAVE FOUND THIS COLLEAGUE’S WRITE-UP WORTH READING INSTEAD, AND I RECENTLY RECORDED A FREE WEBINAR ON HOW TO APPLY.

Note: this post is about partners in a partnership — those filing Schedule SE on their personal tax returns due to flow-through income from a Form 1065 K-1. For information on sole proprietors (who are also considered self-employed for the purposes of the PPP), please see this post instead.

There has been so much back-and-forth and conjecture and guidance on how to calculate W-2 payroll for purposes of the PPP loan, but very little on the subject on how to include partner income in these calculations. The reason is that partners in a partnership (or, more commonly, multi-member LLC taxed as a partnership) are by law prohibited from paying themselves as an employee, through a payroll system. They therefore do not receive W-2 forms and are not included in quarterly “941” payroll reports.

The key here is that this is a “Paycheck Protection Program” — the goal is to keep people working instead of going onto the unemployment rolls. Why? Because it’s better for 1) business owners, 2) workers, and 3) the economy. Business owners are able to keep their companies afloat in a challenging environment (to put it mildly), continuing to produce products or services and maintain revenues at some level; workers generally earn more in their jobs than on unemployment (and if not, this means they are low-paid workers and probably deserve a raise for hazard pay); and the economy of course benefits because companies spend money on their vendors and landlords, and individuals spend their money on other products and services, and all of this helps to keep other businesses going, too.

So what constitutes a “paycheck” if you aren’t allowed to be on payroll?

The key here is “payroll taxes” — which are the portion of taxes that go to Social Security and Medicare programs, often known as FICA. Employees have 7.65% of each paycheck withheld for these purposes (and their employers match this amount for a total of 15.3%). Partners, on the other hand, pay estimates quarterly toward this and other taxes, and reconcile them on their annual personal tax return, using Schedule SE (Self-Employment) to calculate “self-employment tax”. This tax is the same as “payroll tax” for employees — with the painful added cost of having to pay both sides of the tax… the employee 7.65% and the matching 7.65% as they are their own “employer”. (Yes, ouch. Being self-employed is expensive.)

For self-employment tax purposes, both guaranteed payments to partners for services and their ownership-percentage allocation of net income are included.

Initially, many of us assumed that only guaranteed payments qualified as “payroll” for the PPP calculation, as these are in theory the amounts paid for services rendered. However, many partnerships do not use guaranteed payments, and instead split all of the profits (for various reasons, including increasing the Sec 199A deduction). Since all income to an active member of a partnership is taxed for self-employment/payroll tax purposes, it should not matter whether it is due to guaranteed payments or an allocated portion of net income — that is a distinction left to the partnership agreement and says nothing about whether it is “payroll” for these purposes or not.

So, based on the above perspective, I have been suggesting that partners take the amount on Line 4 from Schedule SE on their personal tax returns to substantiate the amount of income from the partnership on which they paid “payroll taxes”. And to clarify: this is still the easiest approach for most people!

But here are the potential problems with that approach for some. If you fall into one of these groups, then keep reading for an alternative method:

  • Tax deadlines have been moved to July 15th — for many small businesses, preparing their books for taxes is the last thing on their minds, and CPAs such as myself are scrambling to help their clients apply for relief, so we’re behind on the returns from folks who have found time to submit their info. As such, many partners simply don’t have their personal returns yet.
  • Some partners have self-employment income from other businesses as well, such as another partnership or a Schedule C sole proprietorship. Well, Schedule SE adds all businesses together. Guidance has not been forthcoming here, but it is likely that those in this situation will need to apply for PPP separately for each business — or at least the businesses that also have employees.

So for partners in either of these situations, here’s what you can do instead:

  1. Pull up your client copy of the 2019 partnership tax return — Form 1065.
  2. Scroll down to the K-1 forms — there’s one set for each partner.
  3. Line 14A of each of the K-1 forms shows self-employment earnings for each partner. This includes guaranteed payments as well as the flow-through portion of net income.
  4. Take that amount and multiply it by 92.35% to back out the deductible portion — which is the Employer part of self-employment tax. Treasury regulations for the PPP do not allow the employer portion of payroll taxes to be included in the calculation.

In a partnership where all partners are actively working for the company — rather than one or more being silent investors — you’ll see that the total of Line 14A for all partners, equals Form 1065, Line 10 (Guaranteed payments to partners) + Line 22 (Ordinary Business Income).

However, if you have investor-partners, these folks usually are allocated their ownership-percentage of net income on which they do not pay self-employment taxes. And because they do not work for the business, they also will not receive guaranteed payments (which are also taxable for self-employment purposes). Therefore they are not eligible to apply for the PPP, and these amounts should not be included in the calculation. This is why I suggest sticking to Line 14A of the K-1 schedules, rather than using the amounts from the front of the 1065.

And if you are one of the unlucky partners whose 2019 1065 partnership return is still on extension, and therefore does not yet have a Schedule K-1, Treasury regulations allow you to use a reconciled Profit & Loss from your bookkeeping software to calculate these totals. (Make sure your banker knows this, as I have had some requiring 1099-MISC forms as substantiation, which is nothing short of ludicrous for many reasons — I won’t go into that here, as this post is plenty long already.) You would in this case simply add together the row for Guaranteed Payments and the final row, Net Income, and multiply by 92.35% to back out the employer portion of self-employment tax, as mentioned above. Again, if you have any silent investors, you would need to back out their percentage portion of net income.

If you already submitted an application and did not use the correct period or amounts, it’s by no means too late. Based on recent clarifications by the SBA and Treasury, you will be given an opportunity to revise your application — just explain the situation to your banker. It’s only “too late” once your application has already been approved — and in that case, Treasury says anything submitted based on older guidance is still considered accurate as long as it was consistent with the rules in place at the time of the application.

Keep in mind that this is only my personal interpretation of the Treasury regulations concerning what constitutes “payroll” for the purposes of the PPP, and ultimately your banker or lender will be the person with final authority on the matter. However, the Treasury is clear that they will allow lenders to rely on borrowers’ representations. Furthermore, the American Bankers Association is still in the process of seeking SBA and Treasury clarification for many issues, and as they receive it, they have to communicate it to member institutions, who then have to pass it along to the bankers themselves — who are overworked and have scarce little time for daily continuing education. You can do a favor for your banker by organizing your calculations and documents in such a way as to make their job easier, especially if you include a brief note explaining why you used the data you did, and as in middle-school math class: always show your work.

If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.