UPDATE: AICPA has partnered with a Fintech lender to create an online version of their forgiveness tool — www.PPPForgivenessTool.com — available free of charge. More on the project here. The spreadsheet below still works, and I personally prefer it, but the online tool is easier to use if you don’t already have background into how the PPP rules work.
My husband and I have collectively spent nearly 18 hours preparing, updating, editing and testing our PPP Forgiveness spreadsheet, as well as comparing it with colleagues’ versions… only to be stymied at every last moment — each time we were ready to “go live” with it, some new guidance, analysis or interpretation was released that had us going back to the drawing board. At this point I’m joking with my clients that it’s a mythical creation.
And it might have to stay that way — the AICPA has done such an incredible job with their version that I’m not sure we can do any better.
It’s not pretty, and it’s a bit clunky, and there’s no budget tool or FTE calculator included — but the logic is sound and it does a lot of the calculations for you. And they’ve made it public! Just scroll down to where it says “PPP loan forgiveness calculator“.
CPA Practice Advisor notes, “As the AICPA has emphasized throughout this process, questions surrounding guidance make critical decisions unnecessarily challenging and complex for PPP loan recipients and those who are considering applying for the program.” They created a loan forgiveness calculator last week that reflected both the latest SBA guidance and additional AICPA recommendations, and presented it to Treasury. Unfortunately that was not the version that became the final application (released this past Friday night).
“The AICPA loan forgiveness calculator provided more support and details than the SBA loan forgiveness application, and we will continue to encourage Treasury and SBA to leverage our recommendations,” said their VP of Firm Services.
So they reconciled their previous version with the forgiveness application, released it to the public — and you should use it.
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Because some politicians involved with the drafting of the forgiveness rules had been saying on twitter that a longer time-frame and more flexibility on how the funds can be spent were key to making the PPP more effective, we had been hoping for an application reflecting these characteristics — but it did not turn out that way. The entire thing at this point feels like “too little, too late”.
What Were Hoping For But Did Not Get (The Bad News)
An extension to the 56-day (8-week) forgiveness period (at least for restaurants, bars, cafes and other fully- or partially-closed businesses)
Simplified rules for FTE and salary/wage reduction calculations
EIDL advance funds used for non-PPP purposes exempt from forgiveness subtraction (per analysis by many colleagues, this is still the case; but on the application it is not apparent, and many banks will not understand the subtle distinctions)
What We Did Get (The Good News)
Unpaid rent and utilities from a period prior to forgiveness can be paid during the forgiveness period
Rent and utility payments made shortly after the forgiveness period can also be included, if for services during the 8-week timeframe
Forgiveness period — as it relates to payroll costs (including employer portion of health insurance and retirement) — can be delayed to coincide with the first pay period after disbursement
If an employee was fired, quit, or voluntarily had their hours reduced due to non-pandemic reasons, their FTE and salary/wages will not count against the employer
Safe harbor for salary/wage reduction (however, additional complicated calculations are required)
Safe harbor for FTE reduction (however, additional complicated calculations are required)
Clarification on various calculations (e.g., FTEs, forgiveness phase-out, and forgiveness reductions)
There is a lot more to unpack, of course, but those are some highlights. I recommend the following excellent articles for step-by-step explanations and analysis (no, I do not have any affiliation with Forbes — I just think they are writing some of the best material on the topic these days). Also, many thanks to colleague Andrea Carr CPA for preparing a Fillable Version of the SBA PDF Forgiveness Application.
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No, I have not analyzed it yet, and my birthday is this weekend, so please understand that I may not have feedback on it until Monday. (Unless it keeps me up all night obsessing over it.) Thanks for your patience!
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.
ABA Banking Journal reported last night that the SBA has updated its Payroll Protection Program FAQ confirming that PPP “borrowers who attempt to rehire employees that were laid off will not have their loan forgiveness amounts reduced if those employees decline the offer to return to work”.
The exact wording of FAQ #40 is here:
This is huge news for some of my clients who run restaurants, cafes, retail, and other types of businesses where working remotely is not an option, and where working conditions are cramped and staff are unable to maintain 6-foot social distancing. Understandably, some employees are hesitant to return to a job that puts their health and the health of their families and communities at risk, especially if those staff members or their loved ones are immuno-compromised.
There has been a lot of political talk about this situation, criticizing furloughed employees for this choice, but let’s all try to remember that the only folks making more money on unemployment are generally earning less than $45,000 annually — and these are the people we’re asking to put their lives in danger for our economic benefit. It’s not exactly a fair criticism, in my opinion.
That said, it certainly negatively affects the small business owners I serve, and I have been challenged by these dual needs pulling my heart in opposite directions, as I can empathize with both perspectives. The business needs to spend 75% of the PPP funds on payroll, and maintain 75% of the prior full-time-equivalent hours for their staff. So if staff are unwilling to return, then the entire PPP forgiveness is put at-risk.
This new FAQ lifts that burden for employers, which I applaud. It does make it clear that the unemployment benefits for those employees may be in jeopardy as a result, but at least the owner does not have to shoulder the burden of being the bad guy who reports them (at least, not according to this FAQ — state unemployment laws may have other requirements).
Two recommendations for business-owners who receive PPP funds and are challenged by this situation, where former employees do not want to return to a risky work environment because they are making enough on unemployment:
Offer returning staff a hazard-pay bonus to make it worth the risk. Obviously this isn’t an option for those who are immuno-compromised, since no amount of money is worth their life; but for everyone else, consider increasing their pay temporarily with weekly retention bonuses. This will increase company loyalty, help meet the 75% payroll rule for PPP forgiveness, and assist in rebuilding the business. You can easily set up a “Hazard Bonus” payroll item in your payroll software.
Point out to staff that returning to work will leave them additional unused weeks of unemployment pay for future use, if the business ends up having to close again after the PPP funds are exhausted.
Finally, some good news. Awaiting further guidance on PPP forgiveness and will be posting more as I learn more.
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Here is a list of documents to pull together so you have them ready for the application.
1) Articles of Incorporation (S-Corp or C-Corp) or Articles of Organization (Single- or Multi-Member LLC) – note: non-LLC sole proprietorships and partnerships may not have anything like this; they may have an Operating Agreement or Partnership Agreement that will suffice.
2) EIN Letter – almost every company has one of these at this point, as they are now required to open a business bank account; but if you are a sole proprietor who uses their Social Security number to file taxes and runs things through a personal bank account (not recommended), you may not have one.
3) Average monthly payroll calculation – seems like it would be easy, but it actually can be kind of complicated. I’m going to try to break it down.
a) 2019 calendar year. b) Most recent 12-month period before your loan application.
Most businesses will select either (a) or (b).
Pro tip: If you’re trying to get the highest loan possible, pick the period that is higher. If you’re worried about hitting 75% of your prior-year monthly average, pick the period that is lower.
c) Seasonal business that has its highest payroll this time of year: use info between February 15, 2019 and June 30, 2019. d) New businesses, or ones that expanded this year (i.e., FTEs and payroll were higher during the first part of 2020 than they were during the other acceptable reporting periods): use the alternative reporting period of Jan 1-Feb 15, 2020.
Second, if you use a payroll processor; and are on payroll yourself (S-Corp or C-Corp); and your health insurance, retirement and other benefits are tracked through your payroll system; then you should be able to simply run a report specific to the PPP through them. Change the date range if needed and you’re done with this step. (Yay!)
If you have employees (or you are an employee of your own company) but do not use a payroll processor, or your payroll processor doesn’t have this report for you, then you’ll have to calculate this yourself (and switch to Gusto as soon as this is over). Take the 12-month total for the period you chose above (if you’re using the 2019 calendar year, just take Box 5 from each employee’s W-2) and follow the steps in this article, under “How did you calculate my average monthly payroll costs?“
If you are a sole proprietor and do not have employees, then you have two options for calculating the average monthly “payroll”. Either take the amount on Line 3 on Schedule SE from your 2019 tax return, or take the Net Income from your reconciled QuickBooks Profit & Loss report for whichever date range you selected above. Add health insurance and retirement benefits. Divide by 12. (Make sure you attach the calculations when you fill out the application.)
Lastly, if you are a partner in a partnership and do not have employees, then you have two options for calculating the average monthly “payroll”. Take the amount on Line 3 on Schedule SE from each partner’s 2019 tax return, or use the company’s reconciled QuickBooks Profit & Loss report to find each partner’s Guaranteed Payments, plus their ownership percentage times the Net Income — this second method is complicated enough that you may want to reach out to your bookkeeper or accountant for assistance if you choose it. Add health insurance and retirement benefits. Divide by 12. (Make sure you attach the calculations when you fill out the application.)
Pro tip: If you’re trying to get the highest loan possible, pick the method that is higher. If you’re worried about hitting 75% of your prior-year monthly average, pick the method that is lower.
4) Payroll Reports – if you have employees. Print these payroll reports from Gusto or ADP (or whatever payroll provider you use).
2019 all four quarters:
IRS 941
IDOR IL-941
IDES 3/40
2020 first quarter:
IRS 941
IDOR IL-941
IDES 3/40
2019 annual:
IRS W-2s
IRS 940
5) Health insurance and retirement contribution invoices – to support info reported by your payroll software; you will probably not need these until you apply for forgiveness, but pulling them now will help ensure that you’re reporting the correct amount of benefits with your average monthly payroll costs.
6) SBA Borrower Application Form — not the “Lender” Form! I’ve had bankers give more than one client the Lender Form accidentally (which is the form the banker is supposed to fill out and submit with your application). Here’s a sample, which you may want to fill out while you’re waiting for the lender to contact you. However, it’s likely that they’ll make you fill out their own copy when the time comes.
7) Monthly Rent and Utilities – some lenders are also asking for this info in anticipation of eventually applying for forgiveness, but it does not figure into the calculation of your actual loan. The loan itself is simply 2.5 times your monthly average payroll cost. Also, remember that you will only be able to spend 25% of the loan on rent and utilities in order to have the loan forgiven.
That’s it! There you go. Easy peasy, lemon squeezy.
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.
