From the IRS e-News for Small Business Issue 2020-13 today, a note encouraging businesses to use a new fax line to file Form 7200. The IRS still is ramping up staff and catching up departments post-quarantine, so in order to get your advance payment as quickly as possible, please follow their instructions and use the dedicated fax line.
(If you are working with a payroll company who is filing Form 7200 for you, confirm they are taking care of it — do not simply assume. I’ve already come across two companies so far who won’t do it. Time to switch payroll companies, in my opinion.)
IRS Form 7200 fax line: Employers use Form 7200 to request an advance payment of the tax credits for qualified sick and qualified family leave wages and the employee retention credit. The employer tax credits for qualified sick leave wages and qualified family leave wages apply to those wages paid from April 1, 2020, to December 31, 2020.
Businesses should fax the completed form to 855-248-0552.
Due to scheduled maintenance, the 7200 fax line will be unavailable from August 7 at 10 p.m. to August 8 at 7 a.m. ET.
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IMPORTANT: This blog post is now out-of-date due to new guidance released on April 6th — see new post here.
The most recent interim guidance for the Payroll Protection Program makes a few vague and misunderstood items clearer… and creates some new issues in the process.
Independent contractors do not count as employees for PPP loan calculations or loan forgiveness.
All federal employment taxes, including employee’s federal income tax withholding and both employer and employee’s share of FICA from February 15, 2020-June 30, 2020 are excluded from “payroll costs”.
This means that businesses are eligible for loan forgiveness based on the after-tax pay to employees (after FICA and income tax are withheld), not the gross pay made by the employer.
This exclusion applies only during the Feb. 15, 2020-June 30, 2020 period, which seems to imply that borrowers do not have to deduct employee income tax withholding and FICA when calculating the loan amount from 2019 payroll costs, except to the extent total payroll costs exceeds $100,000 per employee (including FICA and income tax withholding).
Interest rate is 1.0%.
At least 75% of PPP loans proceeds must be used on payroll costs (whether or not used in the 8-week period eligible for forgiveness; and to be eligible for forgiveness such payroll cost must be paid during the 8-week period).
Borrowers knowingly using PPP loan funds for unauthorized purposes may result in additional liability, including fraud. In addition, if one of the borrower’s shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against that shareholder, member or partner.
Note in particular the bit about payroll taxes: as a result, a lot of folks could be caught by surprise due to the fact that the initial loan request amount is based on gross pay, and the loan forgiveness is based on net pay. Most of us are pretty sure this was not the law’s intent, but we have to work with the most recent regulations released by the Treasury.
This excellent template by Joey Brannon at Axiom takes the new regs into account and explains his analysis by referring directly to each passage in the most recent release. Keep in mind that if you use Gusto or ADP, they will have calculated much of this for you — just make sure to gut-check the results.
The Treasury has also released a PPP Fact Sheet (it’s a little vague, but relatively simple to follow).
Of course, the entire small business community, accountants, advisors, lawyers, banks and other lenders are all frustrated beyond compare that this calculation couldn’t have been standardized and applied consistently. My favorite tax writer, Tony Nitti at Forbes, wrote an excellent article in the form of an open letter to the Treasury Secretary that outlines everything we’re thinking and feeling (but more intelligently, backed up with data, and without swear words).
Furthermore, Gusto is getting push-back from some clients and lenders who disagree with the interpretation of the new regs, and they have released an updated report that allows users to choose either method of calculation.
Hopefully this is just a glitch that will be remedied in the next week, after the ten days of comments are up — but just in case, you may wish to have all employees go to 9 exemptions for those eight weeks, making up the under-withholding later in the year. (And it serves the dual purpose of getting cash into the hands of people now, rather than at tax-time.)
Are we having fun yet?
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.
