Saturday, August 8th is the last day to apply for Paycheck Protection Program funding.
As a reminder, the program is open to independent contractors, gig workers, sole proprietorships, partnerships, LLCs, S-Corps, C-Corps, cooperatives, and non-profits, among others.
This recent Forbes article summarizes the current state of the program. If you need assistance calculating the maximum loan based on your type of entity, see this blog post, which links to the SBA guidelines.
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.
PPP Forgiveness FAQ released only five days before SBA begins accepting lender applications
I was presuming (in this blog post) that the SBA set an initial date for accepting PPP forgiveness applications of August 10th because surely Congress would have something ironed out before they go on recess, and that these expected legislative changes to the program were the same reason for delaying release of their FAQ (yes, the one they have been promising for the past two months).
Surprise! The SBA FAQ was released late yesterday — I’ll be attending the AICPA Town Hall tomorrow and will post an update afterwards (maybe Friday), but in the meantime, here are the best articles I’ve found on the topic so far.
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.
The SBA announced a few days ago that they will begin accepting loan forgiveness applications from lenders as soon as August 10th — but don’t be too quick to apply.
“A big reason for these delays is that Congress is debating a new round of COVID-19 relief, which is expected to include a second PPP initiative more targeted than the first one, said Mark Peterson, the executive vice president who heads the AICPA’s advocacy team in Washington, D.C. Those discussions also may include major changes relaxing the forgiveness requirements for the smallest loans, possibly those up to $100,000 or $150,000.”
SBA and Treasury are not expected to release the expected 25-question FAQ for which we’ve been waiting for over a month — not before new relief legislation is signed. Congress is trying to finalize this before going on recess August 8th.
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.
On Friday afternoon, July 17, Secretary of the Treasury Mnuchin announced that he would consider recommending to both the IRS and SBA that all PPP loans below a certain amount be automatically forgiven. The PPP loan cap mentioned in the discussion was for all loans under $150,000 (though various lobbying groups have floated other amounts). Loans at this level and below account for 86% of all PPP loans — but only 26% of the funds.
This would allow banks and the SBA to concentrate their reviews on the loans above $150,000 — only 14% of the loans — which make up a whopping 74% of the funds. (Among these large borrowers are the many chains, billionaires, and public companies that arguably were not the “small businesses” the fund was meant to help.)
If this recommendation is made, and if accepted, presumably that would mean that Forms 3508-EZ or 3508 would not have to be filed by the borrower with the PPP lender. Mnuchin did mention that some fraud precaution would need to be involved. We’ll have to wait to learn more.
I’ve been put off by how many of my colleagues have been mining these applications for additional fees (and bragging about it), especially when their small-business clients desperately need all the funds they can get to keep their businesses running. So not only would this move by Treasury aid small business owners, who are already overwhelmed with keeping afloat during a pandemic; as well as lenders, who would be able to spend resources more effectively in examining large loans; but it also would put the brakes on the predatory behaviors of “trusted advisors”.
In light of this exciting new development/ possibility, and the fact that we are still waiting for an SBA/Treasury FAQ — which has been promised for weeks on-end at this point — I have decided to postpone all client meetings and webinars on the topic, to allow for the respective government agencies to provide additional information.
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.
UPDATE 7/1: It has passed the House as well and is expected to be signed by the President today.
Total shock and surprise… out of nowhere, the Senate unanimously passed a five-week extension to the Paycheck Protection Program application deadline, just a few hours before it was set to expire.
Sen. Ben Cardin, D-Md., the top Democrat on the Small Business Committee, said on the floor that senators picked August 8th because that’s the end of the Senate’s next work period and lawmakers are hoping to pass the next relief package by then.
Additionally, Sen. Susan Collins, R-Maine, who helped negotiate the initial small business portions of the March coronavirus relief legislation, said that the extension would make certain we “don’t see an interruption in this program” while a fifth relief bill is being negotiated in Congress.
The unanimous agreement Tuesday night was unexpected, as lawmakers have clashed over issues regarding the program, including legislation regarding how to possibly redirect the unused $130 billion.
The deadline had recently been extended for a few specific borrowers who challenged some of the requirements in court and won — but this ruling only applied to those specific instances. However, their challenge pointed out some unfair restrictions in the PPP application requirements regarding criminal records that have since been remedied (though none of the online applications I have seen have incorporated the new rules yet). Given the timing of the recent guidance, there were certainly many would-be applicants that would not have been able to apply, and hopefully this extension will help.
There also is simply a huge amount of money left — $130 billion. There was so much confusion and fear about applying and getting loan forgiveness that the funds didn’t make it to many of the intended recipients; many never even applied. For example, I helped three folks this week who thought the program “didn’t apply to them”. Now that the rules are easier to follow, make more sense, require less work, and are clearer, hopefully small business owners will come out of the woodwork and get some much-needed assistance.
The House is expected to pass the measure and the President is expected to sign it. The bill passed in the Senate by unanimous consent.
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.
As promised in my most recent PPP blog post, there’s tons of good news on the PPP front. This past Friday, June 26th, I led a webinar for clients and colleagues to summarize the newest guidance, give tips on next steps, and walk through the newly-updated AICPA forgiveness spreadsheet.
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.
So much has happened since my last PPP posts, just a week-and-a-half ago, I hardly know where to begin.
Let’s start with the good news: all of it is good news!
As you may recall, Congress passed the June 5th PPP Flexibility Act, and SBA & Treasury came out with new guidance on June 11th, which I covered extensively. They followed up by reducing the non-financial felony threshold a couple days later. Then the new forgiveness application and EZ-version (thank goodness) were released shortly afterward, on June 17th. However, I held off publishing blog posts or holding webinars on the new applications, since they were released without guidance — and like many of us, waited for the answers to our many outstanding questions.
Well, in the past week that guidance continued to trickle in, culminating in some key answers from the June 22nd Interim Final Rule (IFR) that — believe it or not, after almost three months — actually leave us with most of our concerns answered, and a clear path forward for most small business borrowers.
<This is the part where your blog writer takes her hard-earned glass of wine and raises it in a gesture of cheers.>
The confidence in the piecemeal guidance released since June 5th was evident this morning, when the AICPA decided to re-release their most excellent PPP Forgiveness Calculator Spreadsheet. Mind you, it’s in draft form, and I did find a couple mistakes when I took it on a test-run tonight — but they are quick to incorporate correction requests, and more importantly, this indicates to me that the folks there feel that we’ve gotten most of what we can expect to get from SBA/Treasury on the topic, and we can get back to work on forecasting. (Oh yeah — and tax preparation, as my clients and staff are reminding me.)
Another small win is that the SBA finally agreed to release names of recipients of PPP loans larger than $150,000. SBA loan recipients have always been a matter of public record, so I admit that I was confused by the political angle on this — but in the end, I think the compromise struck is one that will allow single-owner and other closely-held small companies the privacy they need for payroll purposes, while balancing the demands of the public to know where their taxpayer dollars are going. Reportedly, this will account for nearly 75% of the loan dollars approved.
So — what’s new?
These game-changers: – Non-owner employee compensation can be forgiven based on their full 24-weeks of pay — up to a $46,154 (24/52 x $100,000) cap — if the 24-week period is elected; – Owner compensation limits increase to 2.5 months of 2019 income capped at $100k (20.833%) if the 24-week period is elected (compared to 15.385% of 2019 if the 8-week period is used); – Borrowers may submit application early — as soon as requirements are met (including FTE calculations, meaning that even if a borrower does not meet either of the FTE Safe Harbors, they can determine the period for which FTEs must be maintained, between 8 and 24 weeks); – FTE Safe Harbor #1 (business activity limited by government mandate) will apply to the vast majority of borrowers, and frees them from performing the hellish FTE calculations; – FTE Safe Harbor #2 (the original Safe Harbor) allows choice of December 31st or the date of forgiveness application.
What does this mean?
First-off: any business owner(s) with no employees should elect the 24-week forgiveness period. Instead of the 8/52-week limit x 2019 compensation available for those who stick with the original 8-week period, those who elect the 24-week period will have 2.5 months x 2019 compensation forgiven instead. That’s an increase from 15.384% to 20.833%. And since most of these small business owners received their loan based on 2.5 times their 2019 monthly average, this will clearly earn them full forgiveness. (Furthermore, it eliminates the challenging situation whereby the loan amount was determined in months and the compensation limit was determined in weeks, putting most Schedule C and partnership filers in a position where full forgiveness was impossible.)
Secondly: once you have spent the money consistent with the rules, go ahead and submit your forgiveness application early, regardless of whether you have employees or not. You can elect the 24-week period, allowing for more generous caps, but then end the period early. There are many advantages to this approach: – having a shorter period over which to meet the FTE test, or an earlier date to qualify for the FTE Safe Harbor #2 (the original FTE safe harbor) – getting the loan off the Balance Sheet and freeing up any leverage you might need to be able to borrow from other lenders – avoiding the possibility of straddling a tax year with potentially non-deductible expenses to address – peace of mind
What don’t we know yet?
One unanswered question is whether or not the owner-compensation limitation applies to spouses or other relatives. So far there are no attribution rules, so presumably they fall under the (more generous) calculations for regular (non-owner) employees (assuming the wages are legitimate compensation for services rendered to the company).
What happens if the FTEs cannot be maintained due to a limitation on business activity that was not caused by government agency mandate? I am thinking of some professional services, for example, dog-walking, where technically the company was allowed to continue activities at full capacity, but the drop-off in business was precipitous. In this case the FTE rule will not be met, nor Safe Harbor #1 (government mandate). They could aim for the December 31 Safe Harbor #2 (the original safe harbor test), but that would be a gamble, and would presumably delay forgiveness by many months. This is not a large group of borrowers, but the consequences faced by them are certainly inequitable.
Are retirement contributions on behalf of owners allowable? Capped? The guidance makes it clear that these costs are not allowable for Schedule C filers or partners, as any funds earmarked for retirement are already counted in net income before being contributed. For owner-employees, there’s language in the EZ application — but not the main application — that makes it sound like retirement contributions are only allowed to the extent they are included in income, and are capped at 2.5 months x the 2019 amount. Why the discrepancy is unknown. This article discusses that topic in more detail.
There was concern about the announcement that S-Corp owners were suddenly not able to include health insurance in the payroll total — but it turns out that’s because by law those costs are already considered part of the Box 1 W-2 wages. It just means you can’t double-count them. (Schedule C filers and partners were already disallowed health insurance costs for forgiveness, as similarly, they are paid out of net income, which has already been counted for forgiveness purposes.) This article discusses that topic in more detail.
And for a step-by-step explanation of how to calculate forgiveness, I’ll also point you to the AICPA (no, I do not receive any remuneration from them — I’m just impressed by their resources). This step-by-step guide is quite helpful, and also points you to their greatest contribution to the PPP forgiveness thus far — the AICPA PPP Forgiveness Calculator Spreadsheet. Don’t fill out your forgiveness application or plan accordingly without it!
If you haven’t applied yet, please do. There are only a few days left in which to do so, and $130 Billion still available. The SBA has recently relaunched its Lender Match site, which connects small businesses with SBA-approved PPP lenders to get their loans approved before the June 30th deadline. I’ve had excellent luck with Cross River Bank, which has provided approximately 70% of my clients’ PPP loans, either directly or through various FinTech companies — and there was a great article in the New York Times about them recently. (Nope, those links aren’t monetized and I receive nothing from them. Just hoping to help out some small businesses.)
After a few more webinars on the topic — see the most recent one here — I plan to take a break from PPP planning for a short while and focus on tax preparation. I can’t begin to express my relief that we finally have a comprehensive PPP rule book that takes the real world into account.
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.
