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.
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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.
The eligibility threshold for those with felony criminal histories has been changed. The look-back period has been reduced from 5 years to 1 year to determine eligibility for applicants, or owners of applicants, who, for non-financial felonies, have (1) been convicted, (2) pleaded guilty, (3) pleaded nolo contendere, or (4) been placed on any form of parole or probation (including probation before judgment).
The period remains 5 years for felonies involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance. The application also eliminates pre-trial diversion status as a criterion affecting eligibility.
SBA issued revised PPP application forms to conform to these changes. The guidance and revised application forms are available on SBA’s and Treasury’s websites. SBA will issue additional guidance regarding loan forgiveness and a revised forgiveness application to implement the PPPFA in the near 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.
Late night on June 10th, the SBA and Treasury released the 17th interim final rule to reflect changes made by the Paycheck Protection Program Flexibility Act. SBA also published updated application forms to use for loans made on or after June 5, 2020.
The new IFR is mostly a restating and clarification of what we already knew from the statute, its accompanying statement, and the recent Treasury statement.
We are still waiting for guidance for most of our questions, which is especially frustrating given that many PPP loan borrowers have reached or are nearing the end of the original eight-week covered period. As has been a consistent theme, the SBA and the Treasury have promised additional regulations and guidance soon. The concern over the constantly-changing, difficult-to-understand rules — which have been impossible to plan around thus far — has caused a big slow-down in applications. As of now, PPP loans must be approved by June 30th (not applied-for, but approved-by).
(For those who haven’t yet applied: these days I’m finding Funding Circle to have the quickest turnaround and easiest application process for new borrowers. No, I do not receive any benefits from them.)
The biggest problem with the PPP is that you will likely need an accountant (or you could possibly get away with an advanced degree in mathematics) to figure out how to calculate the forgivable portion of the loan — which is hard enough on its own, but even harder when trying to plan, as the rules keep changing. The government did not — in any of the three Acts that involve these loans — realize the administrative burden these rules place on business owners… especially at a time when they’re trying to figure out how to survive the coronavirus shutdown and cautious reopening of our economy.
That said, it may no longer be “free” money, but in most cases, it is definitely still worth it. I’ve been attending the weekly AICPA Town Hall meetings and reporting on them to my clients and colleagues, and making some of those recordings available for the public, in hopes that it will help guide you (or your clients) to making better decisions about how to use the funds.
Here are my notes from the above zoom session, in case it’s easier to read than to listen/watch, or in case you’d like to follow along.
I have taken three webinars on the new PPP forgiveness rules in the past week — and gotten three different interpretations, and a lot of misinformation. So please keep in mind that I am only AN expert, not THE expert.
AICPA Town Hall 6/11 – WHAT WE KNOW
Treasury statement came out 6/8 and more guidance released 6/10.
60% cliff fixed!
Extension to 24 weeks is automatic; can elect 8-wk period on forgiveness application.
The Interim Final Rule released today does not address FTEs. As-written, we’ll have to keep FTEs up for 24 weeks. Alternatives: expansion of FTE reduction exemptions AND/OR Safe Harbor of 12/31/20.
May not use the old application… wait for new one.
Simplified application expected for those with no employees — at the very least, AICPA will release simplified spreadsheet.
You do not have to wait until the end of the 24 weeks to apply for forgiveness if you meet the requirements.
If you use the 8-week period, the new 60% rule applies – you do not still need to meet the 75% rule.
They are trying to get every loan forgiven as much as possible – guidance will be lenient; more relief may come.
Treasury referred to ACIPA forgiveness spreadsheet as the gold standard (yay!)
You can reapply for PPP if you returned the money or didn’t get full funding.
RECOMMENDATION — OPT IN TO PAYROLL TAX DEFERRALS!
June 10: Sec. Carranza indicated new EIDL applications will be accepted starting next week!
WHAT WE DON’T KNOW
1) Owner compensation limits – extended to 24/52 of 2019… or remain at 8/52? Waiting for guidance.
2) Will the FTE reduction rule remain in place as-is? It was hard enough for clients to keep average FTE at 100% of their comparison period for 8 weeks, but 24 weeks will render this new “flexibility” useless. Currently, for clients in this situation who cannot use expansion of FTE reduction exemptions or Safe Harbor of 12/31/20, we are encouraging sticking with original 8-week covered period. (Compass Tax agrees this is the largest remaining concern.)
3) FTE reduction flexibility — the examples I’m seeing are when companies don’t have the same level of activity due to agency standards. But what if you’re “allowed” to open at 100% capacity, but you just don’t have enough business anymore? Currently “too bad” as-written… will this change with SBA interpretation?
4) FTEs – the 1.0 vs 0.5 shortcut calculation… do we still have to calculate this on a weekly basis? I have two colleagues who say you can just count any PT staff who worked at any point during the forgiveness period as 0.5, and similarly for FT, but none of the FTE calculators or case-studies I’ve seen have used this approach. This would make passing the FTE test SO MUCH EASIER.
5) Our clients who (for various reasons) did not apply for PPP beforehand, we had them take the ERTC instead. So now that the forgiveness rules have changed, they want to apply for PPP; but they are disqualified because you can’t do both. Best solutions here? Backing out the credits before filing the 941? Amending the 941? AICPA response: “If they receive the ERC, they are ineligible for PPP per the CARES act.”
6) EIDL advance grant — subtract from PPP forgiveness or not? Some folks are saying you have to deduct EIDL advance grant from PPP forgiveness — some say you only do this if you spent it on same costs as PPP. It looks like on the PPP application you have to deduct it… BUT it says “if applicable”. Since the CARES Act is clear about the fact that it does NOT have to be deducted if taken after April 6 and not used for the same costs, many are saying the “if applicable” means only if pre-April 6th or if used on the same costs as PPP. It sounds like you’re saying that’s not your interpretation, even though it’s in the CARES Act? AICPA had previously said on their FAQ that we’re waiting for SBA guidance on this. Now they’re saying it has to be subtracted. “If an advance is received, it will reduce PPP forgiveness. If they are used for different purposes, a borrower is able to take loans from both programs but it does not impact the reduction of the advance from the PPP forgiveness.”
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They summarized the main points of the Act and clarified a few things that were previously unclear to folks who didn’t read it in full and who missed the accompanying Congressional Statement of Intent. Luckily if you are a regular reader of this blog, you got the news correct first-time around.
(And yes, I am annoyed by old-white-cis-male attorneys telling me that the points I pulled directly from the AICPA Town Hall and their summary were “matters of my opinion”. Anyone who knows me knows I do not take being condescended to well — especially not by lawyers, and especially not by white male lawyers. But I digress.)
But they also made a very important additional point: they eliminated the 60% “cliff” Rubio was worried about, and stated unequivocally, “If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”
They also noted that they “will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP”.
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.
I’ve been doing regular 40-minute free zoom sessions for my clients and colleagues for a few months now, mostly centering on questions concerning PPP & EIDL applications and forgiveness.
Today we did one on the recent big changes to the PPP forgiveness program, and many have asked me for the recording, so I decided to make it public — to assist them and others out there in getting the facts (well, at least the ones we know so far).
The AICPA has come out with the best summary I’ve seen so far, which is what I chose to use in the zoom session as a reference — so if you don’t have 40 minutes handy, take a quick look at it instead (or in addition):
And of course, the inimitable Tony Nitty has gotten to the core of the issue by pointing out all the stuff we don’t know yet. His excellent analysis can be found at Forbes, as always.
More to come — hopefully soon, as I have many clients whose initial forgiveness period is about to come to a close, and we can only remain in a holding pattern for so long.
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.
Honestly, I’m shocked. (And a little worried — but mostly pleased and shocked.)
When the House passed their extremely generous Paycheck Protection Program reform bill last week (which I affectionately termed “Relief for the Relief Program”), the Senate made it clear there was no way it would clear their chambers: “Multiple members are opposed for different reasons,” GOP Sen. John Thune of South Dakota told CNN on Tuesday, as he suggested that fast-tracking the legislation this week didn’t look likely. Every single pundit, journalist, and even my colleagues at the AICPA said there was no way such a windfall would make it past the Senate. Surprise!
Tonight it passed with an overwhelming majority, and it — mostly — will likely make forgiveness so much easier for small businesses (and the big ones who managed to get the funding despite everything, but that’s old news). We now await its signing between golf outings.
It will allow borrowers to extend the forgiveness period from eight to 24 weeks (or December 31st, whichever is shorter).
It will lower — to 60% from 75% — the minimum portion of the PPP loan that must be spent on payroll. As before, the rest must be spent on rent, utilities and other business-related expenses.
It will expand the exceptions for employers who are not able to re-hire staff due to COVID-19, and extend the safe harbor rehire date to December 31st.
It will extend the repayment period start-date for the non-forgiven portion from six months (the prior rule), to the date when SBA has processed the forgiveness application from the lender — or if the borrower doesn’t apply for forgiveness, then ten months after the last day of the covered period. This also means that you have ten months after the forgiveness period in which to apply for forgiveness.
It will extend from two to five years the time new PPP loans must be paid back (with an option for as much as ten) if the amount provided doesn’t convert into a grant. (So far this is only for PPP loans that haven’t been awarded yet, not retroactive to existing loans; but borrowers may work with lenders to amend terms if needed.)
Mostly, this is just amazing. My clients are struggling to jump through all the hoops to spend this money according to the unbelievably complex rules — ones that don’t seem to have much connection to the reality we’re facing right now, especially in the hospitality industry.
So why am I concerned? Because yesterday Marco Rubio said this: “People need to know that the way the Treasury has told us they are going to interpret that bill — if you don’t spend 60% of your money on payroll, if you only spend 59.9%, you will get zero forgiveness.”
MarketWatch reported: “There’s some issues with it that are going to cause people problems, and I just want everybody to know that ahead of time,” Florida’s senior senator also said. “I think still we’re better off passing it than not passing it.”
So of course I am concerned that it sounds like the phase-out of forgiveness that we previously had in the rules is going away. Rubio pointed out that, “procedurally, the problem is if we change the House bill, we’ve got to send it back then,” which is clearly not an option, as this is already “too little, too late”. As it is, I have clients who will not get to use this new relief, as their forgiveness periods end in a few days and they spent all the money based on the old rules — paying staff to do nothing, at a business that is still closed by law.
But for those who can benefit from it, I am thrilled. Now we await signing, and then an inevitably much longer wait for Treasury to issue necessary guidance to answer the many questions this creates.
Please note that several large companies and chains have returned their multi-million-dollar PPP loans, so there is now more than $130 billion available — for eligible nonprofits, companies, and gig workers. So please apply now if you haven’t already!
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.
Note: I’ll continue to add to this list as the City releases more dates.
Wednesday, 6/3 at 3:00 PM Webinar Marketing Basics: What you need to know! Presented by Donna R. Rockin, Managing Partner at Rockin Enterprises, Inc. At this presentation, you’ll learn how to identify your Unique Selling Proposition (USP) as well as identify your target markets or ideal customers. The four cornerstones of marketing will also be reviewed and discussed: Product, Price, Promotion and Placement. Finally, learn 10 low-cost methods to promote your goods or services. Click hereto register for the Wednesday, 6/3 Webinar.
Friday, 6/5 at 9:30 AM Webinar COVID-19’s Impact on Employment Handbooks & Policies Going Forward Presented by Charles Krugel, a Management Side Labor, Employment and Human Resource Attorney An interactive discussion concerning the kinds of policies and practices employers will need to consider upon reopening. Click here to register for the Friday, 6/5 Webinar.
Wednesday, 6/10 at 3:00 PM Webinar Plan for A Successful Business Presented by Score Chicago A great Business Plan leads to success. A thoughtful and well-executed business plan is the first step for every potential entrepreneur. Good planning increases the odds of success. This workshop covers the essential elements of business plan development. Topics include: setting goals and objectives, preparing marketing and financial plans and defining action steps to attain appropriate goals. With a good plan, build your road map to success. • Establish the information needed for a detailed business plan. • Create the Environment of the Company • Establish Pro Forma P&L Statements • Identify the Risks • Develop the Expected Cash Flow • Prioritize Your Action Steps Click here to register for the Wednesday, 6/10 Webinar.
Friday, 6/12 at 9:30 AM Webinar Introduction to Intellectual Property, Part I Presented by Lema Khorshid, Fuksa Khorshid LLC An introductory seminar for the savvy entrepreneur who wants to learn to identify the basic forms of intellectual property and formulate an effective intellectual property strategy for his/her business. Click hereto register for the Friday, 6/12 Webinar.
Tuesday, 6/16 at 2:00 pm Webinar Labor Standards Records Requirements and Other Employer Obligations Presented by Office of Labor Standards Review of employer obligations including record requirements and notice/ posting. Click here to register for the Tuesday, 6/16 Webinar.
Wednesday, 6/17 at 3:00 PM Webinar Accounting in Quickbooks Presented by Trak Patel, ARCC Consulting Learn how to keep your financial recordkeeping books using QuickBooks. We will identify the differences between QuickBooks Online vs. QuickBooks Desktop and list the important features and benefits. Click here to register for the Wednesday, 6/17 Webinar.
Wednesday, 6/17 at 2:00 PM & Thursday 6/18 at 10:00 AM Webinars Outdoor Dining during Phase Three Presented by the Department of Business Affairs and Consumer Protection (BACP), the Chicago Department of Transportation (CDOT) and the Department of Cultural Affairs and Special Events Join this webinar for an overview of all outdoor dining options during Phase Three of Chicago’s Reopening Plan. This webinar will cover rules and guidelines for outdoor dining, including how to obtain a sidewalk café permit or the new Expanded Outdoor Dining Permit. Click here to register for the Wednesday, 6/17 2:00 pm webinar. Click here to register for the Thursday, 6/18 10:00 am webinar.
Thursday, 6/18 at 2:00 pm Webinar Anti-Retaliation Ordinance Presented by Office of Labor Standards Overview of the new Anti-Retaliation Ordinance, designed to protect workers from retaliation during COVID-19. Click hereto register for the 6/18 Webinar.
Friday, 6/19 at 9:30 AM Webinar How to Open a Concession at O’Hare and Midway International Airports Presented by the Chicago Department of Aviation – Concessions Department and Unison Retail Management Are you interested in operating a restaurant or shop at O’Hare or Midway International Airport, but don’t know where to begin? Come and learn about the Request for Proposals (RFP) process and how to operate a business at the airport. This workshop will also provide an overview of the Airport Concessions Disadvantaged Business Enterprise (ACDBE) program. Click here to register for the Friday, 6/19 Webinar.
Monday, June 22 at 10:00 AM and 1:00 PM Webinars Indoor Dining: Options for Restaurants and Bars Presented by the Chicago Department of Business Affairs and Consumer Protection The City of Chicago has announced that bars and restaurants can begin indoor service under limited capacity and strict guidelines on Friday, June 26. Join this webinar for an overview of the guidelines for bars and restaurants to reopen indoors. Click hereto register for the 6/22, 10:00 AM Webinar Click here to register for the 6/22, 1:00 PM Webinar
Phase Four Webinars While the phase four start date has not been announced, the Department of Business Affairs and Consumer Protection will be holding webinars to help all industries prepare for the phase four guidelines. Tuesday, June 23 at 9:00 AM: Hotels – click here to register Tuesday, June 23 at 10:00 AM: Personal Services – click here to register Tuesday, June 23 at 11:00 AM: Health and Fitness – click here to register Wednesday, June 24 at 9:00 AM: Arts/Performance Venues and Museums – click here to register Wednesday, June 24 at 10:00 AM: Retail – click here to register Wednesday, June 24 at 11:00 AM: Restaurants and Bars – click here to register
Wednesday, 6/24 at 3:00 PM Webinar The Power Is In Your Pivot: Series 2 Presented by ChiBizHub This webinar, is the second in a series that will convene a panel of business owners and ChiBizHub resource providers to share insight on how they’ve pivoted their businesses during COVID-19. The webinar will provide an overview and tips on how these businesses have remained relevant, gained a new customer base and skills amidst the pandemic to keep their businesses alive. Click here to register for the Wednesday, 6/24 Webinar.
Thursday, 6/25 at 10:00 AM Webinar COVID-19 Relief for Small Businesses Presented by: An SBA Illinois District Representative Join us for an update on the Small Business Administration’s programs to assist small businesses impacted by the COVID-19 pandemic, including the Economic Injury Disaster Loan Program, the Paycheck Protection Program, and more. We’ll discuss eligibility requirements, applying for forgiveness, and other sources of funding. Bring your questions! Click here to register for the Thursday, 6/25 Webinar.
Friday, 6/26 at 9:30 AM Webinar Tips & Tricks for Networking in a Pandemic World Presented by Anna Maria Viti-Welch, President of the Viti Companies Anna Maria Viti-Welch, President of The Viti Companies, will discuss strategies for building business through networking in unusual global circumstances – business might be on pause, but networking is still going strong. Bring your questions! Click here to register for the Friday, 6/26 Webinar.
To view Reopening Chicago: Retail Service, click here. To view Reopening Chicago: Food Service, click here. To view Reopening Chicago: Health and Fitness,click here. To view Reopening Chicago: Personal Services,click here. To view Overview of Chicago’s Reopening Plan for Businesses (Spanish), click here. To view Overview of Chicago’s Reopening Plan for Businesses, click here.
And get ready for the upcoming Phase 4 with Phase Four Webinars: The Department of Business Affairs and Consumer Protection is holding webinars to help all industries prepare for the Phase 4 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.
UPDATE: THIS POST IS ALMOST A YEAR OLD AND NO LONGER IS USEFUL INFORMATION.
(Way too many folks are landing on this page and I want to dissuade them from using this as a reference — there have been so many changes to the PPP since this was published. Make sure you restrict any internet searches to posts made in the past month!)
I’m getting this question a lot:
I have someone telling me that they can use all 100% of their PPP for payroll instead of the 75/25 rule of payroll/rent+utilities. Is that correct?
Yes, it is — and yes, you absolutely want to include all of your payroll costs in the forgiveness application calculations!
Some folks are in the situation whereby they have more payroll costs than 75% of the loan will cover. In fact, in some cases, the entire PPP loan — 100% — will be used on payroll costs. And that’s a good thing when it comes to requesting forgiveness, for reasons I’ll explain.
In my firm, for example, I’m paying staff tax-season rates right now, and I have a new employee as of January 2020… but my loan total was calculated based on the average of all of 2019 — so it’s much lower than my actual current payroll costs. I’ll be using 100% of my PPP funds for payroll (and then some). By including all my payroll costs in the forgiveness application and projection calculations, I don’t have to worry about going to the effort of submitting rent/mortgage interest and utilities costs (which are very low for me anyway, as my staff is entirely work-from-home).
But it’s not just a matter of having low overhead and not wanting to spend administrative effort to gather mortgage interest and utilities cost substantiation… it’s more importantly because for forgiveness, we’re all aiming to hit three important tests: the FTE reduction, wage/salary reduction, and 75% of forgiveness hurdles. These are all based on payroll measurements, so it’s best when plugging in your forecasting calculations to first include all the payroll you can… and then just make up the difference with non-payroll costs. The total forgiveness cannot exceed the loan total, so there is no harm in taking this approach.
It is, after all, a Paycheck Protection Program.
Reminder: owners themselves (be they sole proprietors, partners, or shareholder-employees) cannot have more than 8/52 of their 2019 compensation forgiven for PPP purposes, which does mean that for a business owner with no employees, they will not be able to use 100% of the funds for payroll. But for everyone else, yes!
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.
I’ve been doing regular 40-minute free zoom sessions for my clients for a couple months now, mostly centering on questions concerning PPP & EIDL applications and forgiveness.
1) I have taken six webinars on the new PPP forgiveness rules in the past week — and gotten six different interpretations. They vary widely, on topics such as the EIDL advance subtraction, incurred and-vs-or paid, what an acceptable utility is… as well as some flat-out mistakes (such as including owner compensation in FTE/wage reduction calculations — this is simply not okay). There was even one where the person doing the presenting and the person answering questions in chat were conflicting with each other. So keep in mind that just because someone (including me) sounds confident — this does not mean they are right. They’re just AN expert… there is currently no such thing as THE expert. Just do your best with the information you have — the smartest approach to take is to do whatever you can to make it easy for your banker to just glance at your substantiation and decide it’s sufficient to support your calculations, whatever interpretation you choose.
2) This tool is a DRAFT. For one, there are some small errors in it that I’ve reported to the AICPA; but more importantly — we know this guidance is going to change. In fact, there is pending relief legislation in Congress (to extend the forgiveness period or remove the 75% rule) that may render most of what we’re doing now useless (including the fact that we don’t yet know when we’ll be submitting anything for forgiveness).
However: some folks are more than half-way through their forgiveness period and we have to plan based on the law as it stands now… and hitting the FTE reduction, salary/wage reduction, and 75% of payroll tests is hard. So as a tool for forecasting, as well as establishing your goals and gauging your progress, I encourage you to fill this spreadsheet out to the best of your ability, so you aren’t surprised by a large loan balance at the end of this.
3) Remember, you will only fill out the sections on the application that are highlighted in BLUE. The spreadsheet bases all calculations on that data. Grey fields are calculated, and green are ones that pull from data you entered elsewhere. The instructions aren’t entirely complete, and there are a couple small errors, but it’s still the best tool I’ve found out there (including my own). The spreadsheet formula cells are locked, but you can resize any areas you need to in order to view the full content. Lastly, it seems maybe folks with Macs or using cloud spreadsheet software may have challenges getting their systems to recognize it’s not read-only.
Best of luck, and I’ll try to post other examples for other entity types as time allows.
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