Answer: The amount of a loan that is forgiven is usually considered taxable income, but, under the CARES Act, there is an exception and the forgiven amount of a PPP loan is not taxable. However, the expenses that you pay with the loan money that is used to calculate your PPP loan forgiveness amount are not deductible. That would be kind of double-dipping, and the IRS has said that is not allowed. If your loan is not forgiven, then you would deduct the expenses you paid with the PPP loan in the year you normally would and you can deduct the interest on the PPP loan in the tax year of the payments to repay the loan are the dates that the interest payments are made.
Answer: The 60/40 (payroll/other expenses) requirement still applies no matter when you got your loan, or what period you choose to use it. If your loan proceeds were received before June 5th, you can select either the 8 week or the 24 week period. If you received your money after June 5th, then you must select the 24 week period. Let’s say that your business was totally shut down during the full 8 week period. If you were a restaurant, for instance, you were closed by the direction of the state. Without an operating business, there is little sense for you to hire employees, and pay them. Yet, you got a loan. So, the period in which you can use the money was extended from 8 weeks to 24 weeks for those companies that couldn’t make full use of the PPP money during the initial 8 week period. A situation in which it might make sense to choose the 8 week period (assuming you qualify) rather than the 24 week period is if you spent all of your PPP money in the 8 week period and you had no reduction in employee headcount or compensation during those 8 weeks, but you now expect that you will have to make those cuts before the end of 24 weeks. Since those cuts would reduce the amount of your PPP loan forgiveness, you would want to choose the 8 week period instead of the 24 week period.
Answer: Generally, your loan forgiveness amount would be reduced if your average weekly number of Full Time Equivalent Employees (FTEEs) during your 8 or 24 week covered period (whichever applies) is less than your FTEEs during either (i) February 15, 2019, to June 30, 2019, or (ii) January 1, 2020, to February 29, 2020. You get to choose which of these two periods to use for comparison. One of the exceptions to this rules applies if the number of FTEEs is restored before the earlier of the date you submit your loan forgiveness application or December 31st. However, this exception only applies if the reduction in FTEEs occurred between February 15, 2020, and April 26, 2020. So, if you did not reduce the number of FTEEs until July, then you do not qualify for this exception. There is another exception if you were unable to operate at the same level as on February 15, 2020, due to government rules (like stay at home orders) and had to reduce FTEEs. Also, you don’t need to count employees who were terminated for cause, voluntarily resigned, voluntarily requested a reduction in hours, or refused a written offer to return to work.
Answer: The current guidance is that you don’t need to wait for the full 24 week period to be completed to submit your loan forgiveness application. However, if you had salary/wage reductions that affect your forgiveness amount, you need to count those reductions over the full 24 week period. Also, it is not clear what impact an early application would have if the FTEE reduction applies.
Answer: Those are part of a total medical benefits plan and should be included in the coverage that is allowed to be considered part of the forgiveness calculation.
Answer: There is a deadline. You need to submit the application for forgiveness within 10 months following the end of your 8 or 24 week period. However, you do not need to wait that long and your application can be submitted earlier, even before the end of your 8 or 24 week period.
Answer: Amounts that are paid or incurred during the 8/24 week covered period count, but there are limitations. For example, if you make your 2019 profit-sharing plan contribution during the covered period, then it counts because it was “paid” during the period. However, while payroll expenses that are “incurred” during the covered period (meaning that it is payment for days worked in the period) may be included if paid by the next regular payroll date after the end of your 8/24 week period, it is not clear that the same rule would apply if you paid the portion of the retirement plan benefits accrued during the covered period at a later date.
Answer: It appears from current guidance that the actual expenditures for your medical coverage would apply, which would include the employer’s share of actual claim cost expense paid to the 3rd party administrator during the covered period.
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