The Paycheck Protection Program (PPP) is a government-funded emergency relief package for small businesses affected by COVID-19. Unlike most loans, this funding is eligible for complete forgiveness. As of May 18, 2020, the PPP Loan Forgiveness Application is now available on the SBA site.

On August 4, 2020, the Small Business Administration (SBA) released a new 10-page FAQ on loan forgiveness for both lenders and borrowers. Because the rules and guidelines for the PPP continue to be ever-changing, it is important to review the most updated information before applying to ensure you are maximizing the forgiveness available.

We’ve broken down the highlights from the new guidance:

• Borrowers do not have to make any loan payments until the SBA makes a final determination on the forgiveness amount. This assumes the borrower submits the loan forgiveness documentation within ten months of the end of the Covered Period.
• The lender is required to notify the borrower of the due date of the first loan payment, if any is required.
• Interest will accrue from original disbursement date to payment date on any portion of the loan not forgiven.

• Borrowers will need to calculate partial pay periods to be included in the forgiveness calculation if their payroll cycle is twice a month or less frequently.
  • Payroll costs incurred but paid after the Covered Period can be included if paid by the next payroll cycle.
  • Payroll costs incurred before the Covered Period but paid during the Covered Period can be included.
• Group health insurance and retirement plan contributions can only be included if they are not accelerated from periods outside of the Covered Period.
• Owner-employees and self-employed payroll replacement is capped across all businesses that an individual has an ownership stake. The cap can be allocated across the businesses in any way that they choose. Below are additional guidelines on how to calculate the $100k cap per entity type.
  • C Corporation owner-employees: compensation is limited to 2.5/12 of 2019 cash compensation. Retirement contributions are limited to 2.5/12 of 2019 retirement contributions. Eligible taxes and health insurance are eligible with no limits.
  • S Corporation owner-employees: compensation is limited to 2.5/12 of 2019 cash compensation. Retirement contributions are limited to 2.5/12 of 2019 retirement contributions. Eligible taxes are allowed with no limits. Health insurance, for owners of at least two percent of the company, is not eligible for forgiveness separately, since these are already included in the cash compensation threshold.
  • Self-employed Schedule C or Schedule F: compensation is limited to 2.5/12 of 2019 net profit as reported to the IRS on the 2019 Schedule C or Schedule F. No other compensation is allowed for the self-employed individual.
  • Partners/Members in Partnerships: compensation is limited to 2.5/12 of 2019 net earnings subject to SE tax. This is computed from 2019 Schedule K-1 Box 14a, reduced by box 12 for Section 179 deduction, and reduced by unreimbursed expenses on form 1040 SE multiplied by 0.9235. No separate health insurance, retirement payments, or eligible taxes can be included.

• Nonpayroll costs incurred before the Covered Period but paid during the Covered Period are eligible for forgiveness.
• Nonpayroll costs incurred during the Covered Period but paid after the Covered Period are eligible for forgiveness.
• Interest on unsecured credit is not eligible for forgiveness.
• Payments on renewed leases or interest on refinanced debt are eligible for forgiveness if the original lease or mortgage was in place prior to February 15, 2020.

• The FTE reduction calculation includes employees that make more than $100K.
• The employees that make more than $100K are excluded from the salary reduction calculation.
• The salary reduction calculation is different for a salaried employee versus an hourly employee.
  • An hourly employee that works fewer hours but the same dollar per hour rate will not be considered to have a reduction in wage.
  • For both, the employer has until December 31, 2020 to “fix” the salary reduction.

There are still potential changes coming to the PPP Loan Forgiveness so we recommend waiting to apply for forgiveness while continuing to gather the required documents.

The entire Aldrich team is monitoring the PPP updates and guidance. We’ll be updating our COVID-19 Resource Center diligently to keep you apprised of changes as they happen. If you have any questions about applying for PPP loan forgiveness, reach out to your Aldrich Advisor.

This article was written with the most current information as of August 14, 2020. Please check back for future updates, when further guidance and eligibility are released.

• Loan Forgiveness Relief for Small Businesses (March 2020)
• The Federal Reserve Main Street Lending Program (April 2020)
• Follow-Up Steps for Paycheck Protection Program (PPP) and Other Recent Payroll Tax Incentives (April 2020)
• Paycheck Protection Program Update — $310 Billion Added (April 2020)
• Breakdown of the PPP Loan Forgiveness Application (May 2020)
• Paycheck Protection Program Flexibility Act Signed into Law (June 2020)
• SBA Revises Paycheck Protection Program Interim Final Rules (June 2020)