If you are a business owner who received a Paycheck Protection Program (PPP) loan, no doubt, you’ll want to get the loan forgiven. After all, forgiveness is the intent behind the legislation that made PPPs available in order to help small businesses in a time of great uncertainty due to the coronavirus pandemic.
Millions of businesses have received these loans. The next step is to apply for forgiveness.
The Small Business Administration (SBA) released the application for forgiveness last Friday, May 15.
The application, which is available online or through your PPP lender, is 11 pages long; only three pages need to be filled out (the two-page application and the one-page Schedule A); the remaining pages are instructions and worksheets. You can find the application here: //tinyurl.com/yd9j4lbj. This application is fillable (that is, you can type in your answers online).
Before you tackle the job of completing the application, I recommend studying the instructions carefully, with a special focus on these terms: eligible payroll costs, covered period, alternative payroll covered period and eligible nonpayroll costs.
It will help you to think about how your business fits within those definitions and what documentation you will need to support your answers. Payroll costs will be most important to understand, since “at least 75% of the potential forgiveness amount” has to be used for payroll costs.
There are some nuances that need to be understood. For example, when calculating payroll costs, which is done on a worksheet in the application, individuals earning more than $100,000 are capped at $15,385. That’s the eight-week equivalent of $100,000 per year.
Payroll costs include employer contributions to employee retirement plans, but not pre-tax or after-tax contributions by employees, such as employee elective contributions to 401(k) plans.
They also include the employer’s costs of employee health insurance, but not employees' pre-tax or after-tax health insurance contributions.
Also included are employer taxes assessed on employee compensation, but not taxes withheld from employee earnings.
The application will have to be submitted to the lender with documentation to support the payroll costs entered on the application.
After getting a handle on the types of costs that can support the forgiveness request, be sure you understand timing. The date you received the PPP loan is the start date for calculating the payroll costs during the “covered period,” which is eight weeks long, or 56 calendar days.
As an example provided in the application, assuming you received the PPP loan on April 20, the covered period is from April 20 through June 14.
That timeframe may not fit your regular payroll cycle, which would make sticking to the covered period administratively difficult. The SBA anticipated that issue and provided a solution: an “alternative payroll covered period.”
The alternative, which will probably be used by most businesses, allows you to use the dates of your actual payroll.
Continuing the example with April 20 as the date of receipt of PPP funds, say the first pay period after that is April 26, then the alternative covered period is April 26 through June 20. You’ll find this example in the application.
One more very important point: It’s a crime to knowingly make a false statement on the application, with monetary fines and prison sentences for those who break the law, so take the application process very seriously.
If you need help, there are a number of law firms and accounting firms that are developing expertise with these applications. It may be worth your while to consider engaging their help. You can find these experts online.
I will be writing more on this topic as the SBA issues additional guidance and posting updates on my website, www.juliejason.com.
For a quick video that covers the topics we’ve discussed in today’s column, go to vimeo.com/421629229.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (firstname.lastname@example.org). Please visit www.juliejason.com.
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