8 Things to Know About the PPP Loan Forgiveness Frequently Asked Questions
August 14, 2020
By: Eric N. Fischer
On August 4, 2020 the Small Business Administration (SBA) issued additional guidance on Paycheck Protection Program (PPP) through a series of frequently asked questions (FAQs).
Below are eight important takeaways from the FAQs:
- If a borrower submits a timely loan forgiveness application the borrower will not be required to make any PPP loan payments until the forgiveness amount is remitted to the lender by the SBA. Interest accrues between the time of loan forgiveness and disbursement of the loan forgiveness amount to the lender on all amounts that are not forgiven.
- Payments made on leases of real and personal property that were renewed after February 15, 2020 and payments of interest on mortgages of real and personal property that were refinanced after February 15, 2020 are eligible for loan forgiveness.
- Transportation costs includes only transportation utility fees assessed by state and local governments. This is in contrast to the understanding prior to the issuance of the FAQs that transportation costs included business fuel costs.
- In addition to entity specific restrictions, owner-employees are generally capped at $20,833 in total payroll compensation from all businesses in which the individual has an ownership stake for the 24 week Covered Period and $15,385 for the eight week Covered Period.
- Subject to the cap described above, C-corporation owner-employees are eligible for loan forgiveness up to 2.5/12 of his or her 2019 cash compensation. Payroll costs other than cash compensation for C-corporation owner-employees are eligible for loan forgiveness and not subject to the cap on cash compensation.
- S-corporation owner-employees are eligible for loan forgiveness up to 2.5/12 of his or her 2019 cash compensation, payments for employer state and local taxes and retirement contributions. Payments for state and local taxes and retirement contributions are not subject to the $20,833.00 cap. Employer contributions for health insurance are not eligible for forgiveness for S-corporation owner employees owning at least two percent of the S-corporation or for employees with family members owning at least two percent of the S-corporation.
- For general partners The compensation of general partners that is eligible for loan forgiveness is limited to 2.5/12 of their 2019 net earnings from self-employment that is subject to self-employment tax multiplied by 0.9235. Compensation is only eligible for loan forgiveness if the payments to partners are made during the Covered Period or Alternative Payroll Covered Period. Separate payments for health insurance, retirement, or state or local taxes are not eligible for additional loan forgiveness. If the partnership did not submit its 2019 IRS Form 1065 K-1s when initially applying for the PPP loan, the K-1s must be included with the loan forgiveness application.
- For purposes of the Wage Reduction Test for hourly employees, the relevant measurable is the hourly wage. Reductions in hours given to hourly employees will not lead to a reduction in forgiveness based on the Wage Reduction Test. However, reductions in hours are still subject to the FTE Reduction Test.
In the event you have follow up questions about the PPP Loan Forgiveness Application or have other questions about the Paycheck Protection Program or other COVID-19 related relief, please contact your Nyemaster Goode attorney.