On August 11, 2020, the US Small Business Administration (“SBA”) updated its Frequently Asked Questions regarding the cancellation of Paycheck Protection Program (“PPP”) loans. The SBA’s P3 Loan Forgiveness FAQs, updated August 11, 2020, can be found here. If small businesses have any questions about submitting loan forgiveness applications, they should contact their PPP lenders. As of August 14, 2020, the SBA has opened its loan forgiveness portal to lenders.
This update serves as a summary of the highlights of the PPP Forgiveness FAQ as published by the SBA on August 11, 2020. The FAQs largely reaffirm the rules and guidelines published in Final Rules and Loan Forgiveness Applications with respect to discount in general, salary costs, non-salary costs and discount reductions. However, the FAQ also clarifies a more recent rule regarding owner-employee cash compensation based on entity type.
Highlights of the FAQ on forgiveness in general
- Borrowers whose PPP loans are fully canceled are not responsible for all Payments.
- Borrowers who submit the loan forgiveness request within ten months of the end of the period covered and obtain full forgiveness are not required to all Payments.
- Borrowers who submit the loan forgiveness request within ten months of the end of the period covered and obtain partial forgiveness will be notified by their lenders of the repayment start date and amounts in accordance with their loan documentation.
Salary Costs FAQ Highlights
- The salary costs incurred during Where paid during the covered period are eligible for a rebate.
- The SBA recalls that to determine an employee’s cash compensation, borrowers should use the gross amount paid to employees.
- Eligible salary costs include tips, commissions, bonuses and risk bonuses.
- Employer expenses for employee group health care benefits that are paid or incurred by the borrower during the period covered or the period of alternative pay coverage are salary expenses eligible for waiver. of the loan. However, personnel costs do not include expenses for collective health care guarantees paid by employees (or beneficiaries of the scheme) before or after tax, such as the salary portion of their health premium. The pardon is not granted for group health insurance expenses accelerated from periods outside the period covered or the period covered by the alternative payroll.
- Employer contributions for retirement benefits included in the loan cancellation amount as labor costs cannot include any pension contributions deducted from employees’ wages or otherwise paid by employees. Forgiveness is not granted for employer contributions for accelerated retirement benefits from periods outside of the covered period or the alternative covered period.
- The owner-employee cash compensation paid with the proceeds of the PPP loan is capped at a maximum total of $ 20,833 per owner-employee in total in all businesses in which he has an interest, subject to the following additional restrictions by type. company:
- C companies: Up to 2.5 / 12 of an owner-employee’s cash compensation in 2019 is eligible for loan forgiveness.
- S companies: Up to 2.5 / 12 of employee-owner cash compensation in 2019 is eligible for loan forgiveness.
- Self-employed (Annex C or Annex F filers): Up to 2.5 / 12 of 2019 net income as reported on IRS Form 1040, Schedule C, line 31.
- Partnerships (for general partners) Up to 2.5 / 12 of a general partner’s 2019 net income from self-employment that is subject to self-employment tax, based on IRS Form 1065 Annex K-1 box 14a (reduced by Box 12 (Section 179 Expense Deduction, Unreimbursed Partnership Expenses Deducted on their IRS Form 1040 Schedule SE, and Depletion Claimed on Oil and Gas Properties) multiplied by 0.9235.
- Borrowers who are C companies and S companies can claim exemption from state and local employer taxes paid by borrowers and assessed on an owner-employee’s compensation, and for borrowers’ pension contributions to an owner-employee’s pension plans capped at the amount 2.5 / 12 of the 2019 employer pension contribution of their owners.
- Borrowers who are C companies may also request the remission of the amount paid by the borrower as employer contributions to the health insurance of his owner-employee.
- Borrowers who are S companies cannot claim exemption from employer health insurance contributions for employees of company S holding at least 2% of the capital of the company, including for employees who are family members of an owner of the company ‘at least 2%, as these contributions are deemed to be included in cash compensation under federal law.
- Borrowers who are self employed Where partnerships (payments for general partners) cannot claim exemption from separate payments for health insurance, pension or state or local taxes from owner-employees or general partners.
Highlights of the FAQ on non-wage costs
- Although the Alternative Covered Period does not apply to non-salary costs, non-salary costs due and paid during the Covered Period (even if not incurred) may qualify for a discount.
- Interest on unsecured credit is not eligible for forgiveness. Only interest on commercial mortgages on real or personal property (such as a car loan) is eligible for loan forgiveness.
- The forgivable non-wage cost of “transport delivery” includes only the charges for public transport services assessed by state and local governments.
- The reimbursable non-salary costs of the electric utility include gross reception taxes, procurement and distribution costs.
FAQ Highlights on forgiveness reductions
- The Borrower may exclude any reduction of FTE employees if it is able to document in good faith the following: (1) an inability to rehire persons who were employees of the Borrower on February 15, 2020, and ( 2) an inability to similarly hire qualified people for vacant positions no later than December 31, 2020.
- Borrowers are required to notify the relevant state unemployment insurance office of an employee’s rejected rehire offer within 30 days of the employee’s rejection of the offer.
- If a Covered Employee’s salary or hourly wage is reduced by more than 25% during the Covered Period or the Alternative Covered Period, the portion greater than 25% reduces the Eligible Discount Amount, unless a exception or safe harbor rule does not apply.
- For the purpose of calculating reductions in the loan cancellation amount as a result of wage / hourly reductions greater than 25%, the borrower should only consider wage or salary reductions.