After you received your PPP loan you may have a few more questions on what to do next. Here are a few items to consider:
How can you use loan proceeds?
The 8 week period to determine the amount of the forgiveness begins on the date the lender makes the first disbursement of the loan. The following are acceptable uses of the PPP funds:
· Payroll costs for your employees, whether they’re able to work or not – For example, your business may be unable to open due to government restrictions. But if you continue to pay your workers, those costs are included in the eligible payroll costs. – This can include employee benefits for vacation, sick leave, health care benefits including insurance premiums and retirement benefits.
· Interest on mortgage loans
· Rent obligated under a leasing agreement in force before February 15, 2020.
· Utilities including payment for a service for the distribution of electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020.
· Interest payments on other debt (incurred before Feb. 15, 2020)
· Refinancing an SBA EIDL loan made between Jan. 31 and April 3, 2020
How much of the loan will be forgiven?
The goal of this program is to keep employees paid during the eight weeks beginning with the date of your loan. Any reduction in the number of employees or the wages you paid affects the forgiveness of the loan. The amount that is forgiven is the amount spent on the costs incurred as outlined in the previous section “How can you use loan proceeds?”
However, if there is any reduction in the number of full-time employees or a decrease in wages paid by more than 25%, the loan forgiveness is reduced. Here’s a closer look at what triggers a reduction in the forgiveness:
· If you decrease salaries and wages by more than 25% for any employee who made less than $100,000 annualized in 2019, your loan forgiveness will be reduced.
· If the number of Full Time Equivalents (FTEs) decreases, the forgiveness will be reduced.
· At least 75% of the loan proceeds must be used for payroll costs.
To request the loan forgiveness, you’ll submit a request to the lender that is servicing the loan. That request will include documentation on payroll and other expenses. Don’t worry — we can provide a calculation worksheet to help with this.
Have you already laid off employees or cut pay? The loan amount can still be forgiven for the full amount of your payroll cost if you rehire your employees by June 30, 2020 and restore your FTEs and wage levels for any changes made between Feb. 15 and April 26, 2020.
Is the forgiveness of the loan taxable income?
No, the forgiveness of the loan does not constitute taxable income.
Are these expenses tax deductible if the loan is ultimately forgiven?
More guidance is needed on the treatment of the expenses related to the forgiveness portion of the loans. Based on what is known at this time, there is no specific provision in the CARES Act that makes these expenses nondeductible.
Please feel free to contact us if you have any questions regarding the PPP or any other COVID-19 issues.