CLICK HERE to review the American Institute of CPAs PPP FAQ’s – This is a long read, so I pulled out some of the best Q&A’s in case you don’t have time to dig through the whole thing.
When does the 8 week period begin to determine the amount of the forgiveness for the PPP loan?
The 8 week period begins on the date the lender makes the first disbursement of the loan. The lender must make the first disbursement of the loan no later than 10 calendar days from the date of the loan approval.
What is included in utilities?
The CARES Act defines utilities in Sec.1106(a)(5) as electricity, gas, water, transportation, telephone or internet access for service which began prior to February 15, 2020. Further guidance released added gas used when driving a business vehicle. Other common utilities such as garbage collection or security monitoring may also be classified as a utility, but a business should confirm with the lending institution.
Are employee federal withholdings and employer payroll taxes on wages for the 8 week period included in payroll costs?
The employee federal withholding is included in allowable payroll costs for the purposes of determining the amount to be forgiven. The employer federal payroll taxes (i.e. FICA and Medicare taxes) imposed on the gross payroll are not eligible payroll costs for the loan forgiveness calculation.
What about if the business had employees who left for their own reasons? Or need to be fired due to performance issues? Is the loan forgiveness still reduced for those employees?
More guidance is needed on this issue. As the statute is written in the CARES Act, the forgiveness is tied to employee count comparisons and also specific employees and whether their pay was substantially reduced. FAQ #40 addresses the situation where a business lays off an employee, offers to rehire the same employee and the employee declines the offer. SBA and Treasury intend to issue an interim final rule that excludes laid-off employees that the business offers to rehire from the forgiveness calculation. The business must make a good faith, written offer to rehire and the rejection of the offer must be documented. It was also noted that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
Can you increase pay for employees during the forgiveness period (for example, hazard pay, bonuses or other salary increases)?
A decrease in wages of more than 25% will decrease forgiveness and wages is capped at an annualized rate of $100,000 per employee. The current guidance does not prevent an increase in pay in the form of a short term pay increase, hazard pay or bonus.
Are payments to employees when they are not currently able to work (due to business being closed or for any other reason)?
The PPP was intended to keep businesses’ employees employed and paid. In order for the PPP loan to be forgiven, a minimum of 75% of the loan proceeds must be spent on payroll. Based on guidance provided currently, the covered 8-week period starts when the loan is funded. If a business is not open and the business’ PPP has been funded, employees will need be paid even if they are not able to work to ensure maximum forgiveness of the loan.
Are these expenses tax deductible if the loan is ultimately forgiven?
IRS Notice 2020-32 was issued on April 30, 2020 to state that no deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan.
Is the forgiveness of the loan taxable income?
No, the forgiveness of the loan does not constitute federal taxable income. States are providing guidance on state taxability that will be included in the AICPA state tax guidance chart.
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