Olav Lindquist



PPP Forgiveness Town Hall Webinar Q&A Recap – June 18, 2020

Q: If we complete usage of PPP funds at greater than 8 weeks but less than 24 (e.g. 10 weeks), does it reduce the max below $20833?

A: Currently there are only 2 choices: 8 weeks or 24 weeks. So, the limit would be $20,833 if you chose the 24-week period.

Q: Is the IRA contribution prorated to the covered period? Even if the match for the entire year was actually paid during the covered period?

A: Retirement contributions that benefit employees (non-owners) don't have any limits. Anything paid during the Covered Period counts. Retirement benefits for owners are limited to 2.5 months of 2019 amount.

Q: Are Health Insurance costs eligible as an owner of an s-corp?

A: Health Insurance expenses for owners of an S-Corp are not allowed - since those expenses are considered part of the owner's payroll.

Q: If you can obtain almost 10-weeks of payroll costs during an 8-week covered period, how would you suggest calculating the FTE equivalents? Use the data on the payroll reports (more than 8 weeks) or use only the hours paid/worked during the 8 weeks?

A: We would recommend you include the FTE calcs based on the payroll reports you are using in the covered period, so it could be based on 10 weeks. Note however, if folks are not full time you have the option to claim them as 0.5 FTE regardless of the hours worked if less than 40.

Q: My business launched in January 2020; therefore, I do not have any owner compensation in 2019. Am I not able to include owner compensation paid during the covered period since I wasn’t able to pay myself in 2019?

A: As it stands right now this is correct, unless we get some additional guidance this would be the case.

Q: What is the latest date you can apply for loan forgiveness?

A: 10 Months after the earlier of the end of your Covered Period or 12/31/20. So if you select the 8 week period its possible you will need to file by around March/April 2021 at the latest.

Q: If you wait until 2021 to file PPP forgiveness application, do you have to use the 24 week choice or can you use the 8 week period but wait to file forgiveness in 2021

A: You can still use the 8 week period, so if you use the 8 week period and that ends on say 6/15/20, you will need to file by 4/15/21 (10 months from the end of your Covered Period).

Q: If we waited till 2021 to apply, wouldn't we still have to start paying the loan back? My first payment (if not forgiven) is due in Nov of this year?

A: Loans should not start until you have the ability to claim forgiveness. However, with the new 24 week rules the SBA cannot change prior issued 'loans' but have suggested banks and borrowers amend their original loan documents. We expect banks to amend these loans but worth talking to your specific bank although likely they will need a few months to determine how to address internally.

Q: For the FTE calculation if you have an employee who is classified as 3/4 time- meaning working at least 32 hours a week but worked 40 hours during the covered period. Would they still be considered 0.5 FTE?

A: No, if they worked 40 hours you can treat them as a 1.0 FTE during the Covered Period. They would be a 0.5 FTE for the comparative period though.

Q: In terms of total payroll allocation, does this override the head count rule? reason for question: I had to let an employee go during the period for policy violation. Yet, with new 60% I still qualify for forgiveness but worry about the one less headcount?

A: If you fired an employee, but don't replace that position with a new person - you could be subject to the FTE reduction rule. But, if you fill that position before 12/31, you might meet the Safe Harbor.

Q: Please confirm is it only State employer taxes and NOT Federal payroll taxes that are eligible?

A: Correct, only State based ER taxes.

Q: So, if we are going to check the box for the FTE safe harbor do we still need to send all these reports to the bank?

A: No - if you "check the box" for the FTE Safe Harbor, the bank doesn't need evidence of your calculations. But, you need to retain your math for possible SBA audit.

Q: Did I hear that if I use the 8 week period then the forgiveness (loan) amount will be taxable income?

A: Not quite, if you get forgiveness in 2020 its currently written in the IRS rules that would not allow you to treat covered expenses as allowable deductions, so essentially your costs would net against your PPP income and both be excluded from taxes.

Q: Please explain an employee who has a $100k salary or more, and who you have to calculate.

A: $100k is the annual salary cap. Generally you calculate their payroll on an annualized basis (ie $25k per qtr, $50k per 6 months,etc). When looking at a period of time you need to calculate to see if they 'annualize' over $100k, if so, their numbers will cap at that annualized rate. The exception is related to business owners, for the 24 week period they are capped at $20,833 for the full 24 weeks provided they made at least that much (pro-rata) in 2019.

Q: So, what would it cost to have your firm do the application for us to make sure we do it correctly?

A: It will depend on your complexity and number of employees.

Q: Can you include rent if you pay it to an LLC that you own?

A: Yes, provided its the same as you would have paid prior to Feb 2020.

Q: We had to lay off an hourly employee, we then put a subcontractor on the payroll who was more senior than the laid off employee and used ppp to pay the subcontractor/new employee at less than 40 hours per week, will the sub/new employee now be a 0.5 fte or a 1 fte?

A: He/She would be 0.5 if worked less than 40 hours/week, or you could use actual FTE is they are more than 20 hours per week.

Q: Does the bank have a say in this piece of applying early?

A: Yes, until the banks can accept applications we are in a waiting game, we don't yet know if banks would reject a claim with an application date before the covered period end date.

Q: If we wait until 2021 to apply for forgiveness, then basically the loan forgiveness would be considered other income with no reduction in expenses for prior year, just want to confirm.

A: Correct, you would report the other income in 2021.

Q: Do we meet FTE safe harbor if we had an employee quit, but have as many employees as we did 1/1/2020? Due to an additional hiring end of February?

A: Yes, also an employee who quit can be carved out.

Q: For payroll expenses, do we use gross pay or net pay?

A: Gross pay.

Q: Can we still use the "Alternative Payroll Covered Period" to align with our normal payroll cycle?

A: Yes

Q: New rules came out just after we made our 3rd bi-monthly payroll. We are at 90% of loan forgiveness for payroll costs. In order to "use" the money, employees were given an add'l 25% on their paycheck as a COVID benefit. Is that allowed? We are in the health industry. Thank you!

A: It should be provided their total pay is under the $100k annualized salary rate per person.

Q: Can use 24 weeks of payroll cost to be submitted for loan forgiveness?

A: Yes, provided you pick the 24 week covered period option.

Q: For payroll expenses, you said we are to use gross pay. What if that gross pay includes a reimbursement, such as for mileage?

A: Only compensation, so cash based pay, you would exclude reimbursed expenses, but things like commissions paid, bonuses, etc should be included.

Q: I got funding on my ppp loan on April 23, 2020. and my first payroll close to that date was from 5 April to 18 April and checks delivered to employees on 24 April, 2020. All of employees cashed their checks after 24th April. Does that fall in PPP loan term?

A: Yes, it should provided the cash went out after the cash came in for the PPP loan.

Q: Are you saying if I had 3 people quit after 2/15, then they would not count against the calculation? I don’t need them anymore since business is down 30%.

A: Correct, if they left on their terms you can exclude them. Please note, you should try and maintain documentation to prove that was the case if you have it and dispute unemployment claims.

Q: Does it matter that we work on fiscal year? If so, then we need to apply for forgiveness FY 2022?

A: For taxes, yes, you would want to have the forgiveness be in a different tax year to the expenses if the timing allows.

Q: Can one use EIDL funds for payroll after the PPP expenses have been spent? It would been a different pay period.

A: Yes, this should be fine.

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