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What Does the Revised PPP Loan Forgiveness Application Mean to Me? Ken Bagner Member of Firm and Chair of the SobelCo Tax Practice Alan Sobel Managing Member of SobelCo
What Does the Revised PPP Loan Forgiveness
Application Mean to Me?Ken Bagner
Member of Firm and Chair of the SobelCo Tax Practice
Alan SobelManaging Member of SobelCo
Update to Application• 60/40 Rule: Small Business Administration (SBA) clarifies it is not all or nothing
• Payroll Forgiveness Costs
• New amount $46,154- if using 24 week period for employees plus employer contribution for health, retirement, certain state and local taxes
• Self-employed, general partners of partnership, owner-employees of S Corp
• Limited to original loan amount 100K/12 X 2.5 = $20,833 now instead of eight weeks or $15,385
• PPP loan payback: Now five years at one percent instead of two years• Borrowers who received loans before June 5, 2020: Can choose between using the
original eight-week covered period or the new 24-week covered period
Why 24 Weeks is so PowerfulIf you had more employees during covered period you may want to apply for forgiveness after 8 week period instead of waiting for 24 weeks
Make sure you have 100% forgiveness
Generally, we believe 24 weeks is going to be better for most of our clients
Forgiveness costs may well exceed loan amount
Total Forgiveness now the lessor of Loan Amount, Forgiveness Amount or Payroll/.6
ExampleLoan amount for 11 weeks period for payroll alone is $1M (Excluding other costs)
Total loan $1.3M with $300K of other cost
Over a 24 Week period you pay payroll of $1.7M plus the $300K of other costs, $2M in total
Assume you have a reduction of workforce of 30%
$2M X 70% forgivable = $1,400,000
Example (Continued)
Forgiveness Calculation:Lower ofForgivable Amount $1,400,000Loan Amount $1,300,000Payroll/.6 $2,833,333
• 100% of loan is forgivable $1,300,000• Even with a 30% reduction in workforce
• Remember you may have kept your whole work force for the first 8 weeks.
• The next 16 weeks if you were at 60% capacity your average would be 73%. So in this example you can cut your staff by 40% (if needed) for the next 16 weeks and still have 100% forgiveness.
Update to Application• Social Security Taxes (Employer portion 6.2% only):
• Can be deferred for the remainder of the year even if you receive loan forgiveness
• Reminder that 50% of deferral is paid back December 31, 2021 & the other 50% December 31, 2022. Essentially, interest free loan
• Health Insurance costs for S-corporation owners: • Cannot be included when calculating payroll costs • Retirement costs are eligible costs
Update to Application• Safe Harbors
• Loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted for excluding salary and hourly wage reductions and reductions in the number of employees (full-time equivalents)
• Borrowers who cut headcount or salary throughout 2020 would not experience a reduction in the forgiveness amount provided the headcount or salary were restored prior to June 30, 2020. The new law extends this period to December 31, 2020 or the date of the application is submitted (Earlier of the two)
• Borrowers don’t have to wait until December 31, 2020 to apply for forgiveness to use the safe harbors
Update to Application• Flexibility Act
• Provides new bail-out for borrowers who CAN’T replace headcount before December 31,2020
• No reduction in forgiveness will be required due to reduced FTEs provided the borrower, in good faith, is able to document any of the below:
• Inability to rehire individuals who were employees of the eligible recipient on February 15, 2020
• Inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020, or,
• Inability to return to the same level of business activity as such business was operating at before February 15, 2020 due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 21, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID– 19
Payroll Costs• Payroll Costs extended to 24 weeks
• Eligible Payroll Costs Include:• Payment for vacation, parental, family, medical, or sick leave. Allowance for
dismissal or separation
• Payment required for the provisions of group health care benefits, including insurance premiums
• Payment of any retirement benefit
• Payment of state or local tax assessed on the compensation of employees
Payroll Costs• Payroll Costs NOT Eligible for calculating payroll
• Employee/owner compensation in excess of $100,000
• Taxes imposed or withheld under chapters 21 (FICA), 22 (Railroad Retirement Tax), and 24 (Income Tax Withholding) of the IRS code
• Compensation of employees whose principal place of residence is outside of the U.S.
• Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act
Non-Payroll Costs• To qualify for forgiveness - non-payroll costs such as mortgage interest, rent
and utilities, must either be: • Paid DURING the 24-week covered period
• Incurred during the 24-week period, and paid by its next regular due date, even if that due date is outside the 24-week period
• Loan payback - commencing with SBA pays bank the forgiveness amount. • If borrower doesn’t apply within 10 months after end of its Covered Period, loan
payments commence at the end of the 10 month period
Which Application is Right For You?
EZ Application Full
Application
Application ChecklistThe Borrower can apply for forgiveness of PPP loan using this SBA Form 3508EZ if they can check at least one of the three boxes below. Do not submit this Checklist with SBA Form 3508EZ.
• Applicant must be a self-employed individual, independent contractor or sole proprietor who had no employees at the time of the PPP loan application and did not include any employee salaries in calculating its loan amount
• Applicant must not have reduced the annual salary or hourly wages of any employee by more than 25% during the applicable 8- or 24-week “covered period” as compared with the period between January 1, 2020 and March 31, 2020 (excluding employees who made more than $100,000 during 2019) and must not have reduced the business’s number of employees or the average paid hours of employees between January 1, 2020 and the end of the applicable covered period (excluding reductions arising from an inability to hire or rehire qualified employees and reductions in an employee’s hours due to the employee’s refusal to work those hours)
• Applicant must not have reduced the annual salary or hourly wages of any employee by more than 25% during the applicable covered period (excluding employees who made more than $100,000 during 2019) as compared with the period between January 1, 2020 and March 31, 2020 and must have been unable to operate during the applicable covered period at the same level of business activity as before February 15, 2020, due to compliance with social distancing, sanitation, and other safety regulations related to COVID-19.
Applicants who do not meet any of the above test must complete the standard application, which has been streamlined to 5 pages
EZ Application
EZ Application
Full Application
Full Application
Full Application
Full Application
Full Application
Full Application
Full Application
Brainstorming on Planning
Contact Information
Ken Bagner, CPA, CGMA, MSTMember of the Firm, SobelCo
Alan D. Sobel, CPAManaging Member, SobelCo
Visit our website for additional information: SobelCoLLC.com
