After much anticipation, the SBA has released new forgiveness applications and additional guidance regarding the recent changes put in place with the Paycheck Protection Program Flexibility Act (PPPFA).
The SBA provided two applications and related instructions – the abbreviated Form 3508EZ and the detailed Form 3508. Both applications clearly allow for the 24-week covered period, the 8-week covered period, or the 8-week alternative covered period for payroll only.
The abbreviated Form 3508EZ allows for a shortened application for forgiveness in comparison to the detailed forgiveness Form 3508. To qualify to use the EZ form, at least one of the following must be true:
- You are a self-employed individual or sole proprietor who had no employees at the time of the PPP loan application and did not include employee salaries in the computation. OR
- You did not reduce salaries or hourly wages by more than 25% during the covered period compared to January 1 – March 31, 2020 period and did not reduce the number of employees or average paid hours between January 1 – the end of the covered period.
- You did not reduce salaries or hourly wages by more than 25% during the covered period compared to January 1 – March 31, 2020 period and you were unable to operate during the covered period at the same level due to compliance with requirements established or guidance issued between March 1- December 31, 2020, by HHS, CDC, or OSHA.
Additionally, the application’s instructions provide detailed guidance regarding documentation required to be submitted and information the loan holder should keep in their file for questions or additional examination.
As we have indicated previously, keeping detailed records regarding the spending of the funds should continue regardless of the guidance provided in these applications.
Documentation required to be submitted with both forms are the same except for additional proof of FTE required to be submitted with the Detailed Form 3508. Here is a brief list of the documentation required to be submitted include the following items:
- Third-Party Payroll Reports documenting cash compensation paid to employees
- Payroll Tax Form for the period that covers and overlaps the covered period
- Payment receipts, canceled checks, or account statements documenting the amount of retirement plan and health insurance contributions
- Third-party Reports showing the FTEs on January 1, 2020, and at the end of the covered period
- Copy of mortgage lender amortization schedule and receipts or canceled checks verifying payments
- Copy of current lease agreement and receipts or canceled checks verifying eligible payments
- Copy of business utility invoices and receipts, canceled checks, or account statements verifying those eligible payments
Additional Clarification on PPP Loan Expenses
Below are a few clarifications provided by the SBA or included in the forgiveness applications regarding owner’s compensation:
- Forgiveness for owner’s payroll costs is still limited to $15,835 if you select the 8-week covered period or $20,833 if you select the 24-week covered period. However other employees who earn more than $100,000 in 2019 can generate $46,154 in payroll costs which can be included in the loan forgiveness calculation when selecting the 24-week period.
- An Owner’s group insurance costs cannot be included in the forgiveness amount
- Retirement Plan contributions provided to owners is limited to 2.5 months of the 2019 contribution amount.
Additionally, new guidance released by the SBA on June 22nd indicated forgiveness can be applied for as soon as the funds are spent.
This means you will not have to wait until the end of your elected covered period. When seeking forgiveness, you should discuss timing with your CPA and contact your lender to request information regarding their forgiveness process.
Provider Relief Fund Under the CARES Act
The Act allows additional relief funds for Medicare & Medicaid Providers. The US Department of Health and Human Services is administering the funds and compliance reporting. To be eligible to receive the funds you must have provided diagnosis, testing, or care for individuals with possible or actual cases of COVID-19 after January 31, 2020, and have billed Medicare/Medicaid/CHIP in 2019. HHS has stated it views every patient as a possible case of COVID-19. The payment is based on the lesser of 2% of a provider’s most recent tax return net patient revenue or the sum of incurred losses for March – April 2020. The funds are required to be used to prevent, prepare for, and respond to the coronavirus. The funds cannot be used towards expenses or losses that have been reimbursed from other sources. This means you must track the use separately from funds received under other programs such as the Paycheck Protection Program. As long as all the terms and conditions under the agreement are met, then no repayment of the funds received is required. Reporting of these expenditures to verify compliance in the use of the funds is forthcoming and has not been released as of June 18th. Any funds received are treated as taxable income.