PAYCHECK PROTECTION PROGRAM (PPP) LOAN – ROUND 2
- The business must have fewer than 300 employees, including sole proprietors and other self-employed individuals.
- The business must have used or will use all of the original PPP Loan funds received
- The business must demonstrate not less than a 25% reduction in gross receipts for any quarter in 2020 compared to the same quarter of 2019
- Available to entities that did not exist in 2019 but were in operation before February 15, 2020
- The maximum loan amount for non-seasonal employers is capped at $2 million for this round, $10 million in aggregate between the original PPP Loan round and the second round.
- The loan amount is calculated as 2.5 times the average total monthly payroll costs during either (1) the one-year period before the loan is made OR (2) the 2019 calendar year
- Payroll costs are defined as employee gross wages with a cap of $100k annually for those employees earning more than $100K, state and local employer taxes, employer retirement plan contributions, and employer portion of health insurance, dental insurance, group life, group disability, & group vision.
- For practices that were not in existence during the period from February 15, 2019, to June 30, 2019, who request a loan, the maximum loan amount is 2.5 times the average total monthly payroll payments from January 1, 2020, to February 29, 2020, PLUS the outstanding amount of an SBA Disaster Loan (an EDIL loan) taken out between January 31, 2020, and the date in which such loan may be refinanced as part of this new loan.
WHAT EXPENSES (EXPANDED FROM ORIGINAL LEGISLATION)
These expenses are expanded from the original CARES legislation and apply to both original and second PPP loan forgiveness applications.
- Payroll costs used to determine the maximum borrowing amount include employee gross wages with a cap of $100k annually for those employees earning more than $100K, health insurance premium payments, dental insurance premium payments, group life, group disability, and group vision premium payments, retirement plan contributions paid, and state payroll taxes paid on those gross wages. Any sick leave or family leave wages paid under the recent Families First Act is excluded.
- The loan proceeds can be used to cover operation expenses – Some named expenses include but are not limited to business software, cloud computing, product or service delivery, processing payment, tracking of payroll expenses, human resources, sales and billing functions, accounting or tracking of supplies, and inventory records or expenses.
- The loan proceeds can cover property damage costs related to property damage and vandalism or looting due to public disturbances that occurred in 2020 not covered by insurance or other compensation.
- Only the expenses outlined below as Loan Forgiveness Expenses are eligible for loan forgiveness.
LOAN FORGIVENESS EXPENSES
- The covered period is 8 weeks or 24 weeks, elected at the time of forgiveness
- The portion of the loan used to pay employee wages, health insurance premium payments, dental insurance premium payments, group life, group disability, & group vision premium payments, retirement plan contributions paid, and state payroll taxes paid on those gross wages must equal 60% of the loan balance.
- The remaining loan can be used to cover operational costs, property damage costs, mortgage interest, business loan interest, rent, and utilities
- Eligible mortgage interest, rent, and utilities are those where the obligation was in place prior to February 15, 2020.
PPP LOANS, EIDL GRANTS, & SBA LOAN PROGRAM TAXATION CHANGES
As intended with the original legislation, this congressional bill clarifies that expenses used to achieve loan forgiveness for the PPP loan are tax-deductible and the forgiveness amount is nontaxable, clarifies that the EIDL express grant is not includible in income, and further indicates that all payments made under the SBA Loan program are also not includible in income.
SIMPLIFIED LOAN FORGIVENESS PROCESS FOR PPP LOANS UNDER $150K
Simplified Loan forgiveness for loans under $150k
- Certification to lender less than one page that states
- Description of employees the entity was able to retain because of the covered loan
- Estimated amount spent on the covered loan amount on payroll costs
- The total value of the loan
- The letter must certify:
- Accurately provided the certification
- Complied with requirements under section 7(a)(36)
- Retains records relevant to the form that prove compliance with requirements
- Employment records for 4 years following submission of the form
- All other records must be retained for a 3-year period following submission of the form
Author – Stephanie Baker, CPA