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SBA Makes Further Changes To PPP Rules in New FAQs

Posted by Concannon Miller on Mon, Aug 17, 2020

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SBA Makes Further Changes To PPP Rules in New FAQsThe U.S. Small Business Administration has issued further guidance on Paycheck Protection Program loans with new comprehensive frequently asked questions.

The new 10-page document answers 23 FAQs, including on loan forgiveness payroll costs, nonpayroll costs and forgiveness reductions.

The full FAQ document can be accessed here. Here are some highlights:

Payroll Costs

  • Alternative Payroll Covered Period: Prior guidance allowed the borrowers (with a biweekly or more frequent payroll schedule) to use an Alternative Payroll Covered Period, allowing for them to elect to calculate eligible payroll costs using the eight-week period that begins on the first day of your first pay period following the disbursement of the PPP funds, rather than the first day of disbursement. The new FAQs clarify that borrowers with a biweekly or more frequent payroll schedule who do not use the Alternative Payroll Covered Period can include payroll costs paid during the Covered Period, even if they were incurred prior to the Covered Period.
  • Additionally, both borrowers who elect the Covered Period and those who elect the Alternative Payroll Covered Period can include payroll costs incurred during the Covered Period or the Alternative Covered Period as long as the costs are paid on or before the next regular payroll date after the end of the relevant period.
  • Forgivable cash compensation: To determine forgivable cash compensation, payroll costs include all forms of cash compensation paid to employees, including tips, commissions, bonuses, and hazard pay, subject to a per employee cap of $100,000 in annualized compensation. Additionally, cash compensation should be the gross amount paid to employees before deductions for taxes, employee benefits payments, or similar payments.
  • Health benefits: Employer expenses for employee group healthcare benefits paid or incurred during the Covered Period or Alternative Payroll Covered Period are eligible for forgiveness. In the case of insured group health plans, if the borrower does not pay premiums before the end of the Covered Period or Alternative Payroll Covered Period, it must pay them by the premium due date in order to be included in forgivable payroll costs. Note, amounts paid by employees (or plan beneficiaries) and amounts accelerated from periods outside of the Covered Period or Alternative Payroll Covered Period are not eligible for forgiveness.
    • The SBA/Treasury subsequently added FAQ #51 to its original FAQ list, which provides that dental and vision benefits are eligible healthcare benefits.
  • Retirement benefits: Likewise, employer contributions for retirement benefits paid or incurred by the borrower during the Covered Period or Alternative Payroll Covered Period are eligible for loan forgiveness. But again, amounts paid by employees or amounts accelerated from periods outside of the Covered Period or Alternative Payroll Covered Period are not eligible for forgiveness.


Nonpayroll Costs

  • Resource Center - Email Graphic Rev2Eligible nonpayroll costs incurred before the Covered Period but paid during the Covered Period and amounts incurred during the Covered Period but paid on or before the next regular billing date are eligible for forgiveness.
  • Eligible utility costs include the entire electricity bill paid by the borrower, including supply charges, distribution charges, and other charges such as gross receipts taxes, even if they’re invoiced separately.
  • Eligible transportation costs only include transportation utility fees assessed by state and local governments
  • Forgivable nonpayroll costs including lease payments on recently renewed leases and interest payments on refinanced mortgage loans are eligible for forgiveness if the original agreements existed prior to February 15, 2020 and were renewed/refinanced on or after February 15, 2020.


FTE and Salary/Wage Reduction Tests

  • When determining the amount of reduction in forgiveness under the salary/wage reduction test, reductions in pay caused solely by a reduction of hours will not result in a salary/wage reduction amount. Instead, the impact of a reduction in hours will be computed separately under the FTE reduction test. Therefore, an employer will not be penalized twice for the same employee, unless both the employee’s hours and hourly wage/salary are reduced.
  • The FTE reduction test (but not the salary/wage reduction test) includes all employees, including those who made more than $100,000.


Owner Compensation

  • The maximum amount of compensation that can be counted towards forgiveness for an individual with any ownership interest in an S corporation, C corporation, partnership or sole proprietorship (Schedule C business) cannot exceed the lesser of $20,833 or 20.833% of their 2019 compensation, and this cap applies cumulatively to all companies that the owner/employee is paid by. The allocation of this will be as selected by the borrower companies.
  • The $20,833 / 20.833% presumes a Covered Period of 10.6 weeks (2 ½ months) or more. A borrower that elects to use an 8 week Covered Period will be limited to the lesser of $15,385 or 15.385% of 2019 compensation.
  • For C-corporations, the following payroll costs are also eligible for forgiveness (in addition to the above caps):
    • SUTA
    • Health insurance premiums
    • Employer retirement contributions up to 15.385% (8 week covered period) or 20.833% (2.5 month or more covered period) of the 2019 contribution
  • For S-corporations, the following payroll costs are also eligible for forgiveness (in addition to the above caps):
    • SUTA
    • Employer retirement contributions up to 15.385% (8 week covered period) or 20.833% (2.5 month or more covered period) of the 2019 contribution
    • Note- employer health insurance contributions for 2% owners (and their family members) are not eligible for forgiveness
  • For Self-Employed C or Sch F filers- total payroll costs eligible for forgiveness limited to 2.5/12 x 2019 Schedule C net profit – no additional amount for health insurance, retirement benefits, or SUTA allowed.
  • For Partnership payments to General partners-
    • General partner compensation limited to 2.5/12 of 2019 net SE earnings x .9235. No additional amount for health insurance, retirement benefits, or SUTA allowed.
      • 2019 net SE earnings equal to 2019 K-1 box 14a minus any Sec. 179 expense deduction and unreimbursed expenses deducted on Form 1040 Sch SE
    • Note- in order to be eligible for forgiveness, payments to partners must be made during the covered period.


Other Noteworthy Items

  • While interest accrues from the date that the loan is received, the borrower will only be responsible for paying the accrued interest on loan amounts that are not eventually forgiven.
  • Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to (and should) use the PPP Loan Forgiveness Application Form 3508EZ.


Read more about PPP loans and other COVID-19 assistance for businesses here. Please contact us with any questions.

Topics: 2020 Coronavirus

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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