The PPP (Paycheck Protection Plan) was originally part of the CARES act. We’ve had several definitional changes of the PPP and now one extension of time.
The version of PPP we have now might have the same spirit of the original Act, but it’s been changed to be a lot more helpful to businesses. That’s the purpose of today’s article.
How can the PPP help your business today?
Applying for a PPP Loan/Grant
The amount you will receive is 2.5 times your average monthly payroll. If you’re a solopreneur or self-employed, the calculation for your “salary” will vary based on the type of structure you have.
If you operate as a Sole Proprietorship (Schedule C), your monthly income will be the total of your annual net income on your 2019 tax return divided by 12.
If you operate as a Partnership, it will be the total that the general partner(s) have as income that is subject to self employment tax. It can also be the amount of guaranteed payment paid to partner(s). Those amounts are divided by 12 to give your monthly.
If you operate as an S Corporation or C Corporation, it will be the amount of your average monthly salary. (Annual salary divided by 12)
If you have employees in addition to having your own income, simply add the average monthly paid to the employees to your total as calculated above. Remember independent contractors do not count since they can have their own plan.
Where to Apply
You apply for the PPP loan through your bank or a Fintech company such as PayPal, Square, Stripe, Kabbage, Intuit and the like. Do a Google search for “fintech PPP” and you’ll see lists of the latest that are offering PPP loans.
You’ll need to provide some back-up information to prove the payroll or owner compensation. That could consist of your 2019 tax return or payroll reports, or both.
How to Turn a Loan Into a Grant
When you get the loan, you have 24 weeks to spend the money in accordance with the loan. If the loan was received prior to 6/5, you have a choice whether to use the 8 week or 24 week period.
At least 60% of the proceeds must be paid for qualified payroll expenses. The rest can be spent on rent and/or utilities.
Qualified Payroll Expenses
The qualified payroll expenses are the total of salary, tips and bonuses for employees. It also includes health insurance, except for the health insurance premiums paid for the owner. Family members that are employed by the company are treated as other employees for this calculation. Retirement contributions for partners or self-employed persons are not included as qualified payroll expenses. However retirement contributions for S Corporation owner/employees are.
There is also a limit on the amount that is allowed as a qualified payroll expense for owners. The amount is capped at $20,833 (the 2.5-month equivalent of $100K per year) or the 2.5-month equivalent of their 2019 compensation, whichever is lower.
For the 8 week covered period, the amount is capped at 8/52 of 2019 compensation (up to $15,385).
FTE (Full Time Equivalency)
To qualify for full forgiveness under the old rules, business owners had to maintain the average number of employees they had on staff as of Feb. 15 and pay them at their same rate. Or they at least had to meet those criteria by June 30. The new rules extend that safe-harbor date to Dec. 31.
Full forgiveness also may be available when a business can’t hire back their full staff under Covid-related workplace safety requirements mandating that they operate at less-than-full capacity.
If you can’t meet the safe-harbor date with FTE, then the amount you can deduct is calculated as a pro-rata amount. For example, if you need 20 FTE and you have 10 FTE, then half will be forgiven. The rest becomes a loan.
New EZ Form for Forgiveness Filing
In order to use the new Form 3508EZ, you must meet one of the following three criteria:
#1:The borrower is a self-employed individual, independent contractor, or sole proprietor who had no employees at the time of the PPP loan app and did not include any employee salaries in the computation of average monthly payroll.
#2:The borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the Covered period compared to the period between 1/1/2020 and 3/31/2020, and
The borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period.
#3: The borrower did not reduce annual salary or hourly wages of any employee by more than 25% during the covered period compared to the period between 1/1/2020 and 3/31/2020, and
The borrower was unable to operate during the covered period at the same level of business activity as before 2/15/2020, due to compliance with requirements established or guidance issued before 3/1/2020 and 12/31/2020 by the Secretary of HHS, CDC or OSHA, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
Remember you are required to qualify for only 1 of the 3 above.
As the economic downturn lingers, we’re seeing a lot of government support to get the country back open.
This is likely not the last of changes that are coming.
The SBA loans provide new opportunities for business and often are free money, as well. Keep up to date on all the programs available for you as part of CoronaTax.
Pick up your copy here: https://www.ustaxaid.com/shop/coronatax/
SBA loans have never looked better for your small business.