Dated 4/8/2020
This afternoon an updated FAQ’s was released on the Treasury’s website as to when the funds must be disbursed and when the 8 week period for forgiveness begins. Previously, some banks have mentioned an applicant could apply and not accept the loan until a later date. The FAQ’s posted on the Treasury website clarify that some funds must be distributed within 10 days of applying and that initial disbursement will start the 8 week period. Please take this into consideration when speaking with your lender and determining when to submit your application.
Paycheck Protection Program (PPP) Loans
The amount of forgiveness of a PPP loan depends on the borrower’s payroll costs over an eight-week period; when does that eight-week period begin?
Answer: The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.
Example:
- Practice applies for a loan today
- Practice is approved by 4/10.
- Practice must take an initial disbursement by 4/20 (assuming max deferment)
- If the disbursement is taken by 4/20, only costs spent before 6/15/20 are eligible for forgiveness
- Any part of the loan not eligible for forgiveness must still be used for eligible expenses and is treated as a low interest loan.
- Please refer to our newsletter sent 4/6/20 regarding the timing of applying for a PPP loan.https://www.rosendentalcpa.com/resources/taxscriptions/
The CARES Act excludes from the definition of payroll costs any employee compensation in excess of an annual salary of $100,000. Does that exclusion apply to all employee benefits of monetary value?
Answer: No. The exclusion of compensation in excess of $100,000 annually applies only to cash compensation, not to non-cash benefits, including employer contributions to defined-benefit (Cash Balance) or defined-contribution retirement plans; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums; and payment of state and local taxes assessed on compensation of employees.
What time period should borrowers use to determine their number of employees and payroll costs to calculate their maximum loan amounts?
Answer: In general, borrowers can calculate their aggregate payroll costs using calendar year 2019. Applicants may use their average employment over the same time periods to determine the numbers of employees. An applicant not in business for the period between 2/15/19 and 6/30/19 may use the average payroll for the period 1/1/20 through 2/29/20.
Should payments that an eligible borrower made to an independent contractor be included in calculations of the borrower’s payroll costs?
Answer: No. We understand some major banks are still requesting this figure but it is incorrect.
How should a borrower account for federal payroll taxes and withholding when determining its payroll costs for the purposes of the maximum loan amount?
Answer: Under the Act, payroll costs are calculated on a gross basis without making an adjustment for employee withholdings. The employer’s portion of the FICA tax (Social Security and Medicare) is not added to payroll costs. We understand it is a cost, but it is not an eligible cost for the purposes of this program. Some major payroll companies have been including these totals in there reports which is incorrect. You can input some of the data from your payroll company’s report onto our Rosen excel template to help you determine your eligible payroll costs. The excel template can be found on our website and calculates payroll costs in accordance with the Act and interim final guidance.
Do lenders need to independently verify information about affiliates?
Answer: No, it is the responsibility of the applicant to determine which entities are affiliates and determine the number of employees of the applicant and affiliates. Lenders are permitted to rely on the borrower’s certifications. Please remember, the purpose of the affiliation schedule is to make sure that businesses under common management have less than 500 employees. If you have multiple offices or have a PC owning a partnership interest we are recommending disclosing the related entities, the number of employees, and that there is common management. As long as the aggregate number of employees is under 500, this information won’t impact your loan application, it is just disclosure.
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Please let us know how we can continue to support you through these challenging times.
Stay safe and healthy.
Rosen & Associates, LLP
1800 West Park Drive, Suite 300
Westborough, MA 01581
508-926-2400