ppp loan forgiveness walkthrough · 2020-05-27 · ppp schedule a to calculate the fte forgiveness...
TRANSCRIPT
PPP Loan Forgiveness
WalkthroughMay 22, 2020
Agenda
Loan Forgiveness Basics
Key Concepts and Calculations For Completing SBA Form 3508
Documentation Requirements
Q & A
Loan
Forgiveness
Basics
8-Week Covered
Period
Qualifying costs must be “incurred or paid” during this period
Starts on the date of disbursement and ends 56 days later
Example: If loan proceeds were received on Monday, April 20th, the final day of the covered period is Sunday, June 14th.
Pre-payment of expenses not permitted
“Alternative” covered period provided for payroll costs only
Alternative Payroll Covered Period
Available for borrowers with biweekly (or more frequent) payroll only
Begins on the first day of the first pay period following the loan disbursement date
Example: if the loan proceeds were received on Monday, April 20th and the first day of the following pay period is Sunday, April 26th, the first day of the “Alternative Payroll Covered Period” is April 26th and the last day is Saturday, June 20th.
If elected, the “Alternative Payroll Covered Period” must be used consistently through the application
Payroll
Costs
Eligible for
Forgiveness
• Salary, wages, commissions, or similar compensation
• Cash tips or the equivalent
• Payments for vacation, parental, family, medical, or sick leave
• Allowance for separation or dismissal
• Payments for employee benefits including group health coverage, including insurance premiums and retirement
• Payments of state and local taxes assessed on compensation of employees
• For independent contractors or sole proprietors: wages, commissions, income, or net earnings from self-employment (Schedule C taxpayers)
Eligible Payroll Costs
Payroll
Costs Not
Eligible for
Forgiveness
• Compensation for employees whose principal place of residence is outside of the United States
• Compensation of an individual employee in excess of an annual salary of $100,000
• Prorated over the 8-week covered period
• Capped at $15,385 for each individual
• Employer portion of payroll taxes
• Sick leave or family medical leave paid under the Families First Act
Non-Eligible Payroll Costs
Non-Payroll
Costs
Eligible for
Forgiveness
• Includes both real and personal property
• Interest only
• No prepayment allowed
• Agreements in effect prior to February 15, 2020
Covered Mortgage Obligations
• Includes both real and personal property
• Full lease payment
• No prepayment allowed
• Agreements in effect prior to February 15, 2020
Covered Rent Obligations
Non-Payroll
Costs
Eligible for
Forgiveness
(continued)
• Includes electricity, gas, water, transportation, telephone, or internet access
•No prepayments
•Service must have started before February 15, 2020
Covered Utility Payments
Clarification on
“Paid or Incurred”
“Paid” = bills paid during the 8 week covered period
“Incurred” = costs incurred but not yet paid
“Incurred” costs (both payroll and non-payroll) are eligible for forgiveness if they are paid on or before the next regular payroll/billing date
The application does not make it clear if the payment of costs relating to periods prior to the 8-week covered period will be eligible for forgiveness.
“75%” Rule
At least 75% of the potential
forgiveness amount must be used
for payroll
Using less than 75% of the loan
proceeds for payroll results in a
reduction of the total potential
forgiveness available to a
borrower
Example
Total loan amount $ 100,000
Payroll costs (70%) $ 70,000
Divide by 0.75
Maximum
forgiveness 93,333.33
Reduction Ratios for Reduced
Workforce and WagesReductions in the average number of full-time equivalent employees (“FTE”)
or
Reductions in salary or hourly wages greater than 25% for non-highly compensated employees
Will reduce total loan forgiveness!
Workforce
Reduction Safe
Harbor
Full restoration of any workforce or pay
reductions that
(1) occurred between February 15, 2020
and April 26, 2020
(2) by or before June 30, 2020
FTE Reduction
Exceptions
1. Good faith, written offer to rehire employee during the covered period which was rejected
2. Any employees who during the covered period:
a) Were fired for cause;
b) Voluntarily resigned;
c) Voluntarily requested and received a reduction in hours
FTE reductions in these circumstances will not reduce loan forgiveness
EIDL Advance
Payments
Total PPP loan forgiveness is
reduced by any advance
payments received for an
Economic Injury Disaster Loan
(“EIDL).
EIDL advance payments are not
required to be repaid
Maximum EIDL advance payment
= $10,000
Loan
Forgiveness
Process
Maximize spending during the 8-week covered period
Accumulate supporting documentation for payroll and non-payroll costs
Complete SBA Form 3508
Submit completed SBA Form 3508 and supporting documentation to lender
Lender must make a determination on forgiveness within 60 days
Key Concepts and Calculations for
Completing SBA Form 3508
SBA Form 3508
Includes three main documents:
1. PPP Loan Application
2. PPP Schedule A
3. PPP Schedule A Worksheet
PPP Loan Application - Basic Information
PPP Loan Application - Payroll Elections and
Additional Info
The $2 Million
Question
Borrowers who received loans in excess of $2 million must “check the box” (including affiliates)
Checking this box will result in a review of your loan by the SBA!
PPP Loan Application - Forgiveness Amount
Calculations
Step 1 – go to PPP Schedule A to calculate payroll costs
PPP Schedule A
PPP Schedule A Worksheet
Schedule A Worksheet – Table 1 Employee Name – separately list the names of each employee. Do not include
independent contractors, owner-employees, self-employed individuals, or partners.
Employee Identifier – last four digits of employee’s social security number
Cash Compensation
Include gross wages, salary, tips, commissions, paid leave, severance pay, and similar
compensation paid or incurred during the covered period or alternative covered period
Total can’t exceed $15,385 for any individual employee
Average FTE
Calculate average “full-time equivalency” for each employee
Used to determine if loan forgiveness will be reduced due to reductions in the number of
FTEs during the covered period or alternative covered period
Two methods available: standard and simplified
Calculating Average FTE – Standard
Method
1. For each employee, calculate
average of hours paid per week
over the covered period or
alternative covered period
2. Divide by 40 and round to the
nearest tenth
3. The maximum for each employee
is capped at 1.0
Example
Average weekly hours
worked 35.00
Divide by 40.00
Average full-time equivalency 0.88
Rounded 0.90 FTE
Calculating Average FTE – Simplified
Method
1. For each employee, calculate average of
hours paid per week over the covered period
or alternative covered period
a) Employees who worked an average of 40
hours or more = 1.0 FTE
b) Employees who worked an average of less
than 40 hours = 0.5 FTE
Calculating Average FTEs
Other dates that average FTEs may need to be calculated:
January 1, 2020 through the end of the covered period or alternative covered period
Safe Harbor Calculation
February 15, 2020 to April 26, 2020
February 15, 2020; and
June 30, 2020
Optional Reference Periods (Select One):
February 15, 2019 – June 30, 2019
January 1, 2020 – February 29, 2020
A consecutive 12-week period between May 1, 2019 and September 15, 2019 (season employers only)
Schedule A Worksheet – Table 1 (Continued)
Salary/Hourly Wage Reduction
Used to determine if loan forgiveness amount must be reduced for reductions in employee
salary or hourly wages during the covered period or alternative covered period as compared
to the period January 1, 2020 to March 31, 2020
This column is only completed for employees whose salaries or hourly wages were reduced
by more than 25%
Potential reductions in loan forgiveness can be eliminated if safe harbor requirements are met
Three step calculation is to be completed for each employee included in Table 1
Salary / Hourly Rate Reduction Flowchart
Compare compensation
during the covered period
with January 1, 2020 –
March 31, 2020
Decrease
of 25% or
more?
Yes No
Enter $0 on
Table 1
Determine if Safe Harbor is
met
Enter $0 on
Table 1
Calculate dollar amount
reduction of compensation,
enter total on Table 1
NoYes
Completed Table 1 - Example
Completed Table 1 - Example
Schedule A Worksheet – Table 2
Schedule A Worksheet – Table 2
Employee Name – Same instructions as Table 1
Employee Identifier – Same instructions as Table 1
Cash Compensation – Same instructions as Table 1
Average FTE – Same instructions as Table 1
The purpose of this schedule is to separately list employees who do not qualify for the 25%
salary/hourly wage reduction penalty (i.e. employees with earnings greater than $100,000).
All employees who earned more than $100,000 (or would have earned more than $100,000
based on an annualization) during 2019 should be included on this table. Independent contractors,
owner-employees, self-employed individuals, or partners should not be listed on this table.
Completed Table 2 - Example
PPP Schedule A – Noncash & Owner Payroll Costs
Line 9 –
Compensation
to Owners
•Owner-employees (?);
•Self-employed individual; or
•General partners
Include amounts paid to the following:
•$15,385; or
•The eight-week equivalent of their applicable compensation in 2019
Compensation is capped at the lesser of:
Line 9 –
Compensation
of Owners
Impacts of owner compensation cap:
Will not be able to increase
compensation from amount paid or net
earning received in 2019 (per Schedule
C / K-1 / W-2)
Partner amounts presumably includes
guaranteed payments
Does not appear to include “non-cash
payroll items (e.g. health insurance or
retirement contributions)
Change from previous guidance (except
for self-employed individuals)
Additional clarification will be needed
Lines 6 to 8 – Non-Cash Payroll Costs Employer contributions for employee health insurance (Line 6) – include amounts paid for
employer contributions for employee health insurance, including employer contributions to self-insured, employer-sponsored group health plan
Excludes any pre-tax or after tax contributions by employees
Employer contributions to employee retirement plans (Line 7) – include employer contributions to employer retirement plans
Excludes any pre-tax or after tax contributions by employees
State and local taxes assessed on employee compensation (Line 8) – include employer payments for taxes assessed on employee compensation (e.g. state unemployment insurance tax)
Note: Payroll costs MUST be paid either during the 8 week covered period (or alternative covered period) OR on or before the next “regular payroll date”. Does not follow “next billing date” rule for non-payroll items like utilities.
Lines 6 to 8 – Non-Cash Payroll Costs
Example: Partnership Alpha paid
qualifying non-cash payroll costs for
healthcare premiums ($5,000),
retirement contributions ($1,000),
and state unemployment insurance
($250) during the covered period.
However, $2,000 of the healthcare
premiums and $500 of the retirement
contribution costs were for benefits
paid to the general partners.
Health
Insurance Retirement State
Premiums Contributions UCI
Partnership Alpha totals $ 5,000 $ 1,000 $ 250
Less: amounts paid for
general partners $ (2,000) $ (500) $ -
Totals to Schedule A $ 3,000 $ 500 $ 250
Line 6 Line 7 Line 8
PPP Schedule A – Total Payroll Costs
PPP Loan Forgiveness Calculation Form
PPP Loan Forgiveness Calculation Form
PPP Schedule A – FTE Reduction Calculation
PPP Schedule A – FTE Reduction Calculation
Purpose: to calculate the reduction in loan forgiveness as a result of a reduction in the
number of employees or average paid hours during the covered period or alternative
covered period.
Shortcuts!
1. If the borrower had no reductions in the number of employees or average paid hours
for the period January 1, 2020 through the end of the covered period or alternative
covered period, simply “check the box”, and enter 1.0 on Line 13.
2. If the borrower has reduced the number of employees or average paid hours, first
complete the “safe harbor” calculation included in the Schedule A Worksheet. If you
qualify, simply enter 1.0 on Line 13.
Schedule A
Worksheet –
FTE
Reduction
Safe Harbor
Step 5If the total for Step 4 is greater than the total for Step 2, the safe harbor applies. Enter 1.0 on Line 13 of PPP Schedule A. If not, use PPP Schedule A to calculate the FTE forgiveness reduction
Step 4 Calculate the total FTEs as of June 30, 2020
Step 3If the total for Step 2 is greater than Step 1, proceed to Step 4. If not, the safe harbor does not apply. The borrower will need to complete Line 13 of PPP Schedule A to calculate the FTE forgiveness reduction
Step 2Calculate the total number of FTEs for the pay period inclusive of February 15, 2020. Methodology must be consistent with previous steps
Step 1Calculate average FTEs for the period February 15, 2020 to April 26, 2020. The methodology must be consistent with the methodology used in the worksheet tables (i.e. standard or simplified methods)
FTE
Reduction
Safe Harbor
Example
Step 5If the total for Step 4 is greater than or equal to the total for Step 2 (Yes!), the safe harbor applies. Enter 1.0 on Line 13 of PPP Schedule A. If not, use PPP Schedule A to calculate the FTE forgiveness reduction
Step 4 Total FTEs as of June 30, 2020 = 2.5
Step 3If the total for Step 2 is greater than Step 1, proceed to Step 4. If not, the safe harbor does not apply. The borrower will need to complete Line 13 of PPP Schedule A to calculate the FTE forgiveness reduction
Step 2 Total number of FTEs for the pay period inclusive of February 15, 2020 = 2.5
Step 1 Average FTEs for the period February 15, 2020 to April 26, 2020 = 2.0
PPP Schedule A – FTE Reduction CalculationIf neither of the shortcuts apply, the applicant will need to calculate the FTE Reduction Quotient
Step 1 – Calculate weekly average FTEs during the chosen reference period. Optional reference periods include:
February 15, 2019 – June 30, 2019
January 1, 2020 – February 29, 2020
A consecutive 12-week period between May 1, 2019 and September 15, 2019 (season employers only)
Step 2 – Enter total weekly average FTEs during the selected reference period on Schedule A, Line 11.
Note: must use the same methodology used to calculate FTEs on Schedule A Worksheet Tables 1 and 2
PPP Schedule A – FTE Reduction Calculation
PPP Loan Forgiveness Calculation Form
Complete the Calculation!
Documentation Requirements
Documents Required to be
Submitted with Application
Payroll
Bank account statements or third-party payroll service provider reports documenting the
amount of cash compensation paid to employees
Tax forms for the periods that include the covered period or alternative covered period
Payroll tax filings reported, or that will be reported, to the IRS (Form 941); and
State quarterly business and individual employee wage reporting and unemployment insurance tax filings
Payment receipts, cancelled checks, or account statements documenting the health insurance
payments or retirement plan contributions
FTE
Payroll tax filings reported to the IRS (Form 941) and state quarterly business and individual
employee wage reporting and unemployment insurance tax filings.
Must include all time period used for purposes of completing PPP Schedule A, Line 11
Documents Required to be
Submitted with Application Nonpayroll
Business mortgage interest payments
Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments; or
Lender account statements from February 2020 through the month after the covered period verifying
interest amounts and eligible payments
Business rent or lease payments
Copy of current lease agreement and receipts or cancelled checks verifying eligible payments; or
Lessor account statements from February 2020 through the month after the covered period verifying
eligible payments
Business utility payments
Copy of invoices from February 2020 and those paid during the covered period; and
Receipts, cancelled checks, or account statements verifying those eligible payments
Documents Required to be
Maintained But Not Submitted
Schedule A Worksheet or its equivalent, and the following:
Documentation supporting the listing of each individual employee in PPP Schedule A
Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation
Documentation supporting the listing of each individual employee in PPP Schedule A
Worksheet Table 2, specifically, that each listed employee received during any single pay
period in 2019 compensation at an annualized rate of more than $100,000
Documentation regarding any employee job offers and refusals, firings for cause, voluntary
resignations, and written requests by any employee for reductions in work schedule
Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor”
