Because the regulatory requirements surrounding the Payroll Protection Program (PPP) Loans are continuing to change, we feel it is crucial to update you on some recent developments:
- Employers looking to rehire employees that have been receiving unemployment must make a good faith, written offer to rehire them. An employee who rejects that offer must put the statement in writing. Employees rejecting the offer to come back to work will forfeit continued unemployment compensation and will not count against an employer’s full-time equivalents (FTE) count for purposes of loan forgiveness.
- The SBA released guidance stating that self-employed individuals will need to resubmit their 2019 schedule C used to obtain the PPP loan as the support for having the loan forgiven.
- The IRS has released guidance regarding the deductibility of qualifying expenses related to the PPP loan and have indicated that if the PPP loan is forgiven, then the corresponding qualifying expenses are not deductible.
- The SBA still needs to provide guidance on:
- The definition of a full time equivalents (FTE) as it relates to loan forgiveness
- Whether bonuses will be qualifying payroll costs
- Whether self-rentals of real estate qualify as rents paid
- Whether unfunded 2019 retirement plan contributions paid in 2020 count as qualifying expenses
- The AICPA is consulting with and submitting recommendations to the SBA on the PPP loans. One of their recommendation is to have the 8-week period start when the company’s state lifts restrictions rather than start as of the loan date. This could provide companies additional opportunities to spend all of the funds.
- The SBA is allowing companies who may have received PPP loans but feel they no longer qualify to return the funds by May 7th without any consequences.
- The SBA intends on auditing companies receiving PPP loans in excess of $2 million dollars. It should not be presumed that companies under this threshold will not be audited.
- Interest will accrue on the PPP loans until the loan is forgiven. Interest will be paid at 1% for a minimum of 8 weeks (or more), depending upon how long it takes the bank to forgive the loan.
We recommend that clients budget use of PPP loan money received over the next 8 weeks to determine if all funds will be used. At minimum, 75% of the PPP money must be used on payroll costs (gross payroll, health insurance premiums, and employer retirement plan contributions). Companies unable to use all of the funds may need to make some payroll adjustments. You must document the use of the funds down to the penny and have your documentation ready to submit to the bank at the end of the 8-week period.
Health and Human Services (HHS) has already issued money to those receiving Medicare and just issued a second round of stimulus money for health professionals impacted by Covid-19. Health professionals will be able to apply for additional money (assuming they received the initial stimulus money), based on the company’s decrease in collections for March and April 2020 versus the same time period in 2019. This money will be used to cover loss in revenue and other Covid-19 related expenses, such as training and cleaning supplies.
We will continue to update you as further information is released. We are always here to help and address any questions you have, so please do not hesitate to reach out.