Making Sense of PPP Loan Forgiveness
The SBA has recently provided some updates and clarification around PPP forgiveness. However, there are still significant outstanding questions and unresolved issues. We are closely keeping our eye on further announcements from the SBA and Treasury. Additionally there are new bills moving through Congress that may address some confusion. The PPP Flexibility Act recently passed in the House, and it's anticipated the Senate will take up the bill and draft a similar version. Based on these recent announcements, here is what we've learned, ongoing outstanding questions and new issues that have arisen.
What we learned:
1. The 75% litmus test is NOT all-or-nothing. Divide the money spent on payroll by .75 and that is your maximum loan forgiveness amount. If it exceeds your loan amount you can qualify for 100% forgiveness.
2. Leases on equipment (autos) count as rent as long as they were entered into before 2/15/2020.
3. There is legislation pending to do the following. It is unclear if this will apply to all businesses or just “shuttered” businesses.
24 week covered period instead of 8
60/40 split instead of the 75/25
FTE requirement waived if employees won’t come back OR revenue in December is below February 2020 levels
5 year loan repayment instead of 2
Still unclear to us:
1. Can SEP payments add to the 100k limit for S-Corp owners. Many say yes but we have seen nothing definitive.
2. Still unclear what qualifies as a utility. Particularly Cell Phones?
New issues:
1. Schedule C forgiveness. Your loan equaled 2.5 times Line 31 of the schedule C. Forgiveness is only 8/52nds of the same number. It looks like that is it. No rent or utilities qualify, according to some. This means a portion of your loan can not be forgiven. Hopefully they fix this.
2. Incurred and paid is being interpreted liberally. Meaning incurred or paid. Many feel you can pre pay rent of pay prior year liabilities such as pension matches from 2019. We aren’t so sure. We thought this was settled so waiting on clarification.