Joint Chamber Small Business Resource Call 5-28-2020
Thank you to all of our presenters on the call.
Questions & Answers
Q: When will we see guidance related to what is considered state taxes for loan forgiveness? Workers Comp? PFML?
- A: All of these can be included as long as they show up on the actual payroll records.
Q: Please include any variables associated with forgiveness applications for IRS 501c3 nonprofit organizations.
- A: The same rules apply to nonprofits as do for–profits.
Q: Paid or Accrued expense…when to use each method to record expenses for forgiveness?
- A: You may accrue expenses during the “Covered Period”, but the use of funds is documented by when you paid them for forgiveness.
Q: Are there any status updates on the legislation submitted last week to extend the relief period from eight weeks to 16 weeks?
- A: The legislation has passed the House, and now moves onto the Senate.
Q: If a PPP loan recipient gives a raise during the 8 week period can they include that in the loan forgiveness ask
- A: As long as it is in the normal course of business. The SBA does recommend being careful not to add any unusual compensation.
Q: Love to see an example of a single owner, single employee where no actual paycheck is produced. Should be simple, right?
- A: Yes, Instead of using W-2s to document the payroll per employee, a W-3 for gross wages paid, a 941 or a 940, a single owner(sole proprietor) would use their Schedule C for 2019 to determine their average monthly income. Their average monthly income is calculated by taking line 31 and dividing it by 12. Also: On the Forgiveness Application, you would demonstrate at least 75% of the loan was used for your draws to have the PPP loan fully forgiven.
Q: EIDL Loans were presented as a “grant” provided you use it for approved expenses. Mine says it must be paid back.
- A: The EIDL advance is the grant portion of EIDL. However much you received in the advance will be deducted from your EIDL loan. In other words, if you got a $10,000 EIDL loan and a $2,000 EIDL advance, your new loan amount would be $8,000.
Q: PPP extension/expansion rumors?
- A: Congress is working on HR 7010, the Paycheck Protection Program Flexibility Act, and we will wait to see what that will include as far as expansion dates for forgiveness.
Q: Can I accept a loan from the SBA if I have already received the PPP loan?
- A: You can have both the EIDL and the PPP loan, however they must be used on different expenses, and documented as such.
Q: Is there a deadline for submitting the forgiveness application to the lender?
- A: The deadline is set by the program not by a lender. SBA recommends getting it into your lender with enough time to meet the application deadline for the SBA.
Q: We paid incentive bonuses to return to work. Can they be included as compensation to the employee? They were paid during the covered period.
- A: Incentive bonuses can be included as long as they are standard to your course of business, and the bonus is not a large percentage of the PPP forgiveness amount.
Q: On the Schedule A worksheet, do we make copies of the blank work sheet and fill one out for each employee individually?
- A: Yes.
Q: Not sure if you can speak to this today, but I noticed that the FTE Safe Harbor in the proposed bill H.R. 7010 is proposing to have the date changed from 6/30 to 12/31 for the FTE Safe Harbor. The loan forgiveness application is currently due by 10/31, do you expect this date to be extended as well? How will this be carried out if someone applies for forgiveness prior to 12/31/20, but needs until that date to return their FTE?
- A: We may have to wait until we know more about the final bill that gets passed through. Hopefully there will be more clarification within the final draft.
Q: We are an ESOP, so most staff employees are “owner employees”. How does that work with the Schedule A calculations vs the amount entered directly onto the Schedule A?
- A: According to the SBA, the ESOP employees are still paid as employees and should qualify as the W-2 employees. Anyone who owns over 20% equity is considered a W-2 owner.
Q: Are salaried employees included at 40 hours per week.
- A: Yes if they are full time salaried employees.
Q: I received $1000 EIDL advance BEFORE I even filled out the PPP loan. I missed the first round of PPP loan. I’ve recently received a portal for the EIDL loan but have not gone there. I am not sure we need the funds. In this case, what happens to the $1000 advance? I was under the impression it was a grant–did not have to be paid back.
- A: If you don’t pursue the EIDL loan further, you can keep the $1,000, it’s essentially a grant. If you receive a ppp loan, that sum will be deducted from the forgiveness amount.
Q: For Partners in an S.Corp is the K-1 for partners included in the 8/52 rule?
- A: Yes, partners are limited at 8/52 of $100K each. But the FTE rule still has to be met. That is to prevent the owners/partners from taking too much of the PPP funds. Relative to Partner and K-1s, let me clarify – If the original loan application included the partners then they are eligible but if they were not included in the amount of the loan offer then they are not eligible for use of the PPP loan proceeds or the loan forgiveness. (Steve Burke)
Q: SBA has made a difference via PPP–is any guidance coming out on EIDL reconsideration to increase loan amounts from $150k?
- A: We have never heard a formal pronouncement as to maximum loan amounts, but it does appear that a lot of loans are being approved for that amount. I believe that EIDL is closed to new applications and has limited funds. Many EIDL applicants have received more than $150K. There is no published limit to the EIDL other than the original $2 million. (Steven Burke)
Q: My PPP was funded to me 4/30. But I was beginning unemployed March 23. Can I collect UI for the period not covered by the PPP? 3/23-4/30. I’m not trying to double dip but the amount of the PPP does not cover the period I was unemployed in the beginning.
- A: The SBA does not believe that would be double dipping. You should be fine.
Q: Are equipment leases valid uses of both the EIDL and PPP?
- A: Equipment leases are valid uses of both the EIDL and the PPP but only one of those programs as you cannot use the two loans for the same purpose.
Q: I received notice my EIDL loan was approved a couple days ago but I received my PPP loan 3 weeks ago. Can I accept the EIDL loan without issues?
- A: Yes. You can have both. The issue is what you use the EIDL for. The EIDL and the PPP cannot be used for the same costs. Remember to keep good separate accounting records.
Q: Would rental of a storage unit by company qualify…we do rent a storage unit year around.
- A: Storage unit rental should qualify as it is somewhat of a facility lease.
Q: We rent a building based on a verbal agreement dating back 15 years. Since there is no written agreement can we include it on line of the calculation form?
- A: The SBA would be hesitant to do that without something in writing from the Landlord. You could use payment records to support the lease but I cannot say what your lender will require to support it.
Q: What documentation is needed for self employed individuals?
- A: You will need the schedule C from your 2019 tax return.
Q: Do IRA contributions count as retirement plan?
- A: Yes.
Q: Do garnishments count as payroll costs? Garnishments are actually part of their Gross pay that is paid to a third party…
- A: The SBA does not have guidance on garnishments but they doubt it since they are not really a payroll cost as you pass them on to who they belong.
Q: Is WA L&I included in State tax figure?
- A: Yes.
Q: We pay our employees for travel, would that be included as forgivable?
- A: That wouldn’t fall under payroll expense. That is an ongoing expense of the business.
Q: If you reduced your FTE so your forgiveness amount is reduced, do you still just pay the loan on the regular schedule or do you have to pay the rest of the amount back right away?
- A: Any unforgiven portion of the loan is repaid over the last 18 months of the loan. If you have unspent funds, you may do a principal reduction to make your monthly payments over the 18 months lower. A principal reduction means paying back the loan and there is no pre-payment penalty on the PPP loans.
Q: Is a resignation also excluded from the Safe Harbor calculation?
- A: Under the new loan forgiveness guidelines a resignation is allowed as a reduction to the FTE calculation.
Q: Does health insurance premiums for self employed, independent contractor, no employees count towards forgiveness?
- A: Health insurance premiums for self employed independent contractor should count toward forgiveness. (Mark Costello)
Q: What if the sole prop has now payroll schedule and takes draws occasionally?
- A: You would use the amount on line 31 of your Schedule C for 2019 to determine the allowed use for payroll. For the PPP Application, you take line 31, divide it by 12, then multiply it by 2.5 for your loan amount. Your average monthly payroll is actually you average monthly operating profit from the Schedule C. If you received an EIDL or and EIDL advance, you would adjust the PPP loan amount on your application according to the instructions on the application form. On the Forgiveness Application, you would demonstrate at least 75% of the loan was used for your draws to have the PPP loan fully forgiven.
Q: If you report payroll above the PPP loan amount, do you have to defer only the amount for which you obtained loan forgiveness or for all of the payroll reported?
- A: Not sure what you mean by deferral but you cannot get loan forgiveness for more that the PPP loan amount.
Q: Could I use the PPP for all payroll and then use the EIDL loan for other expenses?
- A: If you have both the PPP and the EIDL loan, you may use both funds, but they must be on separate expenses. Yes, you could use PPP for payroll, but your EIDL money cannot be used for that reason right away. If you have EIDL money left over after your PPP funds have run out, then you can use EIDL on payroll.
Q: Did I hear correctly a minute ago that business rent includes rental equipment?
- A: The Interim Final Rules allowed equipment leases under the rent portion of the PPP. That said the SBA recommends you be careful if you want to get full loan forgiveness.
Q: If a business applied on the first day of application and the lender told them that they could only include any numbers listed financially on the 990 (basically only payroll) and the loan was funded. Can the business go back and do another application (or revise current application) for the rest (mortgage, medical premiums paid, utilities, etc.)
- A: If the loan has been processed, the only exception to change the value is if there is a partnership entity. Definitely call your lender to see what the status is.
Q: Does Employee Travel fall under a payroll or other forgivable expense?
- A: That wouldn’t fall under payroll expense. That is an ongoing expense of the business.
Q: Our General Liability insurance is based in part on payroll. Can we use that on our forgiveness calculation?
- A: That would not be under the appropriate use of PPP funds.
Q: When will SBA start accepting forgiveness applications?
- A: Needs to be submitted to the lender.
Q: Can Washington worker’s comp premiums be considered as part of payroll costs for PPP forgiveness purposes even though premiums are not based on gross compensation?
- A: Yes, all state and local taxes are includable.
Q: When will SBA start accepting applications?
- A: The lender has 60 days to review and forward to SBA. SBA has 90 days to make a decision on forgiveness.
Q: What is the definition of Payroll Costs when considering forgiveness for the PPP.
- A: The Interim Final Rule (13 CFR Part 120 RIN 3245-AH34 section III 2f – defines payroll costs “Broadly to include all cash compensation (capped at $100K) salary, wages, commissions, tips, payments for vacation, parental, family, medical or sick leave, allowance for dismissal, payment of employee benefits including health coverage, insurance premiums, retirement, payment of state and local taxes.”
Q: Can the PPP be used for inventory and material costs?
- A: PPP funds cannot be used for inventory and material costs. It is allowed under the EIDL.
Additional Tools Referenced on the Call