Blog

Congratulations you have received your PPP funding, and want to maximize your loan forgiveness. The
amount spent over the next 8 to 24 weeks is eligible to be completely forgiven IF you use these funds for the following expenses: payroll, mortgage interest, rent and utilities. If you received your loan proceeds prior to June 5, 2020 you have the option to choose an 8 week covered period or the lesser of 24 weeks or December 31, 2020. According to the ‘CARES’ Act, the forgiveness of a PPP
loan is completely tax free. The sum of the following “costs incurred and payments made” will be eligible for loan forgiveness:

Payroll costs

60% of your loan will need to be allocated to your payroll expense. However, you are limited topaying an employee $46,154.00
during a 24 week payout period, and for eight weeks a maximum of $15,385. This is calculated based
on the compensation cap for an employee who earns $100,000 per year. If you exceed the limit, the
difference is not eligible for forgiveness. Current provisions do not limit the ability to increase an employee’s salary, or offer ‘hazard’ pay during the payout period.

Payroll costs that are eligible for loan forgiveness:

• Salary, wages, commission or similar compensation (SBA guidance states that payroll costs
include all cash compensation, including a housing stipend or allowance)
• Payments for vacation, parental, family, medical or sick leave
• Allowance for dismissal or separation
• Payments for the provision of group health care benefits, including insurance premiums
• Payments for retirement benefits
• State or local payroll taxes
• Note: Covered benefits apply to employees only (not owners)

“Penalty” provisions include that the amount of forgiveness is reduced for those who made workforce
reductions after February 15, unless reductions are restored by December 31, 2020. (i.e. you had 10
full time employees prior to COVID-19 but were forced to lay off 5 employees; Only half of your
loan will qualify for forgiveness unless you hire 5 FTE back by December 31st).

Additional “penalty” provisions in the law state that if, during the payout period you have reduced the salary of any employee by more than 25% of what they earned in the first quarter of 2020, that reduction will result in a portion of the loan not qualifying for forgiveness, unless the salary is restored by December 31st. This provision applies to employees who, during 2019, did not earn more than $100,000 per annum.

The Safe Harbor provision provides that during the period between February 15, 2020 and December 31, 2020 if a borrower is able to document an inability to re-hire previously employed individuals or similarly qualified individuals, the borrower’s loan forgiveness amount will not be reduced based on their reduction in full-time equivalent employees.

In order to be eligible for full forgiveness, you cannot utilize more than 40% of the loan proceeds to pay expenses unrelated to payroll. You may still pay mortgage interest, rent and utility bills. However, if more than 40% of the loan proceeds are allocated
to these expenses the excess will not qualify for forgiveness.

Mortgage Interest

Payment of interest on any mortgage obligation (not including any prepayment of or payment of principal on a mortgage obligation) that was incurred before February 15, 2020, is eligible for forgiveness. (Keep in mind the 40% rule)

Rent and Utilities

Any payment of rent under a leasing agreement in force before February 15, 2020, any utility payment, including payment for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 is eligible for forgiveness. (Keep in mind the 40% rule)

Create an audit trail

We suggest having the PPP loan funds deposited into a separate business checking account, so that they are not co-mingling with other business funds. Only the expenses which qualify for forgiveness (payroll costs, rent, mortgage interest (but not interest on non-mortgage loans), and utilities) should be paid from this account. This will allow you to provide clear and concise records when it is time to apply for forgiveness.

Keep precise records

Keep records of payroll for the payout period, as well as invoices for health insurance, mortgage statements, a copy of your lease, copies of canceled checks or other evidence of rent and utility payments. Be prepared to present these records to your lender, potentially in an electronic format.

Contact our office and touch base with your accountant

Whether you have received funding through the PPP Program or the EIDL Program, contact your accountant to discuss the tax relief provisions provided through the ‘CARES’ Act. We are here to help you avoid issues when applying for loan forgiveness.

Applying for both the EIDL & PPP Loan

SBA guidance allows you to apply for a PPP loan in addition to an EIDL, so long as you don’t use the funds from each loan for the same expenses. In other words, you cannot ‘double dip’ for the same expenses. If you decided to apply for a PPP loan and use those funds strictly for payroll, you cannot subsequently use funds from an EIDL for payroll, as well. You also have the option to refinance an EIDL loan into a PPP loan; however, if you are approved for a PPP loan, the $10,000 grant/advance will be subtracted from your PPP forgiveness amount.

Disclaimer: Campbell & Company 2020-The information in this document is general in nature and the information is changing rapidly and there may be updated information as it becomes available from federal, state and local governments. We inform you that any tax advice contained in this communication (including any attachment) is not intended to be used, and cannot be used, for the purpose of avoiding penalties or promoting, marketing or recommending to another party any transaction or matter addressed.