PPP Loan Forgiveness Changes – Loans Under $50,000

News of updates to the Paycheck Protection Program (PPP) have transitioned to near silence over the past few weeks as agreement on another round of economic stimulus stalled. This has left the program without an infusion of needed funds and left the once-popular program with a declining luster. While the expanded funding issue has yet to be addressed, several important updates were recently made impacting certain borrowers eligible for loan forgiveness. On October 8, 2020, Treasury issued a new Interim Final Rule (IFR) which introduced a Simpler Loan Forgiveness Application for borrowers with loans less than $50,000. The purpose of the change is to make the application and loan review process faster and result in the timely issuance of forgiveness funds. In addition, the IFR also provides an exemption in the forgiveness amount resulting from reductions in full-time equivalent (FTE) employees and salary/wages. The loan application is less than two pages long and is accompanied by an instruction document which provides details on calculating expenses and documentation requirements. To help clients, prospects, and others who qualify for the new application, Wilson Lewis has provided a summary of the key information below.

Calculating Payroll Expenses

In order to properly calculate the eligible payroll expenses incurred during the Covered Period, the borrower must total qualifying cash compensation, employee benefits, and owner compensation amounts.

• Cash Compensation – This includes total gross salary, wages, tips, commissions, paid leave, and allowances for dismissal or separation during the Covered Period. It is important to note that the total amount of cash compensation eligible for forgiveness can not exceed an annual salary of $100,000, prorated for the Covered Period. For those using the 8-week Covered Period the limit would be $15,385 and for the 24-week Covered Period the limit would be $46,154.
• Employee Benefits – This includes the total amount paid by the borrower for employer contributions to employee health insurance, contributions to retirement plans (excluding any pre-tax or after-tax contributions made by an employee), and employer state and local taxes paid by the borrower and assessed on employee compensation. It is important to remember to exclude any taxes withheld from employee earnings.
• Owner Compensation – Any amount paid to owners (self-employed, owner-employees or general partners) limited to the 2.5-month equivalent of $100,000 per year, or the 2.5-month equivalent of their applicable 2019 compensation, whichever is lower.

Calculating Non-Payroll Expenses

To calculate the eligible non-payroll expenses incurred during the Covered Period, the borrower must total qualifying mortgage, rent, and utility expenses.

• Covered Mortgage Obligations – This includes payments of mortgage interest incurred on or prior to February 15, 2020.
• Rent Expenses – Business rent or lease payments on lease agreements for real or personal property in force between February 15, 2020.
• Utility Payments – Business payments for utility services including electricity, gas, water, telephone, transportation, or internet access for which service was started prior to February 15, 2020.

Documentation Requirements

There are several documents that must be submitted with the application to support the forgiveness amount. This includes copies of bank statements, third party payroll provider reports, tax forms including federal and state filings, payment receipts, canceled checks, and account statements documenting the employer contributions to retirement plans or health insurance.  

Contact Us

The changes to the PPP loan forgiveness process are welcome news to many Atlanta business owners. While the process is more simplified, it is still important to consult with a qualified advisor that can walk you through the process. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.