On August 4, 2020, the Small Business Administration, in consultation with the Department of Treasury, released “Frequently Asked Questions (“FAQs”) on PPP Loan Forgiveness.”
Some of the key takeaways of the FAQs are as follows:
- Cap on Owner Compensation Applied Cumulatively Across all Businesses: The amount of owner compensation that can be counted toward forgiveness for ownership interests in an S-Corp, C-Corp, Partnership or Sole Proprietorship is capped at the lesser of $20,8333 or 20.833% of 2019 cash compensation, applied cumulatively across all businesses in which the owner has an ownership stake. If their total compensation across businesses that receive a PPP loan exceeds the cap, owners can choose how to allocate the capped amount across different businesses.
- S-Corporation Owner Employees: Employer contributions for health insurance are not eligible for forgiveness for S corporation employees who hold at least a 2% stake in the business since those contributions are included in cash compensation.
- Employee Benefits: Generally, employer expenses for employee group health plans and employer contributions to employee retirement plans paid or incurred during the Covered Period qualify as payroll costs eligible for forgiveness. Where an employee contributes to a retirement plan or pays toward health care, the cost is not included. Additionally, loan forgiveness is not provided for expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.
- Eligible Payroll Costs Broadened: In addition to salaries and wages, payroll costs include all forms of cash compensation paid to employees, including tips, commissions, bonuses, and hazard pay.
- Additional Guidance on 25% Wage Reduction Test: For purposes of calculating the loan forgiveness reduction required for salary/hourly wage reductions in excess of 25%, the borrower should only take into account decreases in salaries or wages.
- Costs Incurred vs Paid: Payroll and non-payroll costs are eligible for loan forgiveness if incurred during the Covered Period and paid after the Covered Period. Similarity, payroll and non-payroll costs are eligible for loan forgiveness if incurred prior to and paid during the Covered Period.
- Transportation Defined: The CARES Act defines “covered utility payment” as payment for a service for the “distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.” The FAQs provide that a service for the distribution of transportation refers to transportation utility fees assessed by state and local governments and payment of such fees by the borrower is eligible for loan forgiveness.
Please contact a Kerr Russell attorney for more information on the FAQs and qualifying for PPP loan forgiveness.
James Cambridge has more than 30 years of experience in the areas of business law, finance, and real estate. Jim is co-chairperson of the firm’s Business and Corporate Practice Group and a member of the firm’s Executive Committee. He serves as counsel for a number of businesses and handles a variety of matters such as business formations, contracts, employment, lending relationships, restructurings, real estate, buying and selling businesses and resolving troubled business situations. He is experienced in advising closely-held businesses, as well as in advising US and foreign-based companies in establishing operations in both the US and abroad.
John D. Gatti is a Certified Public Accountant as well as an attorney. He concentrates his practice in the areas of taxation, mergers and acquisitions, business law, real estate law, and estate planning. John also serves as the firm’s administrative partner and chairs the firm’s Taxation Practice Group. He has considerable experience representing professional services firms. These include accounting, engineering, and architectural firms, as well as insurance agencies, in purchase and sale transactions.
Cody Attisha focuses on taxation law, corporate law, mergers and acquisitions, finance, and estate and trust planning. He also helps clients with entity formation, including evaluating, choosing, and implementing the right partnership, corporate, or non-profit structure.
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