Forgiveness Info Released

05/18/2020 10:35AM

PPP loan forgiveness information has been released. We are researching the information and will have details published for you very shortly, please stand by.

Employee Recall Letter

05/15/2020 1:44PM

Here is a good employee recall letter template to help you formalize your employee rehire process.  Remember that your employee count on 6/30/20 compared to 2/15/20 will affect your total forgiveness.  However, an employee who refuses to return will not negatively affect the forgiveness.  For documentation purposes you would want this letter or something similar on file to provide support that the missing employee refused to return to work and thereby should be excluded from the forgiveness calculation. 

Click here to download the letter template.

PPP Certification Info – Wednesday, May 13, 2020 3:00PM

We’re watching anxiously for new PPP or EIDL guidance and check it daily.  Our patience has paid off with a tiny drizzle of information today. 

PPP applications require that borrowers certify in good faith that the PPP loan is necessary to support ongoing business operations. There has been some concern about this certification process, which was only recently implemented, regarding how you would prove that the PPP loan was necessary for your practice.  The SBA has now determined that all loans with principal amounts less than $2 million will be deemed necessary for ongoing business operations, therefore meeting the good faith certification automatically. 😊  Full FAQ below.

Separate PPP Account Details – Wednesday, May 6, 2020 9:33AM

Since the forgiveness aspect of the PPP loan is of high importance, and since the use of the funds is restricted, we have suggested setting up a separate bank account to hold the PPP funds.  This will allow you to keep them separate and to keep clear records for how they were spent on the allowable items of payroll, rent, utilities and mortgage interest.  This does not mean that you have to pay the expenses directly from the PPP account.  In fact, we wouldn’t recommend it for a couple of reasons.  First, you may not have received checks for that account, or you would have to change your bill payment account to point to the new PPP account, etc—it would just be cumbersome.  Second, we don’t yet know the nuances of the forgiveness aspect since the guidance has still not been issued; and because of that you may pay something you shouldn’t from the PPP account, or not pay something you should.

A better system is to keep a simple list of eligible expenses and transfer that amount from the PPP account to your regular operating account to cover them.  To this fluid list, you can add items as they are paid or remove items as we discover they were paid in error, allowing you to transfer more or less to true up the PPP funds.  This method is especially easier to handle the payroll items.  It is difficult to change bank account info with your payroll provider.  Additionally the payroll provider would then debit the PPP account for payroll fees—which aren’t allowed, for payroll taxes—which aren’t allowed, and for net paychecks—which would be too little since PPP covers the higher gross wages figure.  Transferring in and out of the PPP account gives you flexibility to adjust or correct amounts along the way as needed.

IRS Position on PPP Deductions – Monday, May 4, 2020 2:59PM

As you know, under the provision of the PPP regulations, if you use the funds properly, all or a portion of the loan will be forgiven.  What normally happens when a debt is forgiven, the forgiven amount is considered income.  It isn’t something you earned but it is money that came in the door that you didn’t have to return.  Since the only real option for that kind of windfall is a gift or income, and since lenders don’t give gifts, by default it would be a form of income.  Here’s what would happen under normal tax laws:

You receive a loan of $50K which is forgiven.  That becomes $50K of income.  You spent the $50K all on wages.  The $50K of wages becomes a tax deduction. Simple math shows income of $50K less expenses of $50K for a net income of $0.

But PPP loans are not typical and the law states that amounts forgiven are excluded from gross income. 

On Friday, the IRS released guidance stating that if you use PPP funds on qualified expenses resulting in PPP loan forgiveness, then you cannot take those expenses as tax deductions.  Now, the IRS didn’t state the forgiven amount would be included in income as is normally the case, which seems in line with the intent of CARES.  But they said you can’t take the deductions.  So let’s walk this through.

You receive PPP funds of $50K, use them properly and they are forgiven.  You do not have to recognize income according to the CARES Act. You spent the $50K all on wages.  The $50K of wages becomes a tax deduction. IRS guidance released Friday says you can’t take the deductions that were paid by forgiven funds.  So the $50K of wages deduction is reversed. Here’s the new calculation:

Hmmm, this result looks awfully similar to the normal tax law results, as if we had just taken the forgiveness as income.  So the IRS is being challenged.  The CARES Act went to the trouble of excluding the forgiveness from income.  According to our sources at the ADA who are continually in contact with Washington lawmakers, both democrats and republicans in the House and the Senate believe the IRS got this wrong.  There is much optimism that the IRS position will be reversed. 

Here’s what we believe the PPP provisions of the CARES Act intended.  Again, the law states that any PPP amounts forgiven are excluded from gross income.  So the scenario above, instead of a net $0 effect, becomes a $50K tax deduction.    

Big difference!  A change in IRS position is far from reality but there’s a possibility this will move to a better tax position. 

Employees Who Refuse to Return Will Not Reduce Forgiveness – Monday, May 4, 2020 10:26AM

On Friday the CPA governing authority, the AICPA, urged the Treasury Department and the SBA to issue the long-awaited guidance on the forgiveness aspect of PPP loans.  The release stated regarding CPA firms, “They and their clients say that the lack of guidance makes it difficult for them to make critical decisions on important matters, such as staff retention.”  This is, unfortunately, why all our answers to your questions right now are qualified with, “as best we know at this time!” 

The plea from the AICPA did not prompt the SBA to miraculously issue the regs over the weekend; but they did dribble out a little information in the form of 3 new FAQs.  The one that we care about is FAQ #40.  If you try to bring all your employees back but someone refuses to return, that should not reduce your PPP loan forgiveness.  Please note in green that you need to make the offer to rehire in writing and retain their rejection for your records, or if the rejection is verbal, note it on your documentation with dates and details and retain that for your records. Keep in mind, however, that although the employee who refuses to return won’t negatively affect your employee count at 6/30 according to this new FAQ, without a full staff you are unlikely to be able to spend the requisite 75% of the funds on payroll and so some of the funds might not be fully utilized within the 8 weeks.  So although your forgiveness calculation won’t be limited by a reduction of staff, it is still limited to the amount you spend on payroll 75% and rent-utilities-mortgage interest 25% during the 8 week period.

40. Question:

Will a borrower’s PPP loan forgiveness amount

(pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance)

be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer: No.

As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that,

to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower.

Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

REPOST PPP Tracker Notes – Sunday, May 3, 2020 10:05AM

We’re finding this worksheet to be the easiest method to estimate and track how much of the PPP loan will and won’t be forgiven.  The sheet was originally posted on April 24th.  We link it again here to add the following notes so that your expectations are set properly.  The worksheet  does not properly account for the EIDL advance you received, if any that was rolled into the PPP loan.  In fact, we aren’t entirely sure how the EIDL advance will affect the calculation because the forgiveness regs that were due early this week still have not been released.  Subsequently we cannot properly include it in the spreadsheet.  But what we do expect, according to the law, is that the EIDL advance will reduce the forgiveness piece of the PPP loan and will have to be repaid as a result.  Although the timing of the EIDL advance and the PPP funding may affect that fact.  So here’s the important take-away—although it is possible for the worksheet to result in 100% forgiveness and nothing to be repaid, the reality is that at the very least you may have to repay any EIDL advance received. 

Additional disclaimers:

  1. This is an ESTIMATE only.  It is not perfect because the calculations would be too complex to program, especially since all the details aren’t known yet.
  2. At the very least you may have to pay back the amount of the EIDL advance.  The worksheet will allow you to get down to $0 to be repaid, but in reality it will in some cases be limited to the EIDL advance amount.  (Discussed above.)
  3. You must use the funds within your 8 week period, which begins on the date of disbursement.  Any funds used beyond the 8 week period are not eligible for forgiveness.
  4. You must have the same number of employees working the same hours at the same pay on 6/30/20 as you did on 2/15/20 to possibly achieve full forgiveness.  If you do not, the forgiveness piece will be reduced by a ratio.  The spreadsheet is not yet sophisticated enough to account for this piece properly. 

Click HERE to download.

PPP Forgiveness Early Observation – Tuesday, April 28, 2020 4:23PM

PPP forgiveness regs are scheduled to be released today.  In reality we expect to receive them “soon.”  😉  As we anxiously await the information, we have begun to help some of you work through how you will spend the PPP proceeds and how the forgiveness will play out according to our best guess du jour.  What are we finding?  100% forgiveness may be difficult to obtain.  I can literally hear some of you gasping in fear and disbelief.  But please remember, you can turn around and give a portion back if you can’t utilize it; or you can pay it back at minimal interest over the next 2 years.  If it comes to that, it will be the cheapest loan you’ll ever obtain.

But why are we beginning to form the opinion that 100% forgiveness may be difficult to obtain?  Simple math.  You applied based on 2.5 months of payroll costs and you must now use those proceeds over 8 weeks if you want forgiveness.  Since the loan was based on 2.5 months of payroll costs, it seems like the 2 month portion will cover the 8 weeks of payroll and the .5 portion will cover the 8 weeks of rent, utilities and mortgage interest.  Easy.  But when you start working it out, 2 months is actually 8.67 weeks (52 weeks divided by 12 times 2) so you received more than 8 weeks of payroll costs.  It will be difficult to spend it all on payroll in the 8 weeks unless you add staff…and who’s adding staff right now?  And the rent, utilities and mortgage interest is generally not enough to use up the remainder.  Other industries may be different.  Those with lower staff costs will receive smaller loans, which will be more easily used up on rent, etc.  Not as true for this industry where skilled labor is required, like dentists and hygienists, which draw higher wages and thus increased the loan amounts.

Pretty quickly the thought process goes, “That’s ok, I’ll just pay ahead on my rent.”  But a preliminary read of the bill implies the extra rent will not be forgiven.  That would be true for extra utilities as well.  So what about raises or bonuses to drive up the payroll figure?  Too soon to know that answer.  Early versions of the bill disallowed extra payroll amounts.  The prohibition was removed from the final bill, but may appear again in the upcoming regs.

PPP Use Worksheet – Friday, April, 24, 2020 11:25AM

Wondering how to use your PPP funds?  Or whether your ratios are correct (75% payroll, 25% other)?  Or what effect it will have if you don’t bring back all your employees?  This worksheet may help.  Use it early on as a budgeting tool.  You know what you expect to pay in rent, and rough numbers for payroll.  Enter what you expect to pay out and see how that effects your forgiveness figure.  Then begin updating it with actual figures as you spend the funds.  

To use the spreadsheet, enter things into the orange cells—the remainder are calculated fields.  You must have all orange cells at the top entered for the sheet to work properly. 

Click HERE to download.

I can’t pay payroll taxes with PPP proceeds?? – Thursday, April 23, 2020 11:42AM

Believe it or not, you can’t.  Well you can pay your state unemployment taxes.  But you cannot pay the big piece—your 941 taxes (all the money you withhold from payroll), or your 940 taxes (federal unemployment tax), from PPP proceeds because these are neither an allowable use nor a forgivable expense.  Only state unemployment taxes are considered a “payroll cost” for purposes of PPP loans.  No, it doesn’t seem logical, but it’s true nonetheless.

$7692 is the new $8333 – Saturday, April 18, 2020 10:37AM

There is a general misconception about the cap on wages eligible for forgiveness under PPP.  We have played into it ourselves in an effort to keep the provisions simple; because, honestly, if we gave you all the details of the legislation at once we would lose you in about 30 seconds.  We can barely keep up ourselves.  Here’s the short answer:  the maximum any one employee can receive from PPP funds and be eligible for forgiveness is $15,385, not $16,666—in whatever increment it’s paid.  For those of you satisfied to accept that as fact, you can stop reading.

For those of you who want to understand, here’s the deal.  Both the application process and the forgiveness process limit the amount of wages to $100K.  Up to now, you had generally been applying for the loans and those applications were based on monthly payroll figures—so you take $100K, divide by 12, and come up with $8333 per month, which is what you used in your application.  And that’s the only figure we have mentioned to this point.  BUT the formula for forgiveness is different.  It’s based not on monthly payroll figures but an 8 week figure.  And while 8 weeks sort of sounds like 2 months—which would be $16,666—in reality, it isn’t.  To calculate max wages for forgiveness you take $100K, divide by 52, and multiply by 8, and you come up with $15,385. 

So to summarize, each employee that is paid from PPP funds is limited during the 8 week period to $15,385.  This can be paid as

One payment of $15,385 or

$7692 per “month” or

$1923 per week or

$3846 every 2 weeks or

$274.73 per day if you wanted.  Would you like the figure per hour?  😉

PPP LOAN Refresher – Thursday, April 16, 2020 10:19AM

The hope of the PPP funds is that all of it will be forgiven.  But the reality is, 100% forgiveness may be hard to achieve.  First off, if you receive an EIDL advance, that part will have to be repaid through the PPP loan—$10K maximum.  Additionally, there may be a portion of the remaining PPP funds that cannot be forgiven for a multitude of reasons—you aren’t able to hire all your employees back by 6/30; or you don’t spend the required 75% on payroll items; or you spend some of the PPP LOAN Refresher proceeds for other than payroll, rent, utilities or mortgage interest; etc.  At any rate, there could be some of the PPP that remains a loan.  And really that’s ok because the terms are so good.  It will be a 2 year loan with 1% fixed annual interest.  Payments are deferred for the first 6 months and the balance repaid over the remaining 18 months.  There is no prepayment penalty.  Once the practice is back up and profitable you can return the balance whenever you like before the end of the 2 year period.

PPP Permitted Use vs Forgivable Portion – Wednesday, April 15, 2020 1:56PM

Wow!  It’s a day of really technical questions from you.  And that requires detailed research to make sure our posts are accurate.  So be patient, but keep checking back because there are lots of things in the pipeline.  Let’s start here.

As you begin to receive your PPP proceeds we see confusion that is being generated from conflicting sections of the regs.  Namely—the permitted uses and the forgivable expenditures are not the same.  They vary so slightly that it makes it all the more confusing.  Here are the lists.

PERMITTED USES of PPP funds:

  • Payroll costs (salary/wages, health insurance, retirement, state taxes)
  • Mortgage interest (normal interest—no prepayments or principal payments)
  • Rent
  • Utilities
  • Interest on other debt obligations incurred before 2/15/20

Possible FORGIVABLE ASPECT of PPP funds provided other conditions are met:

  • Payroll costs (salary/wages, health insurance, retirement, state taxes)
  • Mortgage interest (normal interest—no prepayments or principal payments)
  • Rent
  • Utilities

You’ll notice the forgivable list is short by the last permitted item—interest on other debt (not mortgages).  So for instance, if you use the funds to pay your BOA equipment loan interest, that’s ok, but that portion will not be forgiven.  And you are not allowed to pay your BOA equipment loan principal portion.  For the most part, loans are currently in deferment so it’s not an issue, but something we want to bring to your attention.  If you do have a loan or mortgage payment you want to pay with your PPP funds, we would recommend transferring to your PPP account from your operating account an amount equal to the principal portion of your current payment.  This would allow you to write the entire payment from the PPP account without violating the permitted use provision.  If you go this route, please transfer in the exact amount of principal, not just a round figure.

PPP Funds Update – Monday, April 13, 2020 12:34PM

The U.S. Small Business Administration reported Saturday morning that banks had approved more than 725,000 loans from its $349 billion Paycheck Protection Program, totaling over $182 billion.

If you have applied and are waiting on approval, stay the course.  If you haven’t yet applied and intend to do so, you might want to file sooner rather than later. 

PPP 10 Day Fund Disbursement Required – Friday, April 10, 2020 12:30PM

The news coming out now from SBA is that the banks are required to disburse the PPP funds within 10 days of approval.  This is good or bad news depending on your situation.  Unfortunately we won’t know until July what would have been the best answer and you need to make a decision well before then.  You have a stressful business decision to make so below are some options and scenarios to help.  There is no right or wrong answer.  The outcome is based on factors outside your control—when you can reopen and when the program’s money runs out. Since you can’t control those factors, you just need to make a decision that you feel is best and know that all options were reasonable. 

 Options: 

1. Apply now for a PPP loan, possibly get the money soon, spend during the next 8 weeks. That’s great and works.  But if the origination date is 4/15, by 6/15 the 8 weeks have expired and to obtain forgiveness you need to continue to have full payroll by 6/30 even if there isn’t work for the employees. This is fine if you reopen before the 8 weeks expires, which we hope.  The downside:  you’ll be paying people who aren’t working at some point during the 8 weeks.  But that was largely the purpose of the legislation.

2. Suspend your current application now, if you have already applied.  This will allow your origination date to be delayed which will, in turn, delay the start of the 8 weeks.  Some banks say they can allow this; others say no.  If not allowed, you will have to abandon your current application and start again, putting you at the end of the line.  Even if you can suspend it, there is a risk that the funds will run out, and no way to know at this point if more funds will be allocated.  Additionally you will certainly be in a cash shortage now and will have to put most or all remaining staff on unemployment, which includes yourself if you are eligible.  So instead of drawing the potential $8333 per month allowed by PPP, you will be limited to $1121 per week from unemployment or about half of the PPP amount monthly.  (Note:  Simplified figures for analysis purposes based on maximums.  Your figures could be substantially lower.)

3. Wait to apply for a PPP loan, apply when you are about to reopen.  That poses an even bigger risk that the $349 billion in funds could run out.  We might know by that point if more will be allotted, but if the answer is none, then there is real risk in this option.  

 Some scenarios: 

1. You get the funds in a week, you spend the funds on eligible costs during the 8 week forgiveness period that ends in June, and you need to pay people at the end of June even ifyou are not open. Your cost is the expense in those weeks after the loan runs out, but at least you built some goodwill with your employees.

2. You get funds, keep employees on unemployment, and don’t use the majority of the funds until after the 8 weeks. You end up with a loan that has 1% interest for 2 years to pay wages when you reopen. Not free money, but cheap working capital and if you can’t reopen for some time this working capital is probably necessary. 

3. You wait for the loan and it isn’t available when you need it. You look into taking a federal credit or other loan options that might be available.

Hypothetical case study: If you are approved TODAY

Many of you have already submitted your application.  The banks are working through them fairly quickly and approvals are starting to come down.  Many of the banks are willing to hold the funds after approval, but can’t hold them for more than 10 days.  So let’s just say you are approved today, April 10th, and the bank is willing to hold the funds.  You draw those and start the 8 week period 10 days later on April 20th.  If you want the loan forgiven, you have until approximately June 20th to spend the funds on payroll (75% of the funds must be spent here) and rent, utilities, mortgage interest.  Government bans are lifted on 5/20; your practice reopens June 1st; it ramps up to normal levels by June 30th which gives you enough patient revenues to make payroll at the end of June.  It’s really not a bad scenario.  The big question is:  WHEN CAN MY PRACTICE REOPEN?  There is more push every day for a loosening of the isolation orders because people have basic needs that need to be met.  Needs of food that require a job to earn income.  Needs of supplies and services that require businesses to be open and providing those things.  So will the orders be extended beyond May?  That’s the million-dollar question.

PPP Bank Accounts – Thursday, April 9, 2020 4:47PM

Definition:  Need – a thing that is wanted or required.   

Q:  Do I need a new/separate bank account to hold the PPP proceeds once received?

A:  A new bank account set up for the sole purpose of accepting and using PPP funds is likely not something that you want.  And it is not something that is requiredBut it is recommended.  PPP funds are restricted in their use to a few items—payroll, rent, utilities and mortgage interest.  Having a separate bank account will help you be careful and intentional about how you spend the proceeds.  It will also allow us to easily track where the money went.  Also, we have NO IDEA what will be required to prove the forgiveness portion yet.  Since that aspect is so important, we want it to be super clear and easy to prove to the lender who will be making the ultimate decision.