Another Week.....Another Update

It’s been quiet for a while.  Now, all of a sudden, there’s a flurry of activity.  Here we go:

SBA Loans

1.  The SBA has reopened its portal and is accepting applications under its Economic Injury Disaster Loan Program – go to: www.sba.gov/disaster.

2.  The SBA has dropped its requirement for personal guarantees for amounts under $200,000.

PPP Loans

The SBA released both a revised application for forgiveness (click here) and an EZ version of the form too.

We have put together a comparative format of the revisions that have been made to the New Loan Forgiveness Application Form due to the passage of the new Paycheck Protection Flexibility Act. The revised PPP Loan Forgiveness Calculation Form and the instructions are attached.

 

Description/Definitions

Old Form

New Rules/Form – Paycheck Protection Flexibility Act
1.    Covered Period 8 weeks (56-day period) from the loan disbursement date. The covered period is either (i) 24 weeks – 168 day period beginning the loan disbursement date — or (ii) If the borrower received loan before 06/05/2020, the borrower may elect to use an 8-week (56 day) covered Period.
2.    Alternative Payroll Covered Period Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”). Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the 24-week (168-day) period (or for loans received before June 5, 2020 at the election of the borrower, the eight-week (56-day) period) that begins on the first day of their first pay period following their PPP Loan Disbursement Date.
3.    New Expense Ratio The earlier Payroll to other qualifying costs ratio was 75/25 (75% Payroll & 25% Non-payroll costs). The revised Form changes the ratio to 60/40 (60% Payroll costs and 40% Non-payroll costs).
4.    Owner Employee Maximum Compensation

Does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at 15,385 per individual.

 

If 24-week period applies, does not exceed 2.5 months’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $20,833 per individual.

 
5.    Non-owner Employee Compensation The non-owner employee compensation was capped at $15,385 for a covered period of 8 weeks. The new non-owner employee compensation is now increased to $46,154, if a 24-week covered period applies.
6.    Health Insurance and Retirement Costs for S Corporation owners Guidance was unclear if these costs could be added or counted as eligible payroll costs. According to the new guidance released, health insurance costs for S Corporation owners cannot be included when calculating payroll costs; however, retirement costs for S Corporation owners are eligible costs.
7.    FTE Reduction Safe Harbor N/A The new Safe Harbor provision for the inability of the business to operate between 02/15/2020 & the end of covered period at the same level of business activity as before February 15, 2020 due to compliance requirements has been added.

 

What Is Still Unclear
  • Definition of who falls under “owner employee of S Corporation.”
  • If there is a minimum ownership % requirement to be classified as owner employee.
  • The IRS looks at shareholders with more than 2% ownership as owner-employees for S Corporation. We await further guidance on this topic.

PPP Loan Forgiveness Application Form 3508 EZ

The SBA also added an EZ version of the form (included here with its own instructions) for borrowers who are self-employed, those who did not reduce salaries more than 25% and did not reduce the number of employees (except for safe harbor exceptions)

Tax Consequences

We just wanted to draw everyone’s attention to the fact that currently under the rules, any amount of the PPP loan that is forgiven cannot be treated as a deductible expense. Remember this as your thoughts turn to tax planning for 2020. Even though your business may be reflecting a loss based upon pure income and expense, an addback of non-deductible expenses can change that outlook extremely quickly.

As always we are available to discuss any questions you may have.

Partners and Staff LHF

L.H. Frishkoff & Company

546 Fifth Ave. New York, NY 10036
212-808-0070

565 Taxter Road, Elmsford, NY 10523
914-523-2047

L.H. Frishkoff & Company

546 Fifth Ave. New York, NY 10036
212-808-0070

565 Taxter Road, Elmsford, NY 10523
914-523-2047