Outmoded? Let’s Talk Clearly on Paycheck Protection Program for Small Businesses Affected by COVID-19

As COVID-19 continues to impact the United States, the federal government is taking action to ease the burden on taxpayers. More recently, the Congress pass a massive stimulus package that was promulgated by the president. The stimulus bill (also known as the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act) has several moving elements for taxpayers, including those dunning checks for taxpayers. But the law also proposes some provisions intended to help companies.

One of those provisions that has received a lot of attention is the Paycheck Protection Program or P3. The program is exactly what it looks like: nearly $ 350 billion in (potentially) repayable loans to keep workers on the payroll.

The hedging made the loans overwhelming. But, for some, it’s just a matter of breaking down the details. For example, tTo be eligible, a company must meet certain essential criteria:

  • Not have more than 500 employees;
  • The primary establishment is physically in the United States; and
  • Operational since February 15, 2020.

So far, everything is fine, right? Here are some answers to other questions about the program:

How to count employees? The Small Business Administration (SBA) calculates all people employed full time, part time or on some other basis. You can find out more in the Rules here.

Are there any exceptions to the 500 employee rule? Yes. Some exceptions apply. Specifically, restaurants and hospitality businesses may be eligible if they have 500 or fewer employees per site. You can find out more about the ASB website.

OK I understand. Exceptions for the hotel industry. If not, does it matter what my business does or what I do for a living? Yes, It matters. You cannot apply for a company that engages in illegal activities, lobbying, significant play (more than 1/3 of your income), or if you engage in “live performances of a lascivious sexual nature or directly or indirectly shoot more than de minimis gross income from the sale of any product or service, or from the presentation of any performance or exhibition, of a lascivious sexual nature. In addition, landlords cannot be more than 60 days behind on child support obligations or household employers.

What about agriculture? There was a provision that would have excluded farmers and farm businesses and instead directed them to the Farm Service Agency (FSA) loan programs. However, it is been changed.

I work for myself. Can I get a loan? Yes. Sole proprietorships, independent contractors, local economy workers and self-employed persons are also eligible for a PPP loan.

How much can I get? You can borrow up to your average total monthly salary costs in the year immediately preceding the loan multiplied by 2.5, or 250% of the average monthly salary costs. The cap is $ 10 million.

Even for highly paid individuals? Salary costs are capped at $ 100,000 (annualized) for each employee. The $ 100,000 limit does not include health care, retirement benefits, and state and local taxes.

What are the salary costs? PSalary costs include what you think: salary, wages, commissions or similar compensation, as well as tips, for employees in the United States. This also includes payment for leave (including vacation, parental, family, medical or sick leave, but not those for which you get credit under the Family First Coronavirus Relief Act); severance pay; employee health care benefits; and state and local taxes on compensation. If you are an independent contractor or a sole proprietor, this refers to your salary, commissions, income or net earnings.

What about social charges? Salary costs do not include federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including Federal Insurance Contributions Act (FICA) and Railroad Retirement Act taxes, as well as income taxes withheld from employees (but you probably guessed this already).

Do salary costs include the money I pay to independent contractors? No.

So what can I use the money for? You can use the money for employee salaries, paid sick or sick leave, insurance premiums, and mortgage, rent, and utility payments. You can also use the funds for family, medical and sick leave. But you can’t double-dip: no use of PPP for salaries qualified as sick leave and family leave if you are entitled to a tax credit for these costs under the law called Families First Coronavirus Response Act.

How much will it cost? There’s no standard charge 7 (a) on the loan. A fee may be charged by your tax office or other professionals to assemble and submit the claim.

What about guarantees? No.

Personal guarantee? No.

So, to make a long story short, I once had a hard time getting a loan because I had some legal issues years ago. Does that disqualify me? Not necessarily. But the company would be excluded from the program if one of the owners who owns at least 20% of the capital of the company is currently incarcerated, on probation, on parole; being the subject of an indictment, criminal information, indictment or other means by which formal criminal charges are laid in any jurisdiction; or, in the past FIVE years, has been convicted or pleaded guilty or competitor nolo (no challenge) to a felony, or has been placed on pre-trial diversion, parole, or probation (including pretrial probation) for a felony. Regarding ownership, membership rules apply (download in PDF format).

What is the interest rate? The interest rate is 1% and loan payments for any non-repayable amount will be deferred for six months.

Wait, what’s it like to be forgiven? Does that mean I don’t have to pay it back? Loan can be canceled if all employees are on the payroll for eight weeks AND the loan proceeds are used as intended, i.e. payroll, rent, mortgage interest or utilities .

For real? Yes. This is the best part.

Without strings? Of course, there are ropes. For example, no more than 25% of the loan cancellation can be related to non-wage costs. And because this is about encouraging businesses to retain their employees, the loan amount available for forgiveness will be reduced if full-time staff numbers decline or wages and salaries decline. You will want to pay attention to the details.

What happens when the loan is canceled? Is it an income? A canceled loan is generally treated as taxable income, but this is not the case with P3s. The amount of any canceled PPP loan will be excluded from gross income.

How long is the program available? Lenders could start processing loan applications as early as April 3, 2020. The paycheck protection program will be available until June 30, 2020. There are rumors that it could be extended (since the money – $ 349 billion – going fast), but that’s the scoop for now.

Can I apply now? It depends on who you are. Small businesses and sole proprietors can apply as of April 3, 2020. As of April 10, 2020, independent contractors and self-employed individuals can apply.

Can I apply for two PPP loans? No.

Let’s say my business is healthy, but I need to support my house down. Can I say my business is failing and use the money for something else? Like a new boat dock? No, if you are caught using the loan proceeds for things unrelated to salary costs, you will have to pay it back. And if the behavior is voluntary, you could be liable for bigger issues, like accusations of fraud.

Okay, I’m totally using the money for the right reasons. Where do I sign ? Officially, you can take out a PPP loan from any lending institution approved to participate through the existing SBA 7 (a) loan program, or through any depository institution insured by the federal government, a federally insured credit union and participating farm credit system institution. However, rumor has it that some banks are not keen on giving loans to new customers: think of a bank you already have a relationship with – or a local bank. To verify the SBA tool for a lender near you.

It doesn’t sound so bad … but I’ve heard horror stories about apps. Which give? I only serve the best cuts. The devil is in the details. This is a real loan, so there are some restrictions, and you must provide supporting documents. Check with your lender or tax specialist for more information.

And you knew I was going to ask this question, but where can I find the official details in writing? Check the ASB website for application and details. You can also find the text of the Interim Final Rule of the PPP here (download in PDF format).

Are there other loan programs? Yes, if you don’t want a PPP loan, consider the Economic Disaster Lending Program (EIDL). You can read more here.

I am not sure about a loan. What else can I do to keep my employees on the payroll? If you are not interested in a loan, there are other options available to you. One of these provisions is the Employee retention credit or ERC, which is designed to help companies keep their employees on the payroll. You can read more here.

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