Submitted by Joel Shabsin, CPA
For those of you who were at the June 16th Chris Bird Webinar on the PPP forgiveness program, most of what he speculated on in the webinar has been verified by the SBA. On June 17th, the SBA released guidance on how to calculate employee and owner compensation for loan forgiveness in the 24 week covered period that Chris discussed in detail along with the new EZ
form and instructions for borrowers who qualify to use the form and clarified a few other previously unanswered questions.
The 3508EZ form is not a 4 page form that Chris thought would be released. It only has 2 required pages and an optional 3rd page. It can be used by the majority of our clients as long as the borrower is:
1. Self employed with no employees
2. The borrower did not reduce salary of hourly wages for those making $100,000 or less by more than 25% during the covered period compared to January 1,2020 through March 31, 2020 and either
3. Did not reduce the number of employees or average hours during the covered period compared to January 1, 2020 through March 31, 2020. This does not include reductions due to the inability to rehire or find qualified employees; or was unable to operate at the same level of business during the covered period as before February 15, 2020 due to government orders.
As long as the borrower meets the above requirements, the forgiveness calculation consists of 8 lines on the first page and 10 statements that must be initialed on the 2nd page to certify that they have met the forgiveness rules and submitted the required documentation to their lender.
OTHER PPP Forgiveness changes
Along with simplifying the forgiveness process, the SBA gave answers to many of the questions we have been asking and that Chris touched on in the Webinar. These include:
1. Health insurance costs for S-Corporation owners cannot be included in the calculation of payroll costs for loan forgiveness.
2. Retirement costs of S-Corporation owners are eligible costs in calculating payroll costs for loan forgiveness.
3. With the 24 week covered period, employee compensation that can be used for forgiveness is 24/52nd of the individual’s payroll costs, including salary, wages and tips up to a maximum payroll cost of $100,000 which comes to a maximum of $46,154 per employee.
4. Owner compensation for S-Corporation owners, Schedule C, Schedule F and partners in a partnership do not get the more favorable rule for qualified compensation for forgiveness. Their compensation for an 8 week covered period is limited to 8/52nd’s of 2019 profit or for S-Corporation owners, 8/52nd’s of their 2019 payroll but not more than $15,385 in any case. Using the 24 week period, forgiveness is limited to 2.5 months worth of 2019 profit or pay levels, which caps it at $20833.
5. Safe harbors for excluding salary and wage reductions and reductions in the number of employees (FTE’s) from loan forgiveness reductions can be applied as of the date the loan forgiveness application is submitted. Borrowers do not have to wait the full 24 weeks to apply for forgiveness to use the safe harbors.
The above rules clarify and answer most of the questions raised at the Chris Bird Webinar. If you missed the webinar, too bad. Your clients will be turning to you for help in navigating the application process and you need to be able to provide assistance to them so they get their full loan proceeds plus accrued interest forgiven.