Section §1102 of the CARES Act allowed for the PPP through the Small Business Administration (SBA) loan program. This week the application will be released regarding forgiveness for the loans taken. At this point, everyone taking a loan was somewhat familiar with the application, but the recent updates are as follows:

• Need for the loan is assumed if the loan is for less than $2M.
• 75% of the loan should be used for payroll-related expenses (e.g., the employee portion of FICA, employee salary deferrals, net employee pay, group medical insurance premiums, state/local taxes and employer retirement plan contributions). There had been a question about whether the 75% threshold was an all or nothing requirement and the newly issued forgiveness application and instructions makes it clear this is not the case.
• Bonuses and commissions could be paid provided they do exceed the $15,385.00 per employee in the covered period.
• The forgivable amount of non-payroll costs is calculated by first adding up the “Payroll Costs” (e.g., payroll, health insurance and retirement plan expenses) then adding not more than 1/3 of the Payroll Costs to determine the loan forgiveness amount.
  • For example, assume a $200,000 loan with $120,000 in Payroll costs and $80,000 in non-payroll costs.
    • $120,000 in Payroll Costs are forgivable
    • $40,000 in non-payroll costs are forgivable ($120,000 X 1/3 = $40,000)
    • The Payroll Costs, and not the loan amount, determine the 75% and 25% portions (25%/75% = 1/3)
    • This leaves $40,000 as loan outstanding which needs to be repaid
  • Up to 25% of the loan can be used for other expenses, namely, rent and utilities for the business
  • Forgiveness can be applied for after 60-days from receipt of the funds; the lending institution gets 60-days from receipt of the loan forgiveness application to decide on forgiveness or not.
  • Not more than $15,385.00 can be used for one employee’s payroll expenses.

What we don’t know right now:

• Can 2019 receivable employer retirement plan contributions be used? If so, how much? Should those be prorated over just a 2-month period?
• Can 2020 employer retirement plan contributions be used? Same questions as above.
• Will the amounts used be tax deductible? As of today, the IRS says no but if the HEROES Act passes, the amounts used will be tax deductible. If these amounts spent on the PPP still remain non-deductible, then that will affect employer retirement plan contributions used.

Please contact us with questions regarding the PPP loan forgiveness, especially as it pertains to retirement plan contributions.