The SBA has finally released some information on the forgiveness calculations related to PPP loans. There are still many issues which have not been addressed, but at least a framework has been released.
We are providing a rough calculator (which you can download here) to help you with your calculations and we can help answer questions (as best we can) as well. The boxes in yellow are where you can input data while the other boxes are all calculations.
The sample loan forgiveness application from the SBA is now available here.
Some key takeaways:
The forgiveness is based on the 8 week (56 day) period starting with (and including) the day you received the PPP funds.
The language for compensation includes payroll paid during the 8 weeks and incurred during the 8 weeks. You can specifically include payroll which was earned during the 8 week period but not paid until the next regularly scheduled payroll run. This means you do NOT have to run an extra payroll on the final day of your 8 week measurement period to have that included in payroll. It is not clear whether you can count all payroll paid during the 8 weeks and include the additional payroll accrued at the end of the period. It is also not clear if bonuses need to be accounted for in a different manner than regular payroll. Remember to reduce the compensation listed for any wages you claim tax credits on.
The $100k compensation limit is split based on the 8 week period (not 2 months) so the maximum compensation for any single employee is $15,385.
Owner and self-employed compensation is in its own bucket, so FTE and wage reductions do not get impacted in the forgiveness computations. For self-employed persons their compensation is determined by taking the 2019 Schedule C income and dividing by 52 weeks then multiplied by 8 in these calculations.
The FTE calculations have been provided but do leave some unanswered questions. For the FTE requirement, you need to base FT on a 40 hour workweek. It appears you make the FTE calculations based on your employee count for each of the 8 weeks.
If you have reduced any non-owner’s compensation by 25% or more the calculation on how to determine that has been included.
From the way the calculations work, it appears that if your compensation and other eligible expenses exceed the minimum levels, you can avoid some of the reduction in loan forgiveness.
Some additional caveats:
There is a growing chorus of voices to expand the forgiveness, either thru an extended time beyond the initial 8 weeks and/or relaxation of the 75% portion that needs to go to payroll costs. But that has not been done as of now.
In a previous alert, we let you know that the IRS has taken the position that the underlying expenses related to the forgiveness will be treated as non-deductible, making the forgiveness effectively taxable income. It does now appear that a legislative fix will be needed to remedy this. At this time, that has still not occurred so planning for the worst case, that the PPP loan will be taxable, seems the most prudent course.
Another concern is whether the loan forgiveness will be considered taxable income for Business & Occupation (B&O) taxes in WA. The Dept of Revenue has indicated that you should NOT include the forgiveness on B&O returns at the present time. It appears there might need to be a WA legislative clarification as well.