The Paycheck Protection Program and Loan Forgiveness: What You Need to Know

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The Paycheck Protection Program (PPP), administered by the Small Business Association through the auspices of the federal government, offered relief for organizations and employees hit hard by the coronavirus pandemic. The program was meant to ease the financial shock for many employees who found themselves out of work or working for significantly reduced pay, as businesses adjusted to the new mandates to keep employees, customers, and others safe during the pandemic.

The PPP ended on August 8, 2020. If your organization participated in the program, here’s are four important highlights from the newly released Frequency Asked Questions issued by the SBA.

General Loan Forgiveness

Loan forgiveness was a part of the PPP, and people naturally have questions about it. The FAQs clarified that those who worked as sole proprietors, independent contractors, or self-employed individuals and who had no employees at the time of their PPP loan application (and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form) automatically qualify for PPP Loan Forgiveness. But, to receive loan forgiveness, they must complete Form 3508EZ and submit it.

Loan Forgiveness and Payroll Costs

Are you wondering, as the owner of a nonprofit, how to calculate the amount of owner compensation as part of the PPP? It seems that many others had questions about this, too, as it appeared in several of the FAQs in the document.

The confusion stems from the fact that the original wording of the PPP used the term owner but never defined it enough. To ensure clarity, the SBA defined an owner-employee as someone who is both an owner and an employee of a C corporation. They also provided examples for owners of C and S corporations, self-employed Schedule C (or Schedule F) filers, general partners, and LLC owners.

Additionally, further clarification is provided for partial pay periods, group health care benefits, and two questions related to payroll costs that were incurred or paid outside of the eight-week or 24-week covered periods.

Loan Forgiveness and Non-Payroll Costs

Section 6 of the FAQs provide further guidelines on loan forgiveness and non-payroll costs. These refer to payments of transportation utility fees assessed by state and local governments. Also addressed are two questions related to nonpayroll costs that were incurred or paid outside of the eight-week or 24-week covered periods. Lastly,  the Alternative Payroll Covered Period for payroll costs does not apply to nonpayroll costs.

Loan Forgiveness Reductions

Do you have questions about how to calculate the reduction in the loan forgiveness amount arising from reductions in employee salary or hourly wage? If so, section 4 provides three examples to guide you.

The AICPA anticipates providing more guidelines, clarification, and direction to assist with PPP program compliance in its next Town Hall. For more information, visit the AICPA Town Hall Events page.

Will the PPP Ever Be Renewed?

It remains unknown if the PPP will ever be renewed. With this being a presidential election year, Congress may wish to wait until the direction for 2021 is set by the outcome of the election. If it is renewed, we’ll share details here.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.