In the wake of negative economic impact due to the COVID-19 crisis, the Paycheck Protection Program (PPP) has helped countless small business owners and self-employed individuals keep their employees and themselves on payroll and cover other related expenses in the form of a federal loan.
The best part about the loan is that it can be 100% forgiven – if you meet the criteria. Between the documentation that needs to be included, potential reductions that can be made to your forgiveness amount and understanding eligibility requirements; preparing to complete the 12-page application for PPP Loan Forgiveness can be daunting.
The ALG Team is here to help you make sense of it. We listened to the important questions of PPP Loan Borrowers – just like you – and put together this resource with answers to help you maximize your loan forgiveness amount and help you kick-off your application process on the right foot.
As long as you’ve used all of the funds for which you’re applying to be forgiven, you can apply as early as you want – even before the end of your Covered Period. Once you submit your application to your lender, they’ll send it to the Small Business Association (SBA) for review.
The SBA indicated that it will begin acceptingPPP Forgiveness Application submissions from lenders on August 10, 2020 when their software platform is scheduled to launch. However, should new legislation change the forgiveness process in ways that require the platform to be changed, this date could be delayed.
After your Forgiveness Application has been submitted, the loan forgiveness process can take up to 5 months. Your lender is required by law to provide you with a response within 60 days. Once completed, your loan forgiveness application is submitted to the SBA. The SBA then has 90 days to review the application.
The CARES Act states that you must include the following types of documentation with your PPP Loan Forgiveness Application:
The PPP Loan Forgiveness Application and EZ PPP LoanForgiveness Application contain lists of any other additional documents that might be needed as the pertain to each application, as well as how long those documents must be retained.
Your loan forgiveness amount could be reduced if the average weekly number of full-time equivalent (FTE) employees you had during the LoanForgiveness Covered Period is less than the average weekly number of FTE employees between either of the following dates:
This can be avoided if the following conditions are met:
Your loan forgiveness amount could be reduced if you reduced the average annual salary or average hourly wages any employee more than 25% during the Loan Forgiveness Covered Period (compared to Q1 2020).
This does not apply to reductions associated with employees who were compensated at an annualized rate of more than $100,000 for any pay period in 2019.
If you made reductions between February 15, 2020 and April 26, 2020 and reverse them before you submit your Loan Forgiveness Application or December 31, 2020, your forgiveness amount will not be reduced on grounds of salary and wage reduction.
If you received an advanced Economic Injury Disaster Loan(EDIL), the amount will be deducted from the forgivable amount on your Paycheck Protection Program (PPP) Loan.
On April 30, 2020, the Internal Revenue Service (IRS) issued Notice 2020-32 which states that Paycheck Protection Program (PPP) Loan borrowers cannot deduct otherwise deductible expenses that were paid using loan funds that were subsequently forgiven. In effect, this means that the tax benefit of PPP Loan Forgiveness originally provided in the Coronavirus Aid, Relief and Economic Security (CARES) Act has been eliminated.
What does this mean for a small business owner or self-employed individual? It means that on top of spending the last couple of months staying afloat in a sea of uncertainty and getting a loan you never thought you would need, and making sure that you’ve satisfied all the criteria to get it forgiven; you now might have to plan for the possibility of owing much more than normal on your taxes next year.
That’s where we come in. Just as you trust us to handle your tax preparation and resolution needs in “normal” times, you can rest assured that we’re here to help you navigate the new tax challenges posed by the IRS related to the PPP Loan.
Due to the dynamic nature of federal COVID-19 economic relief efforts including the Paycheck Protection Program (PPP), the content of this page is subject to change. The ALG Team remains on the pulse of these issues and will be continuously monitoring the situation and making updates as new information becomes available. Connect with us on social media or feel free to give us a call anytime with questions - we're always here to help.
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