SBA Paycheck Protection Program

Payroll costs are calculated on a gross basis without regard federal taxes imposed or withheld including FICA and Medicare. Payroll costs are not reduced by taxes imposed on an employee and are not increased by the employer's share of payroll taxes.

Payroll costs consist of compensation to employees including salary, wages, commissions or similar compensation; cash tips or the equivalent; payment for leave; allowance for separation or dismissal; payment for employee benefits including group health care coverage and insurance premiums; retirement contributions, payment of state and local taxes assessed on the compensation of employees.

The $100,000 cap applies only to cash compensation not to non-cash compensation such as retirement plans or group health care.

Payroll costs do not include payments to independent contractors. Independent contractors have the opportunity to apply for PPP funding.

All employees paid during the period of time selected are included in payroll costs.

In FAQs released by the SBA, they recognize that the payroll for employees in this arrangement will not be reported on Form 941s for the borrower. The employees’ gross salary and benefits would be included as part of payroll costs when calculating the loan amount. For documentation, the SBA suggests providing Schedule R from Form 941 (an allocation schedule for aggregate Form 941 filers) or a statement from the payroll provider or PEO.

Per the interim final rule, payroll costs consist of compensation to employees including salary, wages, commissions or similar compensation. The lender will make the determination whether the housing allowance is considered similar compensation absent further guidance.

Businesses should accumulate payroll costs based on the general guidelines as noted above. Specifically, owners who receive reportable wages (i.e. W-2 wages) should be included as payroll costs up to the $100,000 limit.  Benefits paid to the owner(s) and other employees should be included in payroll costs. Specific guidance is not available related to shareholder distributions, but since these distributions are not considered wages to the shareholder, it is presumed that shareholder distributions are not to be included in payroll costs.

Businesses should accumulate and report payroll costs based on the general guidelines as noted above. Additionally, guidance issued on April 14 states that payroll costs should also include the self-employment income of general active partners (subject to $100,000 compensation cap). Although partners/members are not treated as employees of the partnership/LLC and do not receive “wages”, the SBA determined that partners/members are not permitted to obtain PPP funds based on their self-employment income from a partnership/LLC.

More guidance is needed in this area. The presumption is that if the LLC is considered a disregarded entity, then the application would be made as a self-employed person. If the LLC is electing to be taxed as a partnership, the guidance regarding partnerships/LLCs would apply in the calculation of payroll costs. 

The loan amount will be determined based on 2019 Form 1040 Schedule C line 31 net profit amount, up to $100,000. If the Schedule C shows a net loss, the allowed loan amount is zero.

Based on guidance provided, health insurance premiums and retirement contributions will be added to payroll costs for individuals with employees. For self-employed individuals with no employees, the loan amount is determined based on net profit from Form 1040 Schedule C.

More guidance is needed in this area. Based on the current guidance provided, Form 1040 Schedule C is required to be used to calculate the loan amount.

Businesses may use average employment over the previous 12 months or for the calendar year 2019 for the purposes of applying an employee- based size standard. As an alternative, this formula provided by the SBA can be used: average number of employees per pay period in the 12 completed calendar months prior to the loan application (or the average for the periods the business has been operational if less than 12 months).

Yes, all individuals who are considered employees (including those obtained from a temporary employment agency, PEO or leasing concern) are included in the employee count.  Per SBA FAQs, you can average employment over the required time period.

Yes, affiliation is waved for the following:

• businesses with fewer than 500 employees that is assigned a NACIS Code starting with 72 (hotels, bars, restaurants)
• businesses operating as a franchise that are assigned a franchise identifier code by the SBA

The 8 week period begins on the date the lender makes the first disbursement of the loan. The lender must make the first disbursement of the loan no later than 10 calendar days from the date of the loan approval.

Payroll costs, health care benefits, mortgage interest payments, rent, utility, interest payments on debt incurred prior to February 15, 2020, and/or refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.

At least 75% of the loan proceeds must be used for payroll costs. If salaries decrease by more than 25% for any employee who made less than $100,000 annualized in 2019 OR if the number of FTEs decreases, the forgiveness amount will be reduced. A loan calculator to assist in the determination of the forgiveness amount will be coming soon.

For businesses that take this credit, the wages will be excluded from the determination of payroll costs.

More guidance is needed on this issue. As the statute is written in the CARES Act, the forgiveness is tied to employee count comparisons and also specific employees and whether their pay was substantially reduced. 

More guidance is needed on this issue. The guidance provided discusses “payments”, but further clarification is needed.

More guidance is needed on the treatment of the expenses related to the forgiveness portion of the loans. Based on what is known at this time, there is no specific provision in the CARES Act that makes these expenses nondeductible. However, IRC Section 265 may apply which states that no deduction is allowed for expenses attributable to tax-exempt income.

No, the forgiveness of the loan does not constitute taxable income.

More guidance is needed in this area.

Yes, borrowers may apply for the PPP and other SBA financial assistance, including disaster loans and Section 7(a) loans. However, you cannot use the proceeds from the PPP for the same purpose as your other SBA loan(s). Loan proceeds would need to cover payroll for a different period or other qualifying costs. This includes the up to $10,000 grant available with the Section 7(b)(2) loans- Economic Injury Disaster Loans (EIDL).

The amount of grant received (up to $10,000) will reduce the forgiveness amount of the PPP.