SBA guidance on PPP certification

ALERT: PPP loan forgiveness application & instructions now available

May 20, 2020

Loan forgiveness details include a new Alternative Covered Period and documentation requirements.

On Friday, May 15, the Treasury Department (Treasury) and Small Business Administration (SBA) released the application and instructions for the loan forgiveness process for those receiving funds from the Paycheck Protection Program. The guidance also includes a new Alternative Covered Period and various documentation requirements.

The full application is accessible on the SBA website. The application has four components with accompanying instructions.

New information

Alternative Covered Period

Borrowers are now allowed to calculate eligible payroll costs using the eight-week period that begins on the first day of the first pay period following the loan disbursement date rather than the day the funds were received. Example scenarios with dates are included in the instructions.

Eligible payroll cost: Clarification on payroll cost incurred versus paid

Borrowers are eligible for forgiveness for the payroll costs paid and payroll costs incurred during the eight-week Covered Period or Alternative Payroll Covered Period. The guidance clarified that payroll costs are considered paid on the day paychecks are distributed or an ACH transaction is initiated. Since payroll costs are considered incurred on the day the employee’s pay is earned, costs incurred but not paid during the last pay period before the end of the Covered or Alternate Covered Period are also eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered or Alternate Period.

$100,000 salary cap

The guidance also clarified the $100,000 cap by stating the total amount of cash compensation eligible for forgiveness may not exceed an annualized salary of $100,000, as prorated for the Covered or Alternate Covered Period. This means that loan forgiveness for cash compensation is limited to $15,385 per employee.

Full-time equivalency (FTE) reduction exceptions: Clarification on how reductions during covered period can impact loan forgiveness

The new guidance provides certain reduction scenarios that do not limit the Borrower’s loan forgiveness amount. Any FTE reductions in the following cases do not reduce the Borrower’s loan forgiveness:

  1. any positions for which the Borrower made a good-faith, written offer to rehire an employee during the Covered Period or the Alternative Payroll Covered Period which was rejected by the employee; and
  2. any employees who during the Covered Period or the Alternative Payroll Covered Period were fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours.

Documentation requirements

The instructions also provide guidance on the documentation required with the loan forgiveness application and that which must be maintained by the Borrower.

Payroll expense documentation – Borrowers must submit the following documentation:

  • Bank statements or payroll service reports documenting the amount of cash compensation paid to employees.
  • Tax forms (or payroll service reports) for the periods that overlap with the Covered or Alternate Covered Period, including payroll tax filings (IRS Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings.
  • Payment receipts, cancelled checks or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans included in the forgiveness amount.

FTE documentation – Borrowers must submit documentation showing:

  • the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019;
  • the average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020 and February 29, 2020; or
  • in the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve-week period between May 1, 2019 and September 15, 2019.

The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11. Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period.

Nonpayroll expense documentation – Borrowers must submit documentation verifying existence of these expenses prior to February 15, 2020, and eligible payments made, including:

  • Business mortgage interest payments: Include a copy of the lender amortization schedule and receipts or cancelled checks verifying payment.
  • Business rent or lease payments: Include a copy of the current lease agreement and receipts or cancelled checks verifying payment.
  • Business utility payments: Include copies of invoices from February 2020 and evidence of payments made including receipts, cancelled checks or account statements.

Nonpayroll qualifying expenses incurred during the covered period but paid after the covered period also qualify for forgiveness if paid before the next billing cycle for that expense.

Documentation that each Borrower must maintain (not required to submit) - PPP Schedule A Worksheet or its equivalent and the following supporting documentation:

  • The listing of each individual employee in PPP Schedule A Worksheet Table 1, including the “Salary/Hourly Wage Reduction” calculation, if necessary.
  • The listing of each individual employee in PPP Schedule A Worksheet Table 2; specifically, that each listed employee received during any single pay period in 2019 compensation at an annualized rate of more than $100,000.
  • Any employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule.
  • PPP Schedule A Worksheet “FTE Reduction Safe Harbor.”

We are here to assist you

We remain available to assist you in any way we can as you review and process the instructions, application and documentation information. We will also continue to provide new information as it becomes available. Contact your AGH tax advisor or Shawn Sullivan using the information below.

Shawn Sullivan

Executive Vice President
Tax Services

Shawn serves as one of two primary leaders in the firm’s large tax group. He has extensive public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, wholesale/retail distribution, real estate development and management, construction, and contractor industries. In addition to enhancing business performance to minimize tax consequences, he has experience in mergers and acquisitions and international tax and business structuring.

A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.

NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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