A loan recipient under the Paycheck Protection Program (PPP) may be eligible for loan forgiveness on a portion of its PPP loan. Below, we have summarized key information business owners need in the form of Frequently Asked Questions (FAQ).
Q. How much loan forgiveness is available?
A. The amount of forgiveness is equal to the following costs incurred and payments made during the eight-week period following the date the recipient receives the PPP loan:
- Payroll costs,
- Any payment of interest on any covered mortgage obligation,
- Any payment on any covered rent obligation, and
- Any covered utility payment.
There are further conditions placed on the amount forgiven. The purpose of these conditions is to incentivize employers to retain full-time employees at the same level of pay or rehire full-time employees after the COVID-19 pandemic. The amount of forgiveness may be reduced proportionally for a reduction in headcount or salaries; however, employers can eliminate the reduction in headcount or salaries by June 30, 2020 and restore the maximum loan forgiveness.
For example, employers who receive a PPP loan and layoff 25 full-time employees in March and April may still receive some loan forgiveness if the employer later rehires 25 or more full-time employees by June 30, 2020.
Under normal circumstances, the amount of debt that is forgiven is included in a taxpayer’s taxable income. However, the portion of the PPP loan that is forgiven is not included in taxable income.
Q. Who is eligible for a PPP loan?
A. Congress authorized PPP loans up to $10 million for any business, nonprofit organization, veterans’ organization, or Tribal business that employs 500 or less employees. Full-time and part-time employees are counted for this purpose.
Q. Are there any limitations on payroll costs?
A. Payroll costs include most forms of compensation subject to the following limitations:
- Compensation in excess of a $100,000 annual salary,
- Federal income tax, Social Security, or Medicare,
- Compensation paid to nonresident aliens,
- Qualified sick leave wages or family leave wages for COVID-19; and
- Certain income earned by sole proprietors or independent contractors.
Q. How does PPP operate in connection with a deferral of Employer Payroll Taxes?
A. Employers and self-employed individuals who did not receive PPP loan forgiveness may defer payment of the employer portion of their Social Security taxes on wages paid between March 27, 2020, and December 31, 2020. The employer is required to pay the deferred employment tax over the following two years. Meaning half of the deferred amount of Social Security tax is due by the end of 2021, and the other half is due by the end of 2022.
It is not clear how the PPP exclusion will apply to an employer who defers payments payment prior to receiving a PPP loan. Further guidance on this is expected.
