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Richard Dellefave, CPA / Principal in the RINA San Francisco office.
Richard DelleFaveCPA / Principalview bio

Howard Zangwill, CPA, Managing Director of Audit and Accounting in the Oakland office.
Howard ZangwillCPA / Managing Director of Audit and Accountingview bio

Paycheck Protection Program FAQ

5/14/2020

This page responds to questions that were asked during and immediately after the May 6, 2020 webinar "Forgive, But Do Not Forget! Maximize the Benefit of Your PPP Loan". A recording of that webinar is available in RINA's COVID-19 video library.

The answers were updated on May 27, 2020 in response to the latest governmental actions. New text is displayed in italics.

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General

What are the accounting entries to record your PPP loan and its forgiveness?
Receipt of Funds:   DR Cash               CR Loan Liability
Forgiveness:          DR Loan Liability   CR Other Income- Government Grant

If not all of loan is forgiven, the unforgiven portion of the liability will remain on the balance sheet. 

How will the SBA review my certification that the loan was necessary due to the uncertain economic conditions?
On May 13, the Treasury issued a new safe harbor rule on necessity. It provides that “any borrower…that received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.” See Paycheck Protection Program, Frequently Asked Questions, No. 46, May 13, 2020.

PPP Loan Forgiveness Calculation

Please refer to our PPP Loan Forgiveness Overview for a detailed analysis of the forgiveness.

If you are a partner in a partnership, what are your earnings for the 8-week period.  Did you say that you look back to 2019 and take 8/52 to determine, subject to the $100k maximum? 
Yes, that is correct.

Is the $100,000 max comp limit (for loan forgiveness purposes) only for direct W-2 payroll and can you add the health insurance and retirement benefit component to that for a higher employee per person limit?
Health insurance and retirement benefits are added for all employees including those making more than $100,000, but not for owner-employees.

We employ several temp employees through 3rd party Employment agencies.  How do we need to report the temp employee payroll cost we have incurred?
Since this is not a payroll expense, it cannot be claimed are part of payroll costs.

When you talk about not reducing salary more than 25%, what do you use for the base?  2019 if that is what you used for your application basis?  Or 1st qtr. 2020?
The 25% reduction is based on the wages paid the first quarter of 2020.

Are you sure the FTE is calculated based on 30 hours a week?  I know the SBA has used 30 hours for other programs, but my understanding is there is no specific guidance for the PPP Program.
The loan forgiveness application clarified that FTE is based on 40 hours a week. 

Can I use PPP loan proceeds to pay 1099 contractors and use the payment as an allowable payroll cost for purposes of forgiveness?
No, the definition of payroll for forgiveness purposes is the same as for application purposes and does not include payments to 1099 contractors.

Will my payroll forgivable amount be reduced if an employee voluntarily leaves during the 8- week period?•    
The recently published forgiveness application provides relief where an employee has refused to return to work, has left voluntarily, been fired or asked for reduced hours.

Are home office utility expenses of employees that are paid by the employer allowed as part of non-payroll forgivable costs.
We believe that they would be allowed.

Are non-payroll forgivable costs calculated on a monthly basis or pro-rated for 8 weeks?
There is no specific guidance on this point. The pro-rated approach stays within the letter of the Act.

Timing

I have signed a PPP promissory note on 4/30/2020, I have not received the funds as of today 5/4/2020. When do the 8 weeks start?
The eight weeks start the day your loan is funded.

Our PPP was received on 4/27/2020.  If I count the eight weeks, that means our last day would be 6/22.  We pay our employees biweekly and the last pay period of June will be paid on 6/26/2020.  Does that payroll get included in the PPP calculation? We will have incurred the expense by 6/22 but not paid until 6/26.
Yes, this payroll thru 6/22 is included.  The SBA clarified this and stated that if the payroll is paid on its normal payroll cycle this will count as paid or incurred. The loan application states the following “Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period are eligible for forgiveness if paid on or before the next regular payroll date.“
 
Is there a time limit to using the PPP? We have been closed and not had a payroll since March 19th.
There is no time limit for using the funds, only the eight-week time limit for the forgiveness calculation.  

I just got my PPP loan but we are still under lock down in the Bay Area and there is no work at all. How soon do I need to put my employees back on the payroll? Is it by June 30th or is it ASAP?
If you rehire your employees by June 30, then 100% of the eligible payroll paid during the eight-week period will be forgiven.  Eligible payroll is only up to $100,000 annualized for each employee and you cannot reduce employees’ wages by more than 25%.

If the loan is funded 5/10/20, the 8-week period ends after the 6/30/20 deadline. Does that mean only 6 weeks of payroll are forgivable?•    
No, with eight-week period extends past June 30. 

Bonuses/Wage Increase/Increased Head Count

Many employees come back with extra work, and extra stress.  Can I pay them a premium to return?
The Interim Final Rules (May 22, 2020) make it clear that compensation paid to a furloughed employee, and also bonuses and “hazard pay” will be included as legitimate payroll costs, except to the extent that such amounts would push an employee’s total compensation above $15,385 ($100,000 times 8/52nds) during the measurement period.

Can I pay out commissions from the previous quarter due to some sales staff during this 8-week period as we normally would anyway?
Yes, if this is your standard practice to pay out during this time period.

Self Employment

I have a rental business and do not file a Schedule C, am I eligible for the PPP loan?
Rental business that file a Schedule E do not qualify for the PPP loan.Self- employed individuals need to file a Schedule C to qualify.

I am self-employee with a few employees with Schedule C profits of more than $100,000. Do I need to take money out for payroll?
No, you are automatically assumed to take the maximum allowable out of $1,923 per week for 8 weeks = $15,384

Employee Retention Tax Credit

In regard to the Employee Retention Credit, I have been taking it.  I understand that there are implications to do this surrounding being awarded the PPP.. Do I have to have to pay back this credit with my PPP funds?
You cannot utilize both the PPP and Employee Tax Credit.  The employee retention credit should be repaid.

This content is prepared solely to provide general information to our clients and community.
This content does not constitute accounting, tax, or legal advice, nor is it intended to convey a thorough treatment of the subject matter.

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