Last week, the SBA released the PPP forgiveness application. This application can be found here.
The application did not clear up as many details as accountants and small business have been hoping for. What we did find out:
- Payroll runs do not have to be accelerated, you can apply for forgiveness on the incurred payroll that is paid out at the next regularly scheduled pay run.
- There can be no prepayment of mortgage interest, as it was specifically called out.
- There was no specific call out of utilities and rent payments, so many accountants are assuming that means you can prepay these expenses (assuming it remains below the 25% limit on expenses other than payroll) and still include them in the forgiveness application.
- On the application, you do not need to report 100% of the expenses paid in the categories – you can report a portion to maintain the 75% payroll/25% other qualified expenses limits.
- Owners cannot increase their salaries to $100k/year if they did not make $100k in 2019.
- The application clarifies how to reduce eligible forgiveness if there was a reduction in FTE. It also explains how to calculate your FTE and the periods it is related to.
- The SBA introduced a safe harbor for FTE reductions to NOT reduce forgiveness if you can prove the person was fired for non-performance, voluntarily resigned, or you tried to re-hire the employee back and they refused. The second safe harbor is for employers who reduced head count between February 15 and April 26th, and restore their FTE by June 30, 2020.
While we still have many unanswered questions, and proposed legislation that could completely change the guidance, this application is a good start to helping clients plan to maximize loan forgiveness.