June 4 Update
House Bill H.R. 7010 passed the Senate and is now on its way to the President to sign. In addition to amendments relating to the PPP loan program, the bill provides that the deferral of employment taxes is now available even for taxpayers who have PPP loans that re forgiven under the CARES Act. This will allow taxpayers who obtain PPP loans and intend to apply for loan forgiveness to also defer the applicable employment taxes.
April 30, 2020 Update
The IRS has issued Notice 2020-32, which provides further guidance on some certain tax consequences associated with PPP loans. In particular, the IRS has confirmed that expenses paid with PPP loans will not be deductible to the extent attributable to the portion of the loan forgiven.
Following up on my post earlier this week regarding the CARES Act Payroll Protection Program Update: SBA Issues Some Guidance and Sample Application, the Final Rule has been issued and may be found here.
A summary of the highlights include:
- Applications are set to open April 3, 2020. The rule only requires the applicant to submit SBA Form 2483 and payroll documentation.
- The rule is unclear on whether an applicant submits payroll for the 12 months preceding loan application or 2019 payroll. I suggest either preparing both so you are ready to supply what your lender requires or speaking with your lender in advance to confirm your lender’s interpretation.
- To prove your payroll amount, the rule suggests using payroll processor records, payroll tax filings, or Form 1099-MISC, or income and expenses form a sole proprietorship.
- Applicants may not include compensation paid to independent contractors in the applicant’s average monthly payroll cost, which is the basis for the loan request.
- 75% of the loan proceeds must be used for payroll if you want full forgiveness.
- Don’t use the loan proceeds to pay federal employment taxes during the 8 week period if you want full forgiveness.
- The interest rate on any unforgiven portion of the loan is 1%.
This isn’t mentioned in the rule, but consider opening a separate account for the loan proceeds. It will make it easier to show exactly how the funds were spent and help avoid co-mingling issues.
Updated April 22, 2020