Small business owners who have borrowed from the Federal Paycheck Protection Program can now apply for a loan forgiveness.
Getting the balances cleared may be easier said than done.
The PPP loan, which was established by the CARES Act, is intended to cover up to eight weeks of salary, mortgage interest and other expenses.
The amount borrowed is said to be forgivable if at least 75% of the proceeds are used to cover payroll, according to the Small Business Administration. During this time, the amounts that are not remitted must be repaid in two years at the rate of 1%.
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Accountants and lawyers have eagerly awaited further advice on forgiveness from the Treasury Department and the SBA.
Federal agencies gave clarification to PPP borrowers on Friday night in the form of an 11-page pardon request. However, the document is still insufficient, tax professionals said.
“Yes, there is now some clarity and, yes, there are now more questions that have developed due to the form,” said Erik Asgeirsson, president of CPA.com, the business and technology arm of the company. ‘American Institute of CPA.
See below for the recently released forgiveness document.
The Treasury and the SBA have addressed a few key concerns for tax professionals who guide small businesses through the process.
For example, accountants were concerned that the eight week period would begin as soon as the business owner received the loan proceeds. This could create an administrative nightmare for borrowers who get their P3 financing right in the middle of a pay period.
“Everyone gets loans at different times and, unless you’re a unicorn, your payroll won’t line up with the eight weeks,” said Samantha J. Monsees, lawyer at Fisher & Phillips in Kansas. City, Missouri.
To help deal with this, the Treasury and the SBA are giving some companies – those with biweekly or weekly payrolls – a little flexibility in the form of an “alternate payroll coverage period.”
This allows business owners to start counting the eight week clock on the first day of the first pay period after receiving the loan proceeds.
The Treasury and SBA have also attempted to address accountants’ concerns about how “full-time equivalent” employees are numbered.
Federal agencies allowed companies to apply for the PPP based on the number of full-time and part-time workers, but the pardon was to be determined based on the “full-time equivalents” of staff – a term that accountants say was not clear.
“They partially answered how they would calculate full-time equivalents,” said Lisa Simpson, director of business services for AICPA.
The downside is that borrowers have to use a complex calculation to calculate the “average full-time equivalent” they have available over the eight-week period.
While the paper provides some clarity, it also triggers a stack of new questions and additional complexity for business owners, especially if analyzing numbers is not their specialty.
“Hopefully there will be more advice because you would really hate calculating this and then that will change again,” said Dan Herron, CPA and director of Elemental Wealth Advisors in San Luis Obispo, Calif.
“What if you hire someone to do it for you?” ” he said. “You are billed for billable hours.
A sign that reads “Shop Local” with restaurants and stores closed on Main Street on April 10, 2020 in Livingston, MT.
Guillaume Campbell | Getty Images
If you have the money and you can afford it, you are ahead of the game. “
The CPA group anticipates that there will be further guidance from the Treasury and the SBA on forgiveness hashing. In the meantime, business owners should work closely with their accountants.
Entrepreneurs who took out the loan are required to keep every document – a paper trail of how they used the loan proceeds – especially as guidelines from federal authorities continue to evolve.
“It’s important to contact your advisor and document the decisions you make today based on today’s information,” Asgeirsson said.