On the night of Thursday, April 2, 2020, just hours before applications were supposed to be received, the Treasury issued regulations on the Paycheck Protection Program (PPP). Ironically titled “interim final rules” which has created significant confusion and left lenders scrambling to implement these new guidelines.
On Friday, April 3, 2020, the Small Business Administration (SBA) opened the Paycheck Protection Program (PPP). While employers can begin applying for PPP loans immediately, it is our understanding independent contractors will not be able to apply before April 10, 2020. Additional guidance is expected from the SBA and the Treasury Department on independent contractors looking to use the loan program.
Key takeaways from the new regulations:
- Payroll costs do not include:
- compensation for employees outside the U.S.;
- the compensation of an employee in excess of $100,000, prorated as necessary
- We believe the cap pertains to all compensation, not just wages
- imposed or withheld individual federal employment taxes between Feb. 15, 2020, and June 30, 2020, including the employee’s and the employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees; and
- This appears to contrast with the initial legislation passed but the new regulations are more advantageous
- qualified sick and family leave wages for which a Families First Coronavirus Response Act (FFCRA) credit is allowed.
- Independent contractor payments do not count as payroll costs for the employer as they are eligible for their own PPP.
- Borrowers who received a loan from the SBA Economic Injury Disaster Loan Program (EIDL) earlier in 2020 can use the proceeds of the PPP loan to refinance the EIDL loan. If the previous EIDL loan was used for payroll costs, a new PPP loan must be used to refinance your EIDL loan.
- The SBA intends to promptly issue additional guidance with regard to the applicability of affiliation rules to PPP loans.
- At least 75% of the loan proceeds must be attributable to payroll costs and not more than 25% of any loan forgiveness amount may be attributable to non-payroll costs.
- See details of the each lending program by clicking here
Strategies for moving forward
- Contact a SBA approved lender
- If you have not already done so, contact your bank to get the PPP process moving forward.
- Submit your application and supporting documentation
- Everyone is still working out the details, but the process should move quickly.
- Apply for EIDL
- If you have not already done so, go to SBA.gov and complete an application for a loan under this program.
- Request for an advance which is a $10,000 “grant”
- Develop a rolling 13 week cash flow projection
- We recommend developing a detailed cash flow forecast showing inflows and outflows to manage the business cash needs
- Open discussions with your vendors, landlords and bankers to come to agreements of payment terms during this time of crisis
- Plan if you get the PPP and EIDL Loans
- If your business is not in operations, view this as a loan and do not focus on the forgiveness provisions. You will need the capital once your business is fully operational.
- Payroll Tax Credits
- The CARE Act provided relief through the form of payroll tax credits to help businesses manage cash during this time.
- If you do not get the PPP loan, you are eligible for the Employee Retention Payroll Tax Credit which is 50% of wages paid while partially or completely shut down due to COVID-19.
- The employer portion of social security tax is not payable for the rest of the year until the end of 2021 (50%) and the remainder at the end of 2022.
- There are payroll tax credits for wages paid for sick and family leave under the Families First Act
- See details by clicking here
In these uncertain times, we are continually evolving to ensure that we do what is in the best interest of our clients, staff and community.
We will continue to closely monitor the economic and tax changes and communicate important information to you timely and accurately. We are always available by phone or email to address your questions and concerns.
We encourage you to leverage our expertise during these trying times. We have a deep understand and broad view of the economic climate which can add significant value during these uncertain times. We are committed to assisting you in successfully managing through this rapidly changing economic environment.
Thank you for your continued support and stay safe!